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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, 1996
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Commission file number 0-15830
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Raritan Bancorp Inc.
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(Exact name of registrant as specified in its charter)
Delaware 22-2792402
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9 West Somerset Street
Raritan, New Jersey 08869
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(Address of principal executive (Zip Code)
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 10, 1997 was approximately
$27,155,400.
The number of shares outstanding of the registrant's Common Stock, the
registrant's only class of outstanding capital stock, as of March 10, 1997 was
1,524,084.
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. 1996 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 1996 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
Page
PART I
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Item 1. Business ....................................................... 1
(a) General Development of Business ......................... 1
(b) Financial Information About Industry Segments ........... 1
(c) Narrative Description of Business ....................... 2
(1) General Description of Business .................. 2
(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 .............................................. 21
Item 4. Submission of Matters to a Vote of Security Holders ............ 21
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters ........................................................ 21
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<TABLE>
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(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 ......................... 23
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>
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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
Manville, Martinsville, Somerville, Warren and Whitehouse Station, New Jersey.
The deposit accounts in the Bank are insured by the Federal Deposit Insurance
Corporation (the "FDIC") primarily through the Bank Insurance Fund (the "BIF").
Effective August 1, 1996, the Manville Savings Bank, SLA (Manville) was merged
with, and into, the Bank pursuant to a merger agreement. As part of the merger,
124,596 common shares of the Corporation were issued. Proceeds from the
issuance of these shares totaled $2.0 million. The transaction was accounted
for using the purchase method of accounting. Negative goodwill totaling
$746,000 was recorded and will be accreted to income over a period of five years
using the straight-line method. Net loans and deposits acquired totaled $11.9
million and $12.5 million, respectively. The acquisition had an immaterial
impact on the results of operations of the Corporation.
The Bank considers its primary market area for deposits to be the areas
serviced by these six 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.
<PAGE>
(c) Narrative Description of Business
(1) General Description of Business
The Corporation is a bank holding company whose only subsidiary is the
Bank.
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 $52.9
million of first mortgage loans disbursed during 1996, $3.2 million were fixed-
rate, while the balance of $49.7 million were of an adjustable or short-term
nature. Consumer and commercial lending disbursements totaled $30.8 million for
1996 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(R) Plus(R) 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 of which
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are insured by the FDIC primarily 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
2
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herein. The Corporation is also subject to the reporting requirements of the
Securities and Exchange Commission ("SEC").
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
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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.
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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
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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
3
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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 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
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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, and also acquired deposits totaling $12.5 million as a result of
the Manville merger. These 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
4
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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.
On September 30, 1996, legislation was enacted which, among other
things, imposed a special one-time assessment on SAIF Insured Deposits,
including approximately $83.0 million in "Oakar" and "Sasser" deposits held by
the Bank, to recapitalize the SAIF and spread the obligations for payment of
Financing Corporation (FICO) bonds across all SAIF and Bank Insurance Fund (BIF)
members. The Federal Deposit Insurance Corporation (FDIC) special assessment
levied amounted to 65.7 basis points on SAIF assessable deposits held as of
March 31, 1995. The Bank took a charge of $436,000 before tax-effect, as a
result of the special assessment. This legislation will eliminate the
substantial disparity between the amount that BIF and SAIF member institutions
had been paying for deposit insurance premiums.
Beginning on January 1, 1997, BIF members will pay a portion of the FICO
payment equal to 1.3 basis points on BIF-insured deposits compared to 6.4 basis
points on SAIF insured deposits and will pay a pro-rata share of the FICO
payment on the earlier of January 1, 2000, or the date upon which the last
savings association ceases to exist. The legislation also requires BIF and SAIF
to be merged by January 1, 1999, provided that subsequent legislation is adopted
to eliminate the savings association charter and no savings associations remain
as of that time.
Beginning January 1, 1997, SAIF assessment rates will range from 0 to 27
basis points, based upon an institution's regulatory risk classifaction and
capital group. Based upon its current classification the rate applicable to the
SAIF deposits held be the Bank would be zero.
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, 1996, the
Corporation's and Bank's leverage capital ratio was each 7.44%.
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, 1996, 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, 1996, the Corporation's
Tier 1 and total risk-based capital ratios were 12.834% and 14.086%,
respectively. The Bank's Tier 1 and total risk-based capital ratios were 12.833%
and 14.085%, respectively.
5
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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.
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 $49.3 million. Total
transaction accounts amounting to over $49.3 million require a reserve of $1.5
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 $4.4 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, 1996.
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
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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 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
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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.
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%.
If certain conditions were met, under tax law that existed prior to
1996, thrift institutions, in determining taxable income, were allowed a special
bad debt deduction based on a percentage of taxable income before such
deduction. The Corporation prepares and files its tax return on a calendar-year
basis. The Corporation used the experience method in preparing the Federal
income tax return for calendar years 1996, 1995 and 1994. The tax bad debt
reserve method was repealed for tax years beginning after 1995. As a result,
the Corporation may no longer use the percentage of taxable income reserve
method. A small thrift (one with $500 million or less in assets) is allowed to
use either the specific charge-off method or the "bank" experience method of
Section 585 of the Internal Revenue Code to compute its bad debt deduction.
Based upon 1996 Federal tax law changes, thrift institutions are
generally required to recapture into income the portion of its bad debt reserve
(other than supplemental reserve) that exceeds its base year (December 31, 1987)
reserves. The recapture amount generally will be taken into income ratably (on
a straight-line basis) over a six-year period. Under a small thrift exception,
the Corporation's tax reserves for bad debts equaled its allowable experience
reserve method and therefore, the Corporation will have no recapture.
The Corporation has not recognized a deferred tax liability of
approximately $746,000 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. The Corporation does not anticipate any such recognition in
the foreseeable future.
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 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.
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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 78 full-time and 11 part-time employees on December
31, 1996
(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
16 and 17 of the Annual Report to Shareholders for the year ended December 31,
1996, and are incorporated herein by reference.
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(b) Securities Portfolio
The following table sets forth the carrying amount of securities at the
dates indicated.
<TABLE>
<CAPTION>
At December 31,
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<S> <C> <C> <C>
1996 1995 1994
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(In thousands)
U.S. government obligations and obligations
of U.S. government agencies................. $ 17,143 $ 12,584 $ 15,295
Obligations of states and political
subdivisions................................ 748 804 770
Mortgage-backed securities issued
by Federal agencies......................... 81,111 98,565 110,615
Federal Home Loan Mortgage
Corporation common stock.................... 170 -- --
-------- --------- ---------
$ 99,172 $ 111,953 $ 126,680
======== ========= =========
</TABLE>
The mortgage backed securities owned by the Bank are 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.
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, 1996. 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:
10
<PAGE>
<TABLE>
<CAPTION>
Mortgage-
Obligations of backed
U.S.Gov't State and Securities Issued FHLMC
U.S. Gov't. Agency Political by Federal Common
Obligations Obligations Subdivisions Agencies Stock Total
----------- ----------- ------------ -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Due within 1 year
Amount................ $2,496 $500 $-- $-- $-- $2,996
Yield................. 5.47% 7.35% -- -- -- 5.78%
Due from 1-5 years:
Amount................ 196 11,955 -- -- -- 12,151
Yield................. 6.46% 6.40% -- -- -- 6.40%
Due from 5-10 years:
Amount................ -- 1,996 -- -- -- 1,996
Yield................. -- 7.00% -- -- -- 7.00%
Due after 10 years:
Amount................ -- -- 748 -- -- 748
Yield................. -- -- 10.71% -- -- 10.71%
Mortgage-backed
securities issued by
Federal agencies:
Amount................ -- -- -- 81,111 -- 81,111
Yield................. -- -- -- 6.11% -- 6.11%
FHLMC Common Stock
Amount................ -- -- -- -- 170 170
Yield................. -- -- -- -- 1.26% 1.26%
Total:
Amount................ $2,692 $14,451 $748 $81,111 $170 $99,172
Yield................. 5.54% 6.52% 10.71% 6.11% 1.26% 6.18%
</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, 1996, 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.
11
<PAGE>
(c) Loan Portfolio
The following table sets forth the composition of the Corporation's loan
portfolio.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Real estate-mortgage................. $179,135 $147,673 $138,975 $123,539 $111,961
Real estate-construction............. 11,019 8,536 6,454 4,379 6,172
Consumer............................. 35,300 28,886 28,660 28,826 32,209
Commercial........................... 10,020 10,544 9,007 8,705 8,704
In-substance foreclosed loans........ -- -- 701 860 941
---------- ---------- ---------- ---------- ----------
Total loans...................... 235,474 195,639 183,797 166,309 159,987
Less: Unearned income................ (404) (467) (474) (514) (664)
Allowance for loan losses...... (2,965) (2,582) (2,729) (3,094) (1,797)
Valuation allowance............ -- -- -- -- (22)
---------- ---------- ---------- ---------- ----------
Net loans............................ $232,105 $192,590 $180,594 $162,701 $157,504
========== ========== ========== ========== ==========
</TABLE>
(d) Maturity of Loans
The following table sets forth the maturities and sensitivities of loans
to changes in interest rates at December 31, 1996. 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................ $46,438 $78,980 $ 53,717 $179,135
Real estate-construction............ 11,019 -- -- 11,019
Consumer............................ 16,027 9,551 9,567 35,145
Commercial.......................... 10,150 25 -- 10,175
------- ------- -------- --------
Total loans................. $83,634 $88,556 $ 63,284 $235,474
======= ======= ======== ========
Loans due after 1 year with:
Predetermined interest rates...... $ 6,200 $43,421 $ 49,621
Floating or adjustable interest
rates............................ 82,356 19,863 102,219
------- ------- --------
$88,556 $63,284 $151,840
======= ======= ========
</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 by
12
<PAGE>
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,
five or ten 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%.
However, circumstances may allow a loan to value ratio as high as 90%. 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. The Bank may also purchase such
loans (servicing also acquired).
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
13
<PAGE>
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 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 $7,000 at December 31, 1996).
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, 1996 the total amount of standby letters of credit outstanding
totaled $2.0 million.
New Jersey's employment rolls continue to grow with an approximate
0.8% increase in 1996 and a 1.0% increase projected for 1997. This expansion
will be mostly in the services sector, offset by declines mainly in
manufacturing. Information technology is becoming the leading industry in New
Jersey. This job growth has led New Jersey to the 5th largest office inventory
in the country (behind New York, Los Angeles, Chicago and San Francisco).
Decreases in the overall vacancy rate, and in particular Class A (high qualify
buildings in prime locations) have led to new construction of these type office
buildings.
In the Bank's main lending areas--Somerset and Hunterdon Counties--new
home construction continued with 3,095 permits issued for the first ten months
of 1996, compared to 2,605 for the comparable 1995 period, and 18.8% increase.
Somerset County currently ranks as the wealthiest in the country with
an annual median discretionary household income of $78,205, followed closely by
Hunterdon County with a median discretionary income of $77,277 per year.
14
<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,
----------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans:
90 days or more past due
(nonaccruing).................. $1,317 $1,055 $ 321 $ 899 $ 696
Nonaccrual loans (less than
90 days past due)............... 66 -- 197 734 --
In-substance foreclosed
loans........................... -- -- 701 860 941
------ ------ ------ ------ ------
Total non-performing loans...... 1,383 1,055 1,219 2,493 1,637
Real estate acquired by
foreclosure.................... 103 170 1,083 1,828 1,385
------ ------ ------ ------ ------
Total nonperforming
assets........................ 1,486 1,225 2,302 4,321 3,022
Loans with modified terms........ -- -- -- -- 1,808
------ ------ ------ ------ ------
$1,486 $1,225 $2,302 $4,321 $4,830
====== ====== ====== ====== ======
Total non-performing loans as
a percentage of total net
loans.......................... 0.60% 0.55% 0.67% 1.53% 1.04%
Non-performing assets as a
percentage of total net
loans and real estate
acquired by foreclosure........ 0.64% 0.64% 1.27% 2.63% 3.04%
</TABLE>
Gross interest on non-performing loans at December 31, 1996 that would
have been recorded in accordance with the original terms of these loans had they
been performing totaled $142,000 for 1996. Interest income recognized on non-
performing loans at December 31, 1996 totaled $4,000.
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. Income is recognized
subsequently only in the period collected.
At December 31, 1996, 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, 1996, there were no concentrations of loans exceeding 10%
total loans outstanding.
15
<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
inherent 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,
-------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance.................... $2,582 $2,729 $3,094 $ 1,797 $1,201
Loans charged off:
Real estate................ (247) (213) (787) (891) (365)
Consumer................... (133) (252) (38) (128) (34)
------ ------ ------ ------- ------
(380) (465) (825) (1,019) (399)
Recoveries:
Real estate................ -- 9 4 -- 8
Consumer................... 10 9 6 26 42
------ ------ ------ ------- ------
10 18 10 26 50
------ ------ ------ ------- ------
Net charge-offs...................... (370) (447) (815) (993) (349)
Provision for loan losses............ 450 300 450 2,290 945
Manville Savings' acquisition........ 303 -- -- -- --
Ending balance....................... $2,965 $2,582 $2,729 $ 3,094 $1,797
====== ====== ====== ======= ======
Ratio of net charge-offs
during the period to
average loans outstanding
during the period.......... 0.18% 0.24% 0.47% 0.63% 0.22%
</TABLE>
16
<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,
--------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Real estate.................. $1,824 $1,432 $2,198 $1,968 $1,483
Consumer and other........... 1,141 1,150 531 1,126 314
------ ------ ------ ------ ------
Total allowances for loan
losses............. $2,965 $2,582 $2,729 $3,094 $1,797
====== ====== ====== ====== ======
</TABLE>
The percentage of loans in each category to total loans is as follows:
<TABLE>
<CAPTION>
At December 31,
--------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Real estate-mortgage....... 76.07% 75.49% 75.61% 74.25% 69.98%
Real estate-construction... 4.68 4.36 3.51 2.64 3.86
Consumer................... 14.99 14.76 15.60 17.35 20.13
Commercial................. 4.26 5.39 4.90 5.24 5.44
In-substance foreclosed
loans..................... -- -- .38 .52 .59
------ ------ ------ ------ ------
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, 1996, 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, 1996. 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..................... $ 4,602
Over 3 through 6 months.............. 3,913
Over 6 through 12 months............. 2,285
Over 12 months....................... 5,699
-------
Total............................... $16,499
=======
</TABLE>
17
<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,
---------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net income to average assets........ 0.89% 0.80% 0.88%
Net income to average shareholders
equity.......................... 11.71 10.53 12.33
Dividend payout ratio............... 31.58 31.90 25.84
Average shareholders' equity to
average total assets............ 7.60 7.64 7.14
</TABLE>
(j) Short-term Borrowings
<TABLE>
<CAPTION>
At December 31,
---------------------------------
1996 1995 1994
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Federal Home Loan Bank of
New York Advance; interest rate:
6.875% and 5.375%, at December 31
31, 1996 and 1995, respectively:... $ 10,000 $ 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; interest rate: 6.430%...... -- -- 9,792
-------- -------- --------
$ 10,000 $ 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 are
18
<PAGE>
reflected as a liability in the Consolidated Balance Sheet. The dollar amount
of securities underlying the agreements are book entry securities.
At December 31, 1996 and 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 $0, $4,300,000 and
$1,896,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
The maximum amounts outstanding at any month-end under such agreements during
the years ended December 31, 1996, 1995 and 1994 totaled $0, $9,735,000 and
$9,792,000, respectively. Accrued interest payable totaled $0 at December 31,
1996 and 1995, and $18,000 at December 31, 1994. The average interest rate on
such agreements was 0.00%, 6.33% and 5.54% for the years ended December 31,
1996, 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 1996, who were not also directors of the Corporation, is also provided
below.
19
<PAGE>
<TABLE>
<CAPTION> Positions with Corporation and
Business Experience for Past Five
Name and Age Years
- ------------ ---------------------------------
<S> <C>
Lucille H. Daniel Vice President and Secretary of the
Age 62 Corporation and the Bank.
John J. Lukens Senior Vice President of the
Age 49 Corporation and 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
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:
- ---------
339 South Main Street 1996 X 2006 three 5-year
Manville, New Jersey 08835 options
1921 Washington Valley Road 1976 X
Martinsville, New Jersey 08836
151 Adamsville Road 1980 X 2001 one 6-year
Somerville, New Jersey 08876 option
51 Mountain Boulevard 1991 X
Warren, New Jersey 07059
Whitehouse Mall 1991 X 2001 one 5-year
Routes 22 East and 523 option
Whitehouse Station, NJ 08889
Loan Production Office:
- -----------------------
28 West Somerset Street 1987 X 1997 None
Raritan, New Jersey 08869
Future Branch and Operations Center:
- ------------------------------------
Raritan Plaza 1997 X 2007 two 5-year
Route 28 (Projected) (Projected) options
Bridgewater, New Jersey 08807
</TABLE>
20
<PAGE>
Item 3. Legal Proceedings
- ----------------------------
Not applicable.
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>
1996 1995
-------------- --------------
Quarter Ending High Low High Low
- ---------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
March 31........ $22.25 $21.00 $21.75 $17.00
June 30......... 22.00 20.75 22.25 20.75
September 30.... 22.00 20.25 22.50 21.00
December 31..... 23.50 21.25 22.50 21.50
</TABLE>
(b) Shareholders
At March 10, 1997 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 and
the issuance of stock resulting from the Manville merger and acquisition
(approximately $1,005,000 at December 31, 1996), or applicable regulatory
capital
21
<PAGE>
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.
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, 1996 and 1995, the Corporation
declared and paid cash dividends totaling $0.60 and $0.52, respectively, per
common share.
On January 21, 1997, the Board of Directors of the Corporation declared a
quarterly cash dividend in the amount of $0.175 per common share. The dividend
was paid on March 1, 1997 to shareholders of record as of February 15, 1997.
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, 1996 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 18 of the Annual Report to Shareholders for the year
ended December 31, 1996, 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 21, 1997, appear on pages 19 to 36 of the Annual Report to
Shareholders for the year ended December 31, 1996 and are incorporated herein by
reference.
22
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- --------------------
None.
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 28, 1997, 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 28, 1997 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 28, 1997 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 28, 1997, and
is incorporated herein by reference.
23
<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, 1996, a copy
of which is attached hereto.
<TABLE>
<CAPTION>
Annual Report
Page Reference
--------------
<S> <C>
Consolidated Balance Sheets............ 19
Consolidated Statements of Income...... 20
Consolidated Statements of Changes in
Shareholders' Equity................. 21
Consolidated Statements of Cash Flows.. 22
Notes to Consolidated Financial
Statements........................... 23-35
Independent Auditors' Report........... 36
</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.
24
<PAGE>
Exhibit
Number
- ------
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. (Filed as Exhibit 3.1(a) to the Annual Report on Form 10-K
for the year ended December 31, 1995).
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; the Restated Termination Agreements were
filed as Exhibit 10.5 to the Annual Report on Form 10-K for the year
ended December 31, 1995).
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 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).
10.8 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 20, of the Annual Report to Stockholders for the year
ended December 31, 1996).
25
<PAGE>
13 Annual Report to Shareholders for the year ended December 31, 1996.
22 Subsidiaries of Raritan Bancorp, Inc.*
24 Accountants' Consent.
_________________________
* See Part 1, Item 1(a) of Form 10-K.
26
<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 17, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 17, 1997, 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, Chairman of the Board, Thomas F. Tansey, Executive Vice
President and Chief Executive President, Chief Operating Officer and
Officer Treasurer
Director
(Principal Financial and Accounting
Officer)
/s/ William T. Anderson /s/ Peter S. Johnson
- ----------------------------------- ---------------------------------------
William T. Anderson, Director Peter S. Johnson, Director
/s/ William T. Kelleher, Jr. /s/ William W. Crouse
- ----------------------------------- ---------------------------------------
William T. Kelleher, Jr., Director William W. Crouse
<PAGE>
EXHIBIT 13
ANNUAL REPORT
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
William T. Anderson, M.D.
Arlyn D. Rus
William T. Kelleher, Jr.
Thomas F. Tansey
William W. Crouse
Peter S. Johnson
[PHOTOGRAPHS OF RARITAN BANCORP INC. BOARD OF DIRECTORS APPEARS HERE]
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, Manville, Martinsville, Somerville, Warren
and Whitehouse Station, New Jersey.
Effective August 1, 1996, the Manville Savings Bank, SLA ("Manville") was
merged with, and into, the Bank pursuant to a merger agreement. As part of the
merger, 124,596 common shares of the Corporation were issued. Proceeds from the
issuance of these shares totaled $2.0 million. The transaction was accounted for
using the purchase method of accounting. Negative goodwill totaling $746,000 was
recorded and will be accreted to income over a five-year period using the
straight-line method. Net loans and deposits acquired totaled $11.9 million and
$12.5 million, respectively.
At December 31, 1996, the Corporation had total assets of $375.4 million
compared to $354.8 million at December 31, 1995, an increase of 5.8%.
Securities available-for-sale and investment securities, net (comprised
primarily 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 $12.8 million, or 11.4%, to
$99.2 million at December 31, 1996. Net loans increased $39.5 million, or 20.5%,
to $232.1 million at December 31, 1996. Of the $52.9 million of mortgage
disbursements, $3.2 million was of a fixed-rate nature, while the balance of
$49.7 million was adjustable rate or of a short-term nature. Consumer and
commercial lending disbursements totaled $30.8 million for 1996 and consisted
primarily of loans which are tied to the prime lending rate, or of a short-term
nature.
Non-performing loans (over 90 days delinquent) and real estate acquired by
foreclosure totaled $1,420,000, or 0.6% of total net loans and real estate
acquired by foreclosure at December 31, 1996, compared to $1,225,000, or 0.6% of
total net loans and real estate acquired by foreclosure at December 31, 1995.
During the year ended December 31, 1996, the Bank provided $450,000 to the
allowance for loan losses, compared to $300,000 a year earlier. The increased
provision was in response to a growing diversified loan portfolio.
8
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
At or for the year ended December 31, 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $375,393 $354,810 $333,546 $307,332 $292,507
Total net loans 232,105 192,590 180,594 162,701 157,504
Securities available-for-sale, at fair value 47,253 50,547 40,456 -- --
Investment securities, net 51,919 61,406 86,224 121,074 111,666
Deposits 331,178 315,038 296,166 281,333 268,223
Shareholders' equity 28,268 26,348 23,440 22,391 20,425
Operating Data:
Interest and fee income $ 24,931 $ 23,456 $ 20,892 $ 20,049 $ 22,345
Interest expense 12,857 13,007 9,992 9,230 11,706
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income 12,074 10,449 10,900 10,819 10,639
Provision for loan losses 450 300 450 2,290 945
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 11,624 10,149 10,450 8,529 9,694
- --------------------------------------------------------------------------------------------------------------------------------
Other income 720 658 702 2,658 726
Operating expenses 7,423 6,593 6,721 7,432 6,986
- --------------------------------------------------------------------------------------------------------------------------------
Income before income tax expense and
cumulative effect of accounting changes 4,921 4,214 4,431 3,755 3,434
Income tax expense 1,813 1,542 1,577 1,352 1,482
Cumulative effect of accounting changes -- -- -- 13 --
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 3,108 $ 2,672 $ 2,854 $ 2,416 $ 1,952
- --------------------------------------------------------------------------------------------------------------------------------
Net income per share (primary) $ 1.91 $ 1.63 $ 1.78 $ 1.53 $ 1.29
- --------------------------------------------------------------------------------------------------------------------------------
Net income per share (fully diluted) 1.90 1.63 1.78 1.52 1.29
- --------------------------------------------------------------------------------------------------------------------------------
Cash dividends per common share 0.60 0.52 0.46 0.38 0.32
- --------------------------------------------------------------------------------------------------------------------------------
Selected Financial Ratios:
Return on average assets 0.89% 0.80% 0.88% 0.81% 0.67%
Return on average equity 11.71 10.53 12.33 11.22 9.84
Dividend payout ratio 31.58 31.90 25.84 25.00 24.81
Average equity to average assets 7.60 7.64 7.14 7.20 6.84
Interest rate spread1 3.13 2.84 3.19 3.51 3.50
Net yield on average interest-earning assets1 3.60 3.30 3.52 3.79 3.85
Average interest-earning assets to
average interest-bearing liabilities 1.12x 1.11x 1.10x 1.09x 1.08x
Non-performing assets to total assets 0.38% 0.35% 0.63% 1.17% 1.03%
</TABLE>
1 Calculated on a fully-taxable basis.
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.
9
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
The following table provides a summary of the Corporation's non-performing
loans and real estate acquired by foreclosure at December 31, 1996:
<TABLE>
<CAPTION>
Number of Loans Amount
- --------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
First mortgage loans 4 $ 576
Home equity loans 2 115
Second mortgage loans 1 47
Commercial loans 2 326
Loans with modified terms 3 253
- --------------------------------------------------------------------------------
Total non-performing loans 12 1,317
Real estate acquired by foreclosure
(included in Other Assets) 1 103
- --------------------------------------------------------------------------------
13 $1,420
================================================================================
</TABLE>
The twelve non-performing loans are secured by real restate.
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, 1996), a specific allowance of $1,011,000 has been
allocated to such loans, together with a general allowance of $1,954,000 on the
remaining loan portfolio taken as a whole. During 1996, the Bank charged off
$380,000 of loans, compared to $465,000 in the previous year. At December 31,
1996, the ratio of the allowance for loan losses to non-performing loans was
225.1%.
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, 1996, 1995 and
1994 was $450,000, $300,000 and $450,000, respectively. The reduced provision in
1995 resulted from a strengthening economy and recovering real estate market,
together with aggressive recognition and resolution of existing and potential
problem areas. The increased provision in 1996 is the result of responding to a
growing diversified loan portfolio.
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.
Because of gradually increasing interest rates during the second half of
1996, the Corporation experienced a decrease in the net unrealized gain on
securities available-for-sale to $325,000 at December 31, 1996 from $623,000 at
December 31, 1995. Net unrealized losses on investment securities, net increased
to $717,000 at December 31, 1996 compared to $575,000 a year earlier.
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 99.1% 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.
10
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
Deposits grew to $331.2 million at December 31, 1996 from $315.0 million at
December 31, 1995. Net deposits acquired from the aforementioned Manville merger
and acquisition totaled $12.5 million. Deposit outflows, net of interest
credited of $12.8 million, totaled $9.1 million.
Shareholders' equity totaled $28.3 million, or $18.67 per share, at December
31, 1996, compared to $26.3 million, or $17.66 per share, at December 31, 1995.
The increase is the result of net income totaling $3,108,000 for the year ended
December 31, 1996, together with a decrease of $52,000 in the ESOP debt, plus
$28,000 from the issuance of 3,000 common treasury shares for stock options, and
$2,137,000 from the issuance of 124,596 shares of common treasury shares in
connection with the Manville merger and acquisition, offset by the $212,000 fair
value adjustment of securities available-for-sale, dividends paid to
shareholders of $893,000 and the repurchase of 106,076 shares of the
Corporation's common stock for $2,300,000.
Comparison of Years Ended December 31, 1996 and 1995
Interest Income: Total interest income increased in 1996, on a fully-taxable
basis, to $25.0 million, an increase of $1.5 million, or 6.4%, from $23.5
million in 1995. The increase is primarily the result of an increase in average
interest-earning assets to $335.7 million from $318.0 million for the prior
year, together with an increase in the average yield to 7.43% from 7.39% a year
earlier. The increase in loan disbursement volume was responsible for the
increase in net interest income. Funding for earning assets came primarily from
loan and securities repayments.
Interest income for 1996 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 $142,000, for 1996.
Interest Expense: Interest expense decreased $150,000, or 1.2%, to $12.9
million in 1996, from $13.0 million in 1995 primarily as the result of the
decrease in average borrowings (primarily agreements to repurchase the same
securities) to $305,000 from $4,655,000 a year earlier, in addition to a 25
basis point decrease in the cost of interest-bearing liabilities, partially
offset by an overall increase of $17.5 million in the average balances due to
depositors.
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 $12.1 million for
the year ended December 31, 1996 increased $1.6 million from $10.5 million for
1995. As shown by the tables on pages 16 and 17, net interest income increased
primarily as a result of a 14.4% increase in average net earning assets
(primarily the net increase in the loan portfolio) to $36.9 million from $32.2
million a year earlier. The increased volume in average net earning assets
together with the thirty basis point increase in the net yield on average
interest-earning assets resulted in the 15.5% increase in net interest income
(on a fully-taxable equivalent basis).
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 (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.
11
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
The provision for loan losses for 1996 was $450,000 compared to $300,000 for
1995. As described above, the increased provision for 1996 was in response to a
growing diversified loan portfolio. The provision was considered 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: Service charges and other income increased 19.4% primarily as a
result of the full effect of the upward repricing of certain services relating
to deposit products which was effective in mid-1995. During 1996, an obligation
of a state and political subdivision which was classified as available-for-sale
in the amount of $50,000 was called at a gross gain of $1,000.
Operating Expenses: Other expenses for the year ended December 31, 1996
increased $830,000, or 12.6%, to $7.4 million from $6.6 million a year earlier.
Salaries and employee benefits increased to $326,000, or 9.6%, to $3.7 million
from $3.4 million a year earlier. The addition of five employees from the
Manville merger and acquisition together with normal merit and cost of living
increases contributed to the increase, together with a $175,000 ESOP
contribution, partially offset by a reduction in health insurance premiums.
Occupancy expenses increased $104,000, or 16.0%, to $753,000 from $649,000 in
1995. The increase results primarily from the rent expense associated with the
new Manville branch office. Unanticipated snow removal expenses during the first
quarter of 1996 also contributed to the increase. The Federal Deposit Insurance
Corporation ("FDIC") insurance premium increased $145,000, or 34.0%, to $571,000
in 1996 from $426,000 a year earlier. On September 30, 1996, Federal legislation
was enacted which imposed a special one-time assessment on Savings Association
Insurance Fund ("SAIF") insured deposits, including approximately $83.0 million
in "Oakar" and "Sasser" deposits held by the Bank, to recapitalize the SAIF and
spread the obligations for payment of the Financing Corporation ("FICO") bonds
across all SAIF and Bank Insurance Fund ("BIF") members. The Bank took a pre-tax
charge of $436,000 as a result of this special assessment. (See Note 19 for
additional information.) Net cost of operation of other real estate increased
$191,000 to $51,000 in 1996 from a credit balance of $140,000 in 1995. The 1995
balance included a $218,000 balance in the allowance for losses on real estate
acquired by foreclosure which was eliminated and credited to the net cost of
operation of real estate. Other operating expenses increased $64,000 to $2.3
million in 1996 as a result of increases in outside services, legal fees,
consulting fees, supervisory examination and outside audit fees, marketing fees
and office supplies.
Income Tax Expense: Income taxes increased $271,000 to $1.8 million in 1996
from $1.5 million for the prior year. Increases and decreases are basically
direct functions of the Corporation's pretax income.
If certain conditions were met, under tax law that existed prior to 1996,
thrift institutions, such as the Bank, in determining taxable income, were
allowed a special bad debt deduction based on a percentage of taxable income
before such deduction. The Corporation prepares and files its tax return on a
calendar year basis. The Corporation used the experience method in preparing the
Federal income tax return for calendar years 1995 and 1994. The tax bad debt
reserve method was repealed for tax years beginning after 1995. As a result, the
Corporation may no longer use the percentage of taxable income reserve method. A
small thrift (one with $500 million or less in assets) is allowed to use either
the specific charge-off method or the "bank" experience method of Section 585 of
the Internal Revenue Code to compute its bad debt deduction.
Based upon 1996 Federal tax law changes, thrift institutions are generally
required to recapture into income the portion of its bad debt reserve (other
than supplemental reserve) that exceeds its base year (December 31, 1987)
reserves. The recapture amount generally will be taken into income ratably (on a
straight-line basis) over a six-year period. Under a small thrift exception, the
Corporation's tax reserves for bad debts equaled its allowable experience
reserve method and therefore, the Corporation will have no recapture.
12
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
The Corporation has not recognized a deferred tax liability of approximately
$746,000 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. The Corporation does not anticipate any such recognition in
the foreseeable future.
For 1996, the bad debt deduction for taxes was $369,000, compared to $407,000
for 1995. (See Note 8 for additional information on the income taxes of the
Corporation.)
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 16 and 17, 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.
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
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 (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: Service 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.
Operating Expenses: Operating 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 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 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 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.
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 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. For 1995, the bad debt
deduction for taxes was $407,000 compared to $1.2 million for 1994. (See Note 8
for additional information on the income taxes of the Corporation.)
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
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 $52.9 million of first mortgage loans disbursed during 1996, $3.2
million were fixed-rate mortgages and $49.7 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 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 rates rise.
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 increased net
interest income. Such fluctuations may also tend to affect the liquidity and
operations of the Corporation.
At December 31, 1996, the ratio of interest-earning assets repricing or
maturing within one year to interest-bearing liabilities repricing or maturing
within one year was 74.9%. 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
capture basis risk; and it does not capture risk that varies non-proportionally
with rate movements. The current one-year gap of 74.9% is considered by
management to be an acceptable level of interest rate risk.
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.
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 and principal repayments of securities and funds provided
by operations. At December 31, 1996, the Corporation's liquid assets (cash and
investment securities maturing in one year or less) totaled $33.8 million which
represents 9.0% of total assets.
The Corporation's main liquidity demands come from loan disbursements which
totaled $83.7 million. At December 31, 1996, outstanding commitments to extend
credit totaled $42.3 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
actual ratios for both the Corporation and the Bank:
<TABLE>
<CAPTION>
December 31, 1996 Required Actual Excess
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
The Corporation:
Risk-based capital:
Tier 1 4.00% 12.834% 8.834%
Total 8.00 14.086 6.086
Leverage capital ratio 4.00 7.440 3.440
The Bank:
Risk-based capital:
Tier 1 4.00% 12.833% 8.833%
Total 8.00 14.085 6.085
Leverage capital ratio 4.00 7.440 3.440
</TABLE>
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>
RARITAN BANCORP INC. AND SUBSIDIARY
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>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------------------------------------------------------------------------
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/ $208,367 $17,317 8.31% $188,116 $15,631 8.31% $172,673 $13,412 7.77%
Taxable investments 111,760 6,798 6.08 120,203 7,270 6.05 124,763 6,966 5.58
Tax-exempt investments 767 80 10.43 793 84 10.59 837 89 10.63
Deposits with banks 14,842 765 5.15 8,878 501 5.64 11,832 457 3.86
-------- ------- -------- ------- -------- -------
Total interest-earning assets 335,736 24,960 7.43 317,990 23,486 7.39 310,105 20,924 6.74
------- ----- ------- ----- ------- -----
Non-interest-earning assets/3/ 13,238 14,075 14,185
-------- -------- --------
Total $348,974 $332,065 $324,290
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-Bearing Liabilities:
Transaction accounts/4/ $ 22,150 $ 468 2.11% $ 19,312 $ 437 2.26% $ 18,874 $ 426 2.26%
Savings accounts/5/ 114,789 3,921 3.42 119,038 4,718 3.96 128,702 4,291 3.33
Market-rate certificates 161,620 8,442 5.22 142,744 7,548 5.29 131,897 5,144 3.90
Borrowings 305 26 8.52 4,655 304 6.53 2,204 131 5.94
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 298,864 12,857 4.30 285,749 13,007 4.55 281,677 9,992 3.55
------- ----- ------- ----- ------- -----
Non-interest-bearing
liabilities 22,423 19,812 18,575
Other liabilities 1,153 1,134 894
-------- -------- --------
Total liabilities 322,440 306,695 301,146
Shareholders' equity 26,534 25,370 23,144
-------- -------- --------
Total $348,974 $332,065 $324,290
======== ======== ========
Net interest income/
interest rate spread/6/ $12,103 3.13% $10,479 2.84% $10,932 3.19%
======= ===== ======= ===== ======= =====
Net earning assets/net
yield on average
interest-earning assets/7/ $36,872 3.60% $32,241 3.30% $28,428 3.52%
======== ===== ======== ===== ======== =====
Ratio of interest-earning
assets to interest-
bearing liabilities 1.12x 1.11x 1.10x
===== ===== =====
</TABLE>
1. On a fully-taxable equivalent basis. Effective tax rate used was
approximately 36%.
2. Loans include non-accruing (i.e. non-performing) loans. Loan fees included in
interest income were $324,000, $275,000 and $238,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
3. Included in non-interest-earning assets is real estate acquired by
foreclosure.
4. Includes NOW and SWEEP accounts.
5. Include money market deposit accounts, regular savings and club 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.
16
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
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 1996 compared to 1995 Year 1995 compared to 1994
Increase/(Decrease) Increase/(Decrease)
(In thousands) Volume Rate Net Volume Rate Net
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans $1,686 $ -- $1,686 $1,249 $ 970 $2,219
Taxable investments (508) 36 (472) (225) 529 304
Tax-exempt investments (3) (1) (4) (5) -- (5)
Deposits with banks 303 (39) 264 (52) 96 44
- -------------------------------------------------------------------------------------------------------------------------------
Total income on interest-
earning assets 1,478 (4) 1,474 967 1,595 2,562
- -------------------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities:
Transaction accounts 57 (26) 31 11 -- 11
Savings accounts (165) (632) (797) (281) 708 427
Market-rate certificates 993 (99) 894 451 1,953 2,404
Borrowings (413) 135 (278) 159 14 173
- -------------------------------------------------------------------------------------------------------------------------------
Total expense on
interest-bearing liabilities 472 (622) (150) 340 2,675 3,015
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income $1,006 $ 618 $1,624 $ 627 $(1,080) $ (453)
===============================================================================================================================
</TABLE>
17
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
The following table sets forth the schedule repricing or maturity of the
Corporation's interest-sensitive assets and liabilities at December 31, 1996.
<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-Earnings Assets:
Mortgage loans (1) $ 45,433 $ 34,175 $ 67,816 $29,806 $12,924 $ -- $190,154
Consumer and other loans (1) 30,561 4,072 6,255 2,344 2,088 -- 45,320
Securities available-for-sale (1) (2) (3) 9,473 4,192 13,470 10,055 9,145 918 47,253
Investment securities, net (1) (2) (4) 7,653 6,622 16,929 20,715 -- 2,672 54,591
Interest-earning deposits in other banks 27,300 -- -- -- -- -- 27,300
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 120,420 49,061 104,470 62,920 24,157 3,590 364,618
- -----------------------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities:
Now accounts 22,374 -- -- -- -- -- 22,374
Money market deposit accounts 16,958 -- -- -- -- -- 16,958
Regular savings and clubs (5) 50,553 114 -- -- -- 50,492 101,159
Market-rate certificates 92,291 33,825 29,671 13,291 -- -- 169,078
Borrowings 10,154 -- -- -- -- -- 10,154
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 192,330 33,939 29,671 13,291 -- 50,492 319,723
- -----------------------------------------------------------------------------------------------------------------------------------
Sensitivity GAP $ (71,910) $ 15,122 $ 74,799 $49,629 $24,157 $(46,902) $ 44,895
===================================================================================================================================
Cumulative sensitivity GAP $ (71,910) $(56,788) $ 18,011 $67,640 $91,797 $ 44,895
=========================================================================================================================
Cumulative sensitivity GAP as a
percent of total assets -19.2% -15.1% 4.8% 18.0% 24.5% 12.0%
Cumulative interest-earnings assets
as a percent of
interest-bearing liabilities 62.6% 74.9% 107.0% 125.1% 123.1% 114.0%
</TABLE>
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 states and
political subdivisions are categorized by the contractual maturity of the
instrument.
3. Federal Home Loan Mortgage Corporation ("FHLMC") stock is categorized in the
"Over 10 years" repricing interval.
4. Federal Home Loan Bank stock is categorized in the "Over 10 years" repricing
interval.
5. 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.
The following table presents the average yield on interest-earning assets and
average cost of 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, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Yield on loans 8.31% 8.31% 7.77%
Yield on taxable investments 6.08 6.05 5.58
Yield on tax-exempt investments 10.43 10.59 10.63
Yield on deposits with banks 5.15 5.64 3.86
Combined yield on interest-earning assets 7.43 7.39 6.74
Cost of transaction accounts 2.11 2.26 2.26
Cost of savings accounts 3.42 3.96 3.33
Cost of market-rate certificates 5.22 5.29 3.90
Cost of borrowings 8.52 6.53 5.94
Combined cost of interest-bearing liabilities 4.30 4.55 3.55
Interest rate spread 3.13 2.84 3.19
Net yield on average interest-earning assets 3.60 3.30 3.52
</TABLE>
Note: All yields are on a fully-taxable basis assuming an effective income tax
rate of approximately 36%.
18
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands, except share data)
December 31, 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S><C> <C> <C> <C>
Assets
Cash and due from banks $ 5,453 $ 8,586
Federal funds sold 27,300 31,300
- --------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 32,753 39,886
- --------------------------------------------------------------------------------------------------------------------
Securities available-for-sale, at fair value 47,253 50,547
Investment securities, net (fair value $51,202 in 1996 and $60,831 in 1995) 51,919 61,406
Loans 235,474 195,639
Less:
Unearned income 404 467
Allowance for loan losses 2,965 2,582
- --------------------------------------------------------------------------------------------------------------------
Total net loans 232,105 192,590
- --------------------------------------------------------------------------------------------------------------------
Banking premises and equipment, net 3,689 3,231
Federal Home Loan Bank of New York stock, at cost 2,672 2,669
Accrued interest receivable 1,947 1,859
Other assets 3,055 2,622
- --------------------------------------------------------------------------------------------------------------------
Total assets $375,393 $354,810
- --------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Due to depositors:
Interest-bearing $309,569 $294,210
Non-interest-bearing 21,609 20,828
- --------------------------------------------------------------------------------------------------------------------
Total deposits 331,178 315,038
- --------------------------------------------------------------------------------------------------------------------
Borrowings 10,154 10,206
Accrued interest payable 59 61
Accrued expenses and other liabilities 5,734 3,157
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 347,125 328,462
- --------------------------------------------------------------------------------------------------------------------
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, 1996 and 1995; -- --
1,725,000 shares issued with 1,513,709 and 1,492,189 shares
outstanding at December 31, 1996 and 1995, respectively 17 17
Additional paid-in capital 11,165 10,598
Retained earnings 20,016 17,801
Fair value adjustment of securities available-for-sale, net of tax 204 416
Less: Unallocated common stock acquired by the ESOP 154 206
Cost of common stock in treasury, 211,291 shares at
December 31, 1996 and 232,811 shares at December 31, 1995 2,980 2,278
- --------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 28,268 26,348
- --------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 14,15, 16, 17 and 18)
Total liabilities and shareholders' equity $375,393 $354,810
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Year ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Interest and fees on real estate loans $13,475 $12,011 $10,307
Interest and fees on other loans 3,842 3,620 3,105
Interest and dividends on securities:
Taxable 6,798 7,270 6,966
Tax-exempt 51 54 57
Interest on deposits in other banks 765 501 457
- ----------------------------------------------------------------------------------------------------------------
Total interest income 24,931 23,456 20,892
- ----------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on deposit accounts 12,831 12,703 9,861
Interest on borrowed funds 26 304 131
- ----------------------------------------------------------------------------------------------------------------
Total interest expense 12,857 13,007 9,992
- ----------------------------------------------------------------------------------------------------------------
Net interest income 12,074 10,449 10,900
Provision for loan losses 450 300 450
- ----------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 11,624 10,149 10,450
- ----------------------------------------------------------------------------------------------------------------
Other Income:
Service charges and other income 719 602 554
Gain on securities transactions, net 1 56 148
- ----------------------------------------------------------------------------------------------------------------
Total other income 720 658 702
- ----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Salaries and employee benefits 3,733 3,407 3,100
Occupancy expense 753 649 710
FDIC insurance premium 571 426 653
Net cost of (income from) operation of other real estate 51 (140) 153
Other operating expenses 2,315 2,251 2,105
- ----------------------------------------------------------------------------------------------------------------
Total operating expenses 7,423 6,593 6,721
- ----------------------------------------------------------------------------------------------------------------
Income before income tax expense 4,921 4,214 4,431
Income tax expense 1,813 1,542 1,577
- ----------------------------------------------------------------------------------------------------------------
Net income $ 3,108 $ 2,672 $ 2,854
- ----------------------------------------------------------------------------------------------------------------
Average number of shares outstanding:
Primary 1,625,160 1,635,472 1,601,599
Fully diluted 1,631,851 1,638,747 1,601,860
Net Income Per Share:
Primary $1.91 $1.63 $1.78
Fully diluted $1.90 $1.63 $1.78
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
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, 1993 $17 $10,599 $13,760 $ -- $(380) $ (l,605) $ 22,391
Cash dividends declared and paid
($0.46 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
($0.52 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
Cash dividends declared and paid
($0.60 per share) -- -- (893) -- -- -- (893)
Reduction of debt relating to the
Employee Stock Ownership Plan -- -- -- -- 52 -- 52
Fair value adjustment of securities
available-for-sale, net of tax -- -- -- (212) -- -- (212)
Net Income -- -- 3,108 -- -- -- 3,108
Issuance of 3,000 common treasury
shares for stock options -- (2) -- -- -- 30 28
Treasury stock acquired, at cost--
106,076 shares -- -- -- -- -- (2,300) (2,300)
Issuance of 124,596 shares of
common treasury shares in
connection with the Manville
Savings' merger and acquisition -- 569 -- -- -- 1,568 2,137
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $17 $11,165 $20,016 $ 204 $(154) $(2,980) $28,268
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
Year ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 3,108 $ 2,672 $ 2,854
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accrued interest receivable (88) (28) (205)
Amortization, net, on securities 149 238 68
Provision for loan losses 450 300 450
Recovery of losses on real estate acquired by foreclosure -- (218) --
Gain on net securities transactions (1) (56) (148)
(Decrease) increase in accrued interest payable (2) (13) 10
Increase (decrease) in accrued expenses 55 (476) 85
(Increase) decrease in prepaid expenses (170) 104 132
Depreciation 378 354 378
Deferred income taxes (102) 76 160
Increase (decrease) in income taxes payable 440 196 (125)
Net increase (decrease), other 1,516 (632) 330
- ---------------------------------------------------------------------------------------------------------------------------
Total cash provided by operating activities 5,733 2,517 3,989
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from call and repayments of securities available-for-sale 21,796 6,727 5,465
Proceeds from sale of securities available-for-sale -- 56 3,046
Proceeds from repayments of investment securities, net 9,394 11,676 10,092
Purchase of investment securities, net -- (1,442) (14,276)
Purchase of securities available-for-sale (17,922) -- (12,326)
Redemption (purchase) of Federal Home Loan Bank of New York stock 99 (2,006) (662)
Net disbursements from loans (27,959) (11,908) (18,222)
Proceeds from disposal of other real estate 171 626 885
Capital expenditures (840) (265) (439)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (15,261) 3,464 (26,437)
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net (decrease) increase in demand deposits,
money market accounts, NOW accounts, Prime
Performance Accounts and savings accounts (4,672) (7,717) 26,056
Net increase (decrease) in market-rate certificates 8,285 26,589 (11,223)
Principal payment on ESOP debt (52) (51) (123)
Proceeds from issuance of common stock 2,027 150 2
Treasury stock acquired, at cost (2,300) (827) --
Net change on Federal Home Loan Bank of New York advances -- 10,000 --
Net change in borrowing under repurchase agreement -- (9,792) 9,792
Dividends paid (893) (790) (694)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,395 17,562 23,810
- ---------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (7,133) 23,543 1,362
Cash and cash equivalents at beginning of year 39,886 16,343 14,981
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 32,753 $ 39,886 $ 16,343
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental schedule of cash flow information:
Interest paid $ 12,859 $ 13,020 $ 9,982
- ---------------------------------------------------------------------------------------------------------------------------
Income taxes paid $ 1,547 $ 1,270 $ 1,543
- ---------------------------------------------------------------------------------------------------------------------------
Mortgage loans originated to finance
the disposal of real estate acquired by foreclosure $ -- $ 535 $ 85
- ---------------------------------------------------------------------------------------------------------------------------
Investment securities, net, transferred to
securities available-for-sale $ -- $ 14,467 $ --
- ---------------------------------------------------------------------------------------------------------------------------
Net loans acquired from Manville Savings' Merger and Acquisition $ 11,911 $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------
Net deposits acquired from Manville Savings' Merger and Acquisition $ 12,532 $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
22
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
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 six 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. ("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 ("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.
Cash and Cash Equivalents: For purposes of 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: The
Corporation's securities, including mortgage-backed securities issued by Federal
agencies are 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. Impaired loans
are measured based upon the fair value of the underlying collateral. 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 include 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>
RARITAN BANCORP INC. AND SUBSIDIARY
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, 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 5 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.
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 Benefits: 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.
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.
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.
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
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 costs to terminate them or to settle the obligations with the
counterparties at the reporting date. The fair value of commitments to extend
credit and performance standby letters of credit are immaterial at December 31,
1996 and 1995.
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 -- 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, 1996 and 1995 were approximately
$1,458,000 and $1,303,000, respectively.
NOTE 3 -- SECURITIES AVAILABLE-FOR-SALE AND
INVESTMENT SECURITIES, NET
The amortized cost of securities and their estimated fair value at December
31, 1996, were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
(In thousands) Cost Gains Losses Fair Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury securities and
obligations of U.S.
government agencies $17,130 $ 48 $ (35) $17,143
Obligations of states and
political subdivisions 710 38 -- 748
Equity securities 129 41 -- 170
Mortgage-backed securities
issued by Federal agencies 28,959 396 (163) 29,192
- --------------------------------------------------------------------------------
$46,928 $ 523 $ (198) $47,253
- --------------------------------------------------------------------------------
Investment securities, net:
Mortgage-backed securities
issued by Federal agencies $51,919 $ 22 $(739) $51,202
- --------------------------------------------------------------------------------
</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 $14.5 million and $268,000, respectively, to securities
available-for-sale.
The amortized cost of securities and their estimated fair value at December
31, 1995, were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
(In thousands) Cost Gains Losses Fair 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>
The carrying value of investment securities pledged as required security for
public funds and deposits amounted to $1,002,000 and $1,004,000 at December 31,
1996 and 1995, respectively.
During 1996 a security available-for-sale was called at a gross gain of
$1,000.
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.
The scheduled maturities of debt securities available-for-sale and investment
securities, net, at December 31, 1996, 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 $ 3,008 $ 2,996 $ -- $ --
Due after one year
through five years 12,138 12,151 -- --
Due after five years
through ten years 1,984 1,996 -- --
Due after ten years 710 748 -- --
Mortgage-backed
securities issued by
Federal agencies 28,959 29,192 51,919 51,202
- --------------------------------------------------------------------------------
$46,799 $47,083 $51,919 $51,202
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
The scheduled maturities of securities available-for-sale and investment
securities 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>
NOTE 4 -- LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Real estate:
Conventional $179,135 $147,673
Construction 11,019 8,536
- --------------------------------------------------------------------------------
190,154 156,209
Consumer loans 35,300 28,886
Commercial loans 10,020 10,544
- --------------------------------------------------------------------------------
$235,474 $195,639
- --------------------------------------------------------------------------------
</TABLE>
Loan fees included in interest income were $324,000, $275,000 and $238,000
for the years ended December 31, 1996, 1995 and 1994, 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 $4,195,000 and $2,074,000 at
December 31, 1996 and 1995, respectively. Activity during 1996 included
principal repayments of $1,761,000 and new disbursements of $3,450,000. Also
included were loans related to the Manville acquisition totaling $565,000. Loans
totaling $133,000 were removed as a result of the retirement of a director.
The activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $2,582 $2,729 $3,094
Provision charged to operations 450 300 450
Manville Savings' acquisition 303 -- --
Charge-offs (380) (465) (825)
Recoveries 10 18 10
- --------------------------------------------------------------------------------
Balance at end of year $2,965 $2,582 $2,729
- --------------------------------------------------------------------------------
</TABLE>
Non-performing loans (over 90 days delinquent), and real estate acquired by
foreclosure (included in Other Assets) totaled $1,420,000 and $1,225,000 at
December 31, 1996 and 1995, respectively, as follows:
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------
Number Amount
of Loans (In thousands)
- --------------------------------------------------------------------------------
<S> <C> <C>
First mortgage loans 4 $ 576
Home equity loans 2 115
Second mortgage loans 1 47
Commercial loans 2 326
Loans with modified terms 3 253
- --------------------------------------------------------------------------------
Total non-performing loans 12 1,317
Real Estate Acquired by Foreclosure
(included in Other Assets) 1 103
- --------------------------------------------------------------------------------
13 $1,420
- --------------------------------------------------------------------------------
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>
The loss of interest on loans charged-off, non-performing loans, real estate
acquired by foreclosure, non-accrual loans and impaired loans totaled
approximately $142,000, $224,000 and $305,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
Based upon the criteria set forth in SFAS No. 114 and SFAS No. 118, the
Corporation had impaired loans of $1,317,000 and $1,055,000 at December 31, 1996
and 1995, respectively. The Corporation calculated a total allowance of $112,000
and $122,000 at December 31, 1996 and 1995, respectively. Impaired loans
averaged $1,681,000 and $1,382,000 for the years ended December 31, 1996 and
1995, respectively. Interest income of $29,000 and $17,000 was recognized, all
on a cash basis, on impaired loans for the years ended December 31, 1996 and
1995, respectively.
The Bank is not committed to lend additional funds on loans with modified
terms.
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
NOTE 5 -- BANKING PREMISES AND EQUIPMENT, NET
A summary of the net carrying value of banking premises and equipment
follows:
<TABLE>
<CAPTION>
December 31,
----------------------
(In thousands) 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Land $ 764 $ 756
Buildings and improvements 2,404 2,381
Furniture, fixtures and equipment 2,226 1,801
Leasehold improvements 996 620
- ------------------------------------------------------------------------
6,390 5,558
Less accumulated depreciation and amortization 2,701 2,327
- ------------------------------------------------------------------------
$3,689 $3,231
========================================================================
</TABLE>
Depreciation and amortization expense charged to operations amounted to
$378,000, $354,000 and $378,000 in 1996, 1995 and 1994, respectively.
NOTE 6 -- OTHER ASSETS
Other assets are summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
(In thousands) 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Real estate acquired by foreclosure $ 103 $ 170
Deferred tax assets, net 750 561
Unamortized premium paid-- RTC 547 664
Prepaid expenses 479 144
All other 1,176 1,083
- ------------------------------------------------------------------------
$3,055 $2,622
========================================================================
</TABLE>
NOTE 7 -- DUE TO DEPOSITORS
The details of deposit balances are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
(In thousands) 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Regular and business checking $ 21,609 $ 20,828
NOW accounts 22,374 21,791
Money market deposit accounts 16,958 15,901
Prime Performance accounts 51,541 55,281
Regular savings and club accounts 49,618 47,111
- ------------------------------------------------------------------------
162,100 160,912
========================================================================
Market-rate certificates:
7-31 day 6,078 6,852
6 month 36,439 33,520
9 month 26,775 24,025
12 month 33,395 27,179
24 month 8,722 7,395
Other certificates 15,719 14,586
IRA and KEOGH accounts 41,950 40,569
- ------------------------------------------------------------------------
169,078 154,126
- ------------------------------------------------------------------------
$331,178 $315,038
========================================================================
</TABLE>
Market-rate certificates $100,000 and over totaled $16,499,000 and
$13,053,000 at December 31, 1996 and 1995, respectively. Interest expense on
market-rate certificates $100,000 and over totaled $700,000, $589,000 and
$352,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
At December 31, 1996, the scheduled maturities of market-rate certificates
are as follows:
<TABLE>
<CAPTION>
(In thousands)
- ------------------------------------------------------------------------
<S> <C>
1997 $126,116
1998 16,627
1999 13,044
2000 8,951
2001 and thereafter 4,340
- ------------------------------------------------------------------------
$169,078
========================================================================
</TABLE>
NOTE 8 -- INCOME TAXES
The following is a summary of income tax expense, for the years ended
December 31:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Taxes estimated to be payable currently:
Federal $1,759 $1,343 $1,282
State 156 123 135
- ------------------------------------------------------------------------
Subtotal 1,915 1,466 1,417
Deferred taxes (benefit):
Federal (94) 68 147
State (8) 8 13
- ------------------------------------------------------------------------
Subtotal (102) 76 160
- ------------------------------------------------------------------------
Total income tax expense $1,813 $1,542 $1,577
========================================================================
</TABLE>
Total income tax expense for the years ended December 31, 1996, 1995 and
1994, 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) 1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Income before income tax expense $4,921 $4,214 $4,431
Statutory income tax rate 34% 34% 34%
- -----------------------------------------------------------------------
1,673 1,433 1,507
Tax-exempt interest income (17) (18) (19)
State income taxes, net of Federal
income tax benefit 98 86 98
Change in the beginning-of-the-year
balance of the valuation allowance
allocated to income tax expense 55 36 19
Other 4 5 (28)
- -----------------------------------------------------------------------
Total income tax expense $1,813 $1,542 $1,577
=======================================================================
</TABLE>
27
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
The significant components of the deferred income taxes for the years ended
December 31, 1996, 1995 and 1994 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>
December 31,
-----------------------------
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax expense (benefit)
(exclusive of the effect of the
other component listed below) $(157) $40 $141
Increase in the beginning-of-the-year
balance of the valuation allowance
for deferred tax assets 55 36 19
- -----------------------------------------------------------------------
$(102) $76 $160
=======================================================================
</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,
1996 and 1995 follows:
<TABLE>
<CAPTION>
December 31,
----------------------
(In thousands) 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Unearned income $ 84 $ 168
Nonaccrual interest 9 3
Allowance for losses 1,070 929
Accrued expenses 557 505
Other 47 23
- -----------------------------------------------------------------------
Total gross deferred tax assets 1,767 1,628
Less valuation allowance (584) (529)
- -----------------------------------------------------------------------
Deferred tax assets,
net of valuation allowance 1,183 1,099
- -----------------------------------------------------------------------
Deferred tax liabilities:
Unamortized core deposit premium paid 152 178
Excess of tax bad debt reserve over base year -- 49
Depreciation 28 37
Fair value adjustment of securities
available-for-sale 120 207
Other 133 67
- -----------------------------------------------------------------------
Total other gross deferred tax liabilities 433 538
- -----------------------------------------------------------------------
Net deferred tax assets $ 750 $ 561
=======================================================================
</TABLE>
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 Statements of Income.
The valuation allowance for deferred tax assets as of December 31, 1995 was
$529,000. The net change in the total valuation allowance for the year ended
December 31, 1996 was an increase of $55,000.
The Corporation's taxable income and pretax book income for the three years
ended December 31, were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable income $4,944 $4,307 $3,938
Pretax book income 4,921 4,214 4,431
</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.
If certain conditions were met, under tax law that existed prior to 1996,
thrift institutions, in determining taxable income, were allowed a special bad
debt deduction based on a percentage of taxable income before such deduction.
The Corporation prepares and files its tax return on a calendar-year basis. The
Corporation used the experience method in preparing the Federal income tax
return for calendar years 1996, 1995 and 1994. The tax bad debt reserve method
was repealed for tax years beginning after 1995. As a result, the Corporation
may no longer use the percentage of taxable income reserve method. A small
thrift (one with $500 million or less in assets) is allowed to use either the
specific charge-off method or the "bank" experience method of Section 585 of the
Internal Revenue Code to compute its bad debt deduction.
Based upon 1996 Federal tax law changes, thrift institutions are generally
required to recapture into income the portion of its bad debt reserve (other
than supplemental reserve) that exceeds its base year (December 31, 1987)
reserves. The recapture amount generally will be taken into income ratably (on a
straight-line basis) over a six-year period. Under a small thrift exception, the
Corporation's tax reserves for bad debts equaled its allowable experience
reserve method and therefore, the Corporation will have no recapture.
The Corporation has not recognized a deferred tax liability of approximately
$746,000 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. The Corporation does not anticipate any such recognition in
the foreseeable future.
28
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
NOTE 9 -- 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 of 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) 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $1,561 in 1996 and $1,416 in 1995 $(1,656) $(1,517)
- -----------------------------------------------------------------------
Projected benefit obligation for service
rendered to date $(2,198) $(2,086)
Plan assets at fair value, primarily debt and
equity securities 2,549 2,231
- -----------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 351 145
Contribution made during the fourth quarter -- 10
Transition amount from initial application (5) (6)
Unrecognized loss (363) (98)
Unrecognized past service benefit (87) (98)
- -----------------------------------------------------------------------
Accrued pension expense included
in other liabilities $ (104) $ (47)
=======================================================================
</TABLE>
The following table sets forth the components of net pension expense for the
years ended shown:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Net pension expense includes the
following components:
Service cost-benefits earned
during the period $ 93 $ 95 $ 97
Interest cost on projected
benefit obligation 153 139 124
Return on plan assets (331) (429) (6)
Net amortization and deferral 142 274 (132)
- -----------------------------------------------------------------------
Net pension expense included in
salaries and employee benefits $ 57 $ 79 $ 83
=======================================================================
</TABLE>
The primary assumptions used for calculating year-end actuarial present value
of benefit obligations were:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rates
used to determine the projected
benefit obligation 7.75% 7.50% 8.25%
Rates of increase in future salary levels 5.5 5.5 6.0
</TABLE>
In addition, the assumptions used for calculating net pension expense for the
years ended shown were:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rates
used to determine the projected
benefit obligation 7.5% 8.25% 7.0%
Rates of increase in future salary levels 5.5 6.0 5.5
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.
The following table sets forth the components of postretirement costs for the
years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $13 $16 $20
Interest cost 14 15 24
Amortization of unrecognized gain (9) (7) --
Amortization of unrecognized prior
service costs 1 -- --
- -----------------------------------------------------------------------
Net periodic postretirement
benefit cost $19 $24 $44
=======================================================================
</TABLE>
The funded status of the postretirement plan at December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
December 31,
-----------------
(In thousands) 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (25) $ --
Active plan participants and certain dependents (172) (229)
Fair value of assets -- --
- -----------------------------------------------------------------------
Fair value of assets in excess (less than)
accumulated post-retirement benefit
obligation (197) (229)
Unrecognized gain (154) (98)
Service cost 10 --
Interest cost -- --
- -----------------------------------------------------------------------
Accrued postretirement benefit cost $(341) $(327)
=======================================================================
</TABLE>
29
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
For measuring the expected postretirement benefit obligation, the Corporation
assumed a 9.5% rate of increase in the per capita claims cost in 1997 and
assumed that the rate would decrease linearly over a ten-year period to 5.5% and
remain at that level thereafter. The weighted-average discount rate used in
determining the accumulated postretirement benefit obligation was 7.75% in 1996
and 7.50% in 1995.
If the health care cost trend were increased one percent, the accumulated
postretirement benefit obligation as of December 31, 1996 would have increased
by approximately $35,200, or 17.9%. The effect of the change on the aggregate of
service and interest cost for 1996 would be an increase of approximately $8,000,
or 28.6%.
As further discussed in Note 12, the Bank sponsors an 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>
<S> <C>
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
- -----------------------------------------------------------------------
Distributions to former employees (540)
Purchase of shares funded by excess liquidity in the ESOP 3,416
Purchase of shares funded by a $175,000 contribution
from the Bank 8,562
- -----------------------------------------------------------------------
Number of shares held by the ESOP at December 31, 1996 150,452
=======================================================================
</TABLE>
At December 31, 1996, approximately 117,000 shares were allocated to
participants, approximately 16,800 were committed to be released during 1997,
and approximately 16,200 shares were unallocated and secured the ESOP borrowing.
The fair value of the unallocated shares at December 31, 1996 was approximately
$377,000.
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 $91,000, $79,000 and $51,000 for the years ended
December 31, 1996, 1995 and 1994, respectively, and are included in Salaries and
Employee Benefits in the accompanying Consolidated Statements of Income.
NOTE 10 -- STOCK OPTION PLANS
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." This Statement encourages
recording in current period earnings compensation expense related to the fair
value of certain stock-based compensation. Companies may choose to continue to
follow the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," where compensation expense is not
recorded for certain stock-based compensation plans. However, companies will be
required to disclose pro forma net income and earnings per share as if they
adopted the fair value based method of accounting. The disclosure requirements
for SFAS No. 123 are effective for fiscal years beginning after December 15,
1995. The Corporation has elected to continue to account for stock-based
compensation under APB Opinion No. 25. Pro forma disclosures are omitted in 1996
as they were considered to have an immaterial effect on the Corporation's pro
forma net income and net income per share. No options were granted in 1995.
During the initial phase-in period, the effects of applying SFAS No. 123 in
disclosing compensation costs may not be representative of the effects on
pro-forma net income for future years.
At December 31, 1996, the Corporation has three stock-based compensation
plans, which are described below. No compensation cost has been recognized for
these plans as they are fixed stock option plans. Under the 1992 Directors'
Plan, the Corporation may grant options to its Directors for up to 45,000 shares
of common stock. Under the 1987 and 1992 Officers' Incentive Plans, the
Corporation may grant options to purchase 118,500 and 105,000 shares of common
stock, respectively. Under the plans, the exercise price of each option equals
the market price of the Corporation's stock on the date of grant, and an
option's maximum term is ten years. Options under the Directors' Plan vest
immediately at date of grant. Options under the Officers' Incentive Plans vest
ratably over a three-year period from date of grant.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1996: dividend yield of 2.7%; expected volatility
of 20%; risk-free rates of 6.375%; and expected lives of ten years.
30
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
A summary of the status of the Corporation's three fixed stock option plans
as of December 31, 1996, and 1995 and changes during the years ended on those
dates are presented below:
<TABLE>
<CAPTION>
1996 1995
-------------------- ----------------------
Weighted Weighted
Average Average
Exercise Exercise
Fixed Options Options Price Options Price
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at
beginning of year 230,025 $ 9.02 252,825 $8.89
Granted 7,500 21.125 -- --
Exercised (3,000) 9.33 (20,300) 7.42
Forfeited -- -- (2,500) 9.33
- ------------------------------------------------------------------------
Outstanding at
end of year 234,525 9.40 230,025 9.02
========================================================================
Options exercisable
at year-end 234,525 222,525
Weighted-average fair
value of options
granted during
the year $6.34 --
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
- -----------------------------------------------------------------------
Weighted Average
Range of Number Remaining Weighted Average
Exercise Prices Outstanding Contractual Life Exercise Price
- -----------------------------------------------------------------------
<S> <C> <C> <C>
$ 6.67 to $ 9.33 197,025 3.3 years $ 8.05
$15.50 to $23.00 37,500 7.6 years 16.50
===============================
234,525
</TABLE>
NOTE 11 -- 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 of 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, 1996, the balance in this liquidation
account was approximately $676,000.
In conjunction with the merger and acquisition of Manville Savings with and
into the Bank, a separate liquidation account was also establsihed. At December
31, 1996, the balance in this liquidation account was approximately $329,000.
NOTE 12 -- BORROWINGS
Borrowings are summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
(In thousands) 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Bank of New York
Advance; interest rate: 6.875% and 5.375%, at
December 31, 1996 and 1995, respectively. $10,000 $10,000
ESOP debt 154 206
- ------------------------------------------------------------------------
$10,154 $10,206
========================================================================
</TABLE>
At December 31, 1996, the Bank had an available line of credit totaling $25.4
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, 1996 and 1995 there were no agreements outstanding to
repurchase the same securities. In addition, during 1996 there were no sales of
securities under repurchase agreements.
Agreements to repurchase the same securities averaged $4,300,000 for the year
ended December 31, 1995. The maximum amount outstanding at any month-end under
such agreements during the year ended December 31, 1995 totaled $9,735,000.
Accrued interest payable totaled $-O- at December 31, 1995. The average interest
rate on such agreements was 6.33% for the year ended December 31, 1995.
During August 1992, the ESOP borrowed $360,000 from an unrelated financial
institution to purchase 37,894 shares of the Corporation's stock.
The ESOP borrowing is summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Original principal: $360,000; matures on
August 25, 1999; interest rate: 9.75% and
10.00% at December 31, 1996 and 1995,
respectively, equals the lending financial
institution's prime rate plus 1.50% $154,000 $206,000
- ------------------------------------------------------------------------
$154,000 $206,000
========================================================================
</TABLE>
As principal payments are made by the ESOP, the corresponding liability will
be reduced and shareholders' equity will be increased. Principal payments
totaled $52,000 in 1996. Future principal payments are scheduled as follows:
<TABLE>
<S> <C>
1997 $ 51,000
1998 51,000
1999 52,000
- ------------------------------------------------------------------------
$154,000
========================================================================
</TABLE>
31
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
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.
The allocation to participant's accounts are based on each participant's
compensation during the calendar year. All 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 participants. 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'
accounts 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 $306,000, $117,000
and $132,000 in 1996, 1995 and 1994, respectively, and are included in salaries
and employee benefits.
NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Corporation's financial instruments at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------- ------------------
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 32,753 $ 32,753 $ 39,886 $ 39,886
Securities available-for-sale 47,253 47,253 50,547 50,547
Investment securities, net 51,919 51,202 61,406 60,831
Loans, net of
unearned income 235,070 236,265 195,172 195,736
Less: Allowance for loan losses (2,965) -- (2,582) --
Net loans 232,105 236,265 192,590 195,736
Federal Home Loan Bank
of New York stock 2,672 2,672 2,669 2,669
Financial liabilities:
Deposits 331,178 331,777 315,038 316,034
Borrowings 10,154 10,154 10,206 10,206
</TABLE>
NOTE 14 -- COMMITMENTS AND CONTINGENCIES
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, 1996 and 1995 is summarized below:
<TABLE>
<CAPTION>
Contractual Amount
December 31,
--------------------
(In thousands) 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Mortgage loan commitments
(primarily variable rate) $ 6,916 $ 4,093
Unused portion of commercial lines of credit and
undisbursed portion of construction loans 23,993 15,965
Unused portion of home equity lines of credit 9,320 9,243
Performance standby letters of credit 2,048 1,542
- ------------------------------------------------------------------------
$42,277 $30,843
========================================================================
</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.
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.
32
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
NOTE 15 -- 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. In addition,
parcels of real estate acquired by foreclosure and under 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.
NOTE 16 -- LONG-TERM LEASES
The future minimum rental commitments required under operating leases that
have initial or remaining non-cancelable lease terms in excess of one year are
as follows:
<TABLE>
<CAPTION>
Minimum
Year ended December 31, Rent Expense
-------------------------------------------------------------
<S> <C>
(In thousands)
1997 $ 242
1998 544
1999 549
2000 554
2001 593
Thereafter 3,284
-------------------------------------------------------------
$5,766
=============================================================
</TABLE>
Rent expense included in occupancy expense for the years ended December 31,
1996, 1995 and 1994 amounted to $226,000, $177,000 and $161,000, respectively.
NOTE 17 -- 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 accounts established at the time of its conversion to stock form and
the issuance of stock resulting from the Manville Savings' merger and
acquisition (approximately $1,005,000 at December 31, 1996), 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, 1996, 1995 and 1994, the Board of
Directors declared cash dividends totaling $893,000, $790,000 and $694,000,
respectively.
NOTE 18 -- CAPITAL REQUIREMENTS
The Federal Reserve Board in the case of bank holding companies such as the
Corporation and the FDIC in the case of state banks such as the Bank have
adopted risk-based capital guidelines which require a minimum ratio of 8% of
total risk-based capital to assets, as defined in the guidelines. At least one
half of the total capital, or 4%, is to be comprised of common equity and
qualifying perpetual preferred stock, less deductible intangibles (Tier 1
capital).
In addition, the Federal Reserve Board and the FDIC supplemented the
risk-based capital guidelines with an additional capital ratio referred to as
the leverage ratio or core capital ratio. The regulations require a financial
institution to maintain a minimum leverage ratio of 4% to 5%, depending upon the
condition of the institution.
Under its prompt corrective action regulations, the FDIC is required to take
certain supervisory actions (and may take additional discretionary actions) with
respect to an undercapitalized institution. Such actions could have a direct
material effect on the institution's financial statements. The regulations
establish a framework for the classification of depository institutions into
five categories: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. Generally, an
institution is considered well capitalized if it has a leverage ratio of at
least 5.0%; a Tier 1 capital ratio of at least 6.0%; and a total risk-based
capital ratio of at least 10.00%.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are subject to qualitative judgments by the regulatory
authorities about capital components, risk weightings and other factors.
Management believes that, as of December 31, 1996, the Corporation and the
Bank meet all capital adequacy requirements to which they are subject. Further,
the most recent FDIC notification characterized the Bank as a well capitalized
institution under the prompt corrective action regulations. There have been no
conditions or events since that notification that management believes have
changed the Bank's capital classification.
The following is a summary of the Corporation's and the Bank's actual capital
amounts and ratios as of December 31, 1996 and 1995, compared to the regulatory
authorities' minimum capital adequacy requirements and requirements for
classification as a well capitalized institution:
33
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Regulatory Requirements
----------------------------------------------------------------
Minimum For Classification
Actual Capital Adequacy as Well Capitalized
----------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Corporation:
December 31, 1996
Leverage (Tier 1) capital $26,767 7.440% $14,391 4.00% $17,989 5.00%
Risk-based capital:
Tier 1 26,767 12.834 8,343 4.00 12,514 6.00
Total 29,378 14.086 16,685 8.00 20,856 10.00
December 31, 1995
Leverage (Tier 1) capital 24,778 7.380 13,430 4.00 16,787 5.00
Risk-based capital:
Tier 1 24,778 14.217 6,971 4.00 10,457 6.00
Total 26,962 15.470 13,943 8.00 17,429 10.00
The Bank:
December 31, 1996
Leverage (Tier 1) capital 26,764 7.440 14,389 4.00 17,987 5.00
Risk-based capital:
Tier 1 26,764 12.833 8,342 4.00 12,513 6.00
Total 29,375 14.085 16,684 8.00 20,855 10.00
December 31, 1995
Leverage (Tier 1) capital 24,745 7.370 13,430 4.00 16,788 5.00
Risk-based capital:
Tier 1 24,745 14.198 6,971 4.00 10,457 6.00
Total 26,928 15.451 13,942 8.00 17,428 10.00
</TABLE>
NOTE 19 -- RECAPITALIZATION OF SAVINGS ASSOCIATION
INSURANCE FUND ("SAIF")
On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on SAIF insured deposits, including
approximately $83.0 million in "Oakar" and "Sasser" deposits held by the Bank,
to recapitalize the SAIF and spread the obligations for payment of Financing
Corporation ("FICO") bonds across all SAIF and Bank Insurance Fund ("BIF")
members. The FDIC special assessment being levied amount to 65.7 basis points on
SAIF assessable deposits held as of March 31, 1995. The Bank took a charge of
$436,000 million before tax-effect, as a result of the special assessment. This
legislation will eliminate the substantial disparity between the amount that BIF
and SAIF member institutions had been paying for deposit insurance premiums.
Beginning on January 1, 1997, BIF members will pay a portion of the FICO
payment equal to 1.3 basis points on BIF-insured deposits compared to 6.4 basis
points on SAIF insured deposits and will pay a pro-rata share of the FICO
payment on the earlier of January 1, 2000, or the date upon which the last
savings association ceases to exist. The legislation also requires BIF and SAIF
to be merged by January 1, 1999, provided that subsequent legislation is adopted
to eliminate the savings association charter and no savings associations remain
as of that time.
Beginning January 1, 1997, SAIF assessment rates will range from zero to 27
basis points based upon an institution's regulatory risk classification and
capital group. Based upon its current classification, the rate applicable to the
Bank would be zero.
NOTE 20 -- ACQUISITION AND MERGER OF MANVILLE
SAVINGS BANK, SLA
Effective August 1, 1996, the Manville Savings Bank, SLA was merged with, and
into, the Bank pursuant to a merger agreement. As part of the merger, 124,596
common shares of the Corporation were issued. Proceeds from the issuance of
these shares totaled $2.0 million. The transaction was accounted for using the
purchase method of accounting. Negative goodwill totaling $746,000 was recorded
and will be accreted to income over a period of five years using the
straight-line method. Net loans and deposits acquired totaled $11.9 million and
$12.5 million, respectively. The acquisition had an immaterial impact on the
Corporation's results of operations.
34
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
NOTE 21 -- RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
125"). SFAS No. 125 amends portions of SFAS No. 115, amends and extends to all
servicing assets and liabilities the accounting standards for mortgage servicing
rights now in SFAS No. 65, and supersedes SFAS No. 122. The statement provides
consistent standards for distinguishing transfers of financial assets which are
sales from transfers that are secured borrowings. Those standards are based upon
consistent application of a financial components approach that focuses on
control. The statement also defines accounting treatment for servicing assets
and other retained interest in the assets that are transferred. SFAS No. 125 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, except for certain provisions
which were deferred until January 1, 1998 by SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No.125," issued in
December 1996, and is to be applied prospectively. The initial adoption of the
statement is not expected to have a material effect on the Company's financial
condition or results of operations.
NOTE 22 -- 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 are recorded as
dividend income from the Bank. For purposes of reporting cash flows, cash
includes cash due from bank. Condensed financial statements of the Parent
Company only follow:
Raritan Bancorp Inc.
Parent Company Only
CONDENSED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Condensed Balance Sheets
December 31,
-------------------
(In thousands) 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash $ 14 $ 44
Investment in subsidiary Bank 28,265 26,315
Other assets 1 2
- -----------------------------------------------------------------------
$28,280 $26,361
- -----------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Accrued expenses $ 12 $ 13
Shareholders' equity 28,268 26,348
- -----------------------------------------------------------------------
$28,280 $26,361
- -----------------------------------------------------------------------
<CAPTION>
Condensed Statements of Income
Year ended December 31,
------------------------------
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividend income $2,485 $1,480 $ 700
Expenses 16 16 16
- -----------------------------------------------------------------------
2,469 1,464 684
Income tax benefit (5) (5) (5)
- -----------------------------------------------------------------------
Income before equity in undistributed
earnings of subsidiary 2,474 1,469 689
Equity in undistributed
earnings of subsidiary 634 1,203 2,165
- -----------------------------------------------------------------------
Net income $3,108 $2,672 $2,854
- -----------------------------------------------------------------------
<CAPTION>
Condensed Statements of Cash Flows
Year ended December 31,
-------------------------------
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Dividends received from the Bank $2,485 $1,480 $ 700
Expenses paid by cash (16) (15) (6)
Income taxes reimbursed by Bank 6 4 4
- -----------------------------------------------------------------------
Net cash provided by
operating activities 2,475 1,469 698
- -----------------------------------------------------------------------
Cash Flows From Investing Activities:
Additional investment
in subsidiary (1,339) -- --
- -----------------------------------------------------------------------
Net cash used in investing activities (1,339) -- --
- -----------------------------------------------------------------------
Cash Flows From Financing Activities:
Issuance of common stock 2,027 150 2
Treasury stock acquired, at cost (2,300) (827) --
Dividends paid (893) (790) (694)
- -----------------------------------------------------------------------
Net cash used by financing activities (1,166) (1,467) (692)
- -----------------------------------------------------------------------
Net increase in cash (30) 2 6
Cash at beginning of year 44 42 36
- -----------------------------------------------------------------------
Cash at end of year $ 14 $ 44 $ 42
- -----------------------------------------------------------------------
</TABLE>
A reconciliation of net income to net cash provided by operating activities
follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Net income $3,108 $2,672 $2,854
Adjustments to reconcile net
income to net cash provided
by operating activities:
Increase (decrease) in
accrued expenses (1) (1) 9
Decrease in income
taxes receivable 2 1 --
Equity in undistributed
earnings of subsidiary (634) (1,203) (2,165)
- -----------------------------------------------------------------------
Total adjustments (633) (1,203) (2,156)
- -----------------------------------------------------------------------
Net cash provided by
operating activities $2,475 $1,469 $ 698
- -----------------------------------------------------------------------
</TABLE>
35
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
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, 1996 and 1995 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, 1996. 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, 1996 and 1995 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Short Hills, New Jersey
January 21, 1997
36
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Selected quarterly financial data for 1996 and 1995 follow:
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
- ---------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
1996
Total interest income $6,019 $6,062 $6,306 $6,544
Net interest income 2,799 2,899 3,122 3,254
Provision for loan losses 75 75 150 150
Income before income tax expense 1,181 1,270 962 1,508
Net income 743 804 613 948
Net income per share (primary) 0.46 0.52 0.37 0.57
Net income per share (fully diluted) 0.46 0.52 0.37 0.57
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) 0.40 0.37 0.41 0.45
Net income per share (fully diluted) 0.40 0.37 0.41 0.45
</TABLE>
37
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
DIRECTORS AND OFFICERS
Board of Directors
William T. Anderson, M.D.
Physician
William W. Crouse
Vice Chairman and General Partner
HealthCare Investment Corporation
Peter S. Johnson
Partner, Gillen & Johnson, PA
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.
- ----------------------------------------------------------------
Richard E. Fischer
Director Emeritus
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
Manville Advisory Board
Louis Fries
Retired
Peter S. Johnson
Partner, Gillen & Johnson, PA
Ned Licitra
Building Contractor
Lowell E. Reinhardt
Vice President and Compliance Officer
The Raritan Savings Bank
Leonard Scharffenberger
President, Alloy Welding, Inc.
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 and Controller
Lowell E. Reinhardt
Vice President 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 Staropoli
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
Dawn M. Forehand
Assistant Secretary -- Branch Manager, Manville
Johanna J. Grasing
Assistant Secretary -- Branch Manager Martinsville
Phyllis K. Miller
Assistant Secretary -- Branch Manager, Raritan
Cynthia A. 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 and Schick, P.C.
38
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
SHAREHOLDER INFORMATION
Annual Meeting
The Annual Meeting is scheduled for 10:00 a.m., Wednesday, April 23, 1997 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 symbol RARB. Stock price quotations can be found in The Wall
Street Journal and local daily newspapers. At March 10, 1997, the closing price
of the common stock was $24.375 bid and $25.125 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
First City Transfer Company
111 Wood Avenue South
Suite 206
Iselin, NJ 08830
Number of Shares Outstanding and Shareholders
At March 10, 1997, Raritan Bancorp Inc. had 1,524,084 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, 1996 $23.50 $21.25 $0.15
September 30, 1996 22.00 20.25 0.15
June 30, 1996 22.00 20.75 0.15
March 31, 1996 22.25 21.00 0.15
December 31, 1995 22.50 21.50 0.13
September 30, 1995 22.50 21.00 0.13
June 30, 1995 22.25 20.75 0.13
March 31, 1995 21.75 17.00 0.13
</TABLE>
39
<PAGE>
SELECTED RETAIL BANKING
SERVICES AVAILABLE:
. Personal/NOW/Business Checking
. Passbook/Statement Savings
. Money Market Accounts
. Certificates of Deposits
. Retirement Savings
SELECTED LOAN SERVICES AVAILABLE:
. First Residential Mortgage Loans
. Home Equity Loans
. Construction Loans
. Small Business Loans
. Personal and Auto Loans
40
<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
339 South Main Street
Manville, New Jersey 08835
(908) 722-2776
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
Raritan Bancorp Inc.
(Holding company for The Raritan Savings Bank)
The subsidiary bank is a member of the FDIC.
[RECYCLING LOGO APPEARS HERE] Printed on Recycled Paper.
<PAGE>
EXHIBIT 24
ACCOUNTANTS' CONSENT
<PAGE>
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 21, 1997, relating to the
consolidated balance sheets of Raritan Bancorp Inc. and subsidiary as of
December 31, 1996 and 1995 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, 1996, which report is incorporated by
reference in the 1996 Annual Report on Form 10-K of Raritan Bancorp Inc.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
March 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,453
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 27,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,253
<INVESTMENTS-CARRYING> 51,919
<INVESTMENTS-MARKET> 51,202
<LOANS> 235,070
<ALLOWANCE> 2,965
<TOTAL-ASSETS> 375,393
<DEPOSITS> 331,178
<SHORT-TERM> 10,154
<LIABILITIES-OTHER> 5,793
<LONG-TERM> 0
0
0
<COMMON> 17
<OTHER-SE> 28,251
<TOTAL-LIABILITIES-AND-EQUITY> 375,393
<INTEREST-LOAN> 17,317
<INTEREST-INVEST> 7,614
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 24,931
<INTEREST-DEPOSIT> 12,831
<INTEREST-EXPENSE> 12,857
<INTEREST-INCOME-NET> 12,074
<LOAN-LOSSES> 450
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 7,423
<INCOME-PRETAX> 4,921
<INCOME-PRE-EXTRAORDINARY> 4,921
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,108
<EPS-PRIMARY> 1.91
<EPS-DILUTED> 1.90
<YIELD-ACTUAL> 3.60
<LOANS-NON> 1,317
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,582
<CHARGE-OFFS> (380)
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 2,965
<ALLOWANCE-DOMESTIC> 2,965
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
