United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Period Ended September 30,1997
Commission File Number: 0-15830
Raritan Bancorp Inc.
(exact name of registrant as specified in its charter)
Delaware 22-2792402
(State of Incorporation) (I.R.S. Employer Identification
Number)
9 West Somerset Street, Raritan, New Jersey 08869
(address of principal executive offices) (zip code)
908-725-0080
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days.
/X/ Yes / / No
Applicable only to corporate issuers:
As of October 24, 1997, 2,372,226 common shares, $.01 par
value per share were outstanding.
<PAGE>
RARITAN BANCORP INC.
FORM 10-Q
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS 1
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 7
PART II -OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 12
ITEM 2 CHANGES IN THE RIGHTS OF THE CORPORATION'S
SECURITY HOLDERS 12
ITEM 3 DEFAULTS BY THE CORPORATION ON ITS SENIOR
SECURITIES 12
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 12
ITEM 5 OTHER INFORMATION 12
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
<PAGE>
<TABLE>
PART 1--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RARITAN BANCORP INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, 1997 DECEMBER 31, 1996
(UNAUDITED) (AUDITED)
ASSETS
<S> <C> <C>
Cash and due from banks $ 7,149 $ 5,453
Federal funds sold 25,100 27,300
----------- ----------
Total cash and cash equivalents 32,249 32,753
Securities available-for-sale, at fair value 52,303 47,253
Investment securities, net (fair value: $44,877
at September 30, 1997 and $51,202 at
December 31, 1996) 45,290 51,919
Loans 261,978 235,474
Less: Unearned income 131 404
Allowance for loan losses 3,310 2,965
----------- ----------
Net loans 258,537 232,105
----------- ----------
Banking premises and equipment, net 4,470 3,689
Federal Home Loan Bank of New York Stock, at cost 2,672 2,672
Accrued interest receivable 2,144 1,947
Other assets 9,597 3,055
----------- ----------
Total assets $ 407,262 $ 375,393
----------- ----------
----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Due to depositors:
Interest-bearing $ 313,314 $ 309,569
Non-interest-bearing 22,596 21,609
----------- ----------
Total deposits 335,910 331,178
Borrowings 35,103 10,154
Accrued interest payable 160 59
Accrued expenses and other liabilities 6,093 5,734
----------- ----------
Total liabilities 377,266 347,125
----------- ----------
Shareholders' Equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized; none issued - -
Common stock, $.01 par value, 3,500,000
shares authorized; 2,587,412* shares issued at
September 30, 1997 and 2,587,500 shares issued
at December 31, 1996, with 2,372,226* shares
outstanding at September 30, 1997 and 2,270,563*
shares outstanding at December 31, 1996 26 26
Additional paid-in capital 10,614 11,165
Retained earnings 22,088 20,007
Fair value adjustment of securities
available-for-sale, net of tax 215 204
Less: Unallocated common stock acquired by the ESOP (103) (154)
Unearned deferred compensation (248) -
Cost of common stock in treasury, 215,186*
shares at September 30, 1997 and 316,937*
shares at December 31, 1996 (2,596) (2,980)
----------- ----------
Total shareholders' equity 29,996 28,268
Commitments and contingencies ----------- ----------
Total liabilities and shareholders' equity $ 407,262 $ 375,393
----------- ----------
----------- ----------
*Share amounts reflect the effect of the three-for-two stock split paid in the
form of a stock dividend on July 1, 1997.
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on real estate loans $ 4,226 $ 3,460 $ 12,321 $ 9,738
Interest and fees on other loans 1,030 980 3,057 2,805
Interest and dividends on investment securities:
Taxable 1,268 1,754 4,111 5,193
Tax-exempt 12 12 37 38
Interest on deposits in other banks 336 100 810 613
---------- ---------- ---------- ----------
Total interest income 6,872 6,306 20,336 18,387
---------- ---------- ---------- ----------
Interest expense:
Interest on deposit accounts 3,448 3,179 10,087 9,547
Interest on borrowings 229 5 421 20
---------- ---------- ---------- ----------
Total interest expense 3,677 3,184 10,508 9,567
---------- ---------- ---------- ----------
Net interest income 3,195 3,122 9,828 8,820
Provision for loan losses 150 150 450 300
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 3,045 2,972 9,378 8,520
Other income:
Service charges and other income 302 183 717 535
Gains on net securities transactions 7 - 90 1
---------- ---------- ---------- ----------
Total other income 309 183 807 536
---------- ---------- ---------- ----------
Operating expenses:
Salaries and employee benefits 1,055 859 3,089 2,797
Occupancy expense 181 187 559 557
FDIC insurance premium 20 501 60 588
Net cost of operation of other real estate 5 14 27 37
Other operating expenses 596 632 1,825 1,664
---------- ---------- ---------- ----------
Total operating expenses 1,857 2,193 5,560 5,643
---------- ---------- ---------- ----------
Income before tax expense 1,497 962 4,625 3,413
Income tax expense 530 349 1,706 1,253
---------- ---------- ---------- ----------
Net income $ 967 $ 613 $ 2,919 $ 2,160
---------- ---------- ---------- ----------
Average number of shares outstanding:
Primary 2,545,851* 2,500,857* 2,527,095* 2,422,561*
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully diluted 2,551,244* 2,502,355* 2,547,582* 2,422,561*
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per share:
Primary $ 0.38* $ 0.25* $ 1.16* $ 0.89*
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully diluted $ 0.38* $ 0.24* $ 1.15* $ 0.89*
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
*These figures reflect the effect of the three-for-two stock split paid
in the form of a stock dividend on July 1, 1997.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
RARITAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
FOR THE NINE MONTHS ENDED SEPTEMBER 30
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,919 $ 2,160
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accrued interest receivable (197) (330)
Amortization on securities, net 110 56
Provision for loan losses 450 300
Gain on net securities transactions (90) (1)
Increase (decrease) in accrued interest payable 101 (4)
Increase in accrued expenses 445 640
Decrease in prepaid expenses 183 3
Depreciation 265 279
Deferred income taxes 230 (156)
(Decrease) increase in income taxes payable (245) 96
Net increase, other 354 1,344
----------- -----------
Total cash provided by operating activities $ 4,525 $ 4,387
Cash flows from investing activities:
Proceeds from call, maturities and repayments
of securities available-for-sale 8,394 13,875
Proceeds from sale of securities available-for-sale 6,944 -
Proceeds from repayments of investment securities, net 6,560 7,568
Purchase of securities available-for-sale (20,322) (16,916)
Purchase of corporate-owned life insurance (7,200)
Redemption of Federal Home Loan Bank
of New York stock - 99
Net disbursements for loans (26,748) (18,734)
Capital expenditures (1,046) (797)
----------- -----------
Net cash used in investing activities (33,418) (14,905)
Cash flows from financing activities:
Net increase (decrease) in demand deposits,
money market accounts, NOW accounts, prime
performance accounts, and savings accounts 9,157 (10,125)
Net (decrease) increase in market-rate certificates (4,425) 3,804
Proceeds from issuance of common stock 611 2,028
Treasury stock acquired, at cost (1,063) (1,893)
Proceeds from borrowings 25,000 -
Repayment of borrowings (51) (10,052)
Cash dividends paid (840) (665)
----------- -----------
Net cash provided by (used in) financing
activities 28,389 (16,903)
----------- -----------
Net decrease in cash and cash equivalents (504) (27,421)
Cash and cash equivalents at beginning of period 32,753 39,886
----------- -----------
Cash and cash equivalents at end of period $ 32,249 $ 12,465
----------- -----------
----------- -----------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30
1997 1996
Interest paid $ 10,407 $ 9,571
----------- -----------
----------- -----------
Income taxes paid $ 1,721 $ 1,554
----------- -----------
----------- -----------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: The consolidated financial statements include the
accounts of the Raritan Bancorp Inc. ("Corporation") and its
wholly-owned subsidiary, The Raritan Savings Bank ("Bank").
The consolidated balance sheet at September 30, 1997, the
consolidated statements of income for the three and nine month
periods ended September 30, 1997 and 1996, and the consolidated
statements of cash flows for the nine month periods ended
September 30, 1997 and 1996, have been prepared by the
Corporation without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial condition, results of
operations, and changes in cash flows at September 30, 1997 and
for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been omitted. These
consolidated financial statements are to be read in conjunction
with the December 31, 1996 audited financial statements and notes
thereto.
Interim results are not necessarily indicative of results for the
full year.
Note 2: Securities Available-for-Sale, at fair value, and
Investment Securities, net:
The amortized cost of securities and their estimated fair values
at September 30, 1997, were as follows:
<TABLE>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Securities available-for-sale, at fair value:
U.S. Treasury securities and obligations
of U.S. Government agencies $12,350 $ 43 $ - $12,393
Obligations of states and political
subdivisions 695 44 - 739
Equity security 129 88 - 217
Mortgage-backed securities issued by
Federal agencies 38,786 292 (124) 38,954
------- ------- ------ -------
$51,960 $ 467 $ (124) $52,303
------- ------- ------ -------
------- ------- ------ -------
Investment securities, net:
Mortgage-backed securities issued by Federal agencies $ 45,290 $ 30 $ (443) $44,877
------- ------- ------ -------
------- ------- ------ -------
</TABLE>
<PAGE>
The amortized cost of securities and their estimated fair values
at December 31, 1996, were as follows:
<TABLE>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Securities available-for-sale, at fair value:
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 security 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>
During the nine month period ending September 30, 1997, the
Corporation sold securities which were classified as available-
for-sale in the amount of $6,944,000 at a gross gain of $78,000.
In addition, securities classified as available-for-sale in the
amount of $4,005,000 were called at a gross gain of $12,000.
During the nine month period ended September 30, 1996 a security
classified as available-for-sale in the amount of $50,000 was
called a gain of $1,000.
Note 3: Loans and Allowance for Loan Losses:
Loans are summarized as follows:
<TABLE>
September 30, 1997 December 31, 1996
(Unaudited) (Audited)
(In thousands)
<S> <C> <C>
Real estate:
Conventional $203,962 $179,135
Construction 9,133 11,019
-------- --------
213,095 190,154
Consumer Loans 39,035 35,300
Commercial Loans 9,848 10,020
-------- --------
$261,978 $235,474
-------- --------
-------- --------
</TABLE>
The activity in the allowance for loan losses follows:
<TABLE>
Three Months Ended September 30 Nine Months Ended September 30
1997 1996 1997 1996
(Unaudited) (Unaudited)
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $3,272 $2,465 $2,965 $2,582
Allowance acquired from Manville Savings - 303 - 303
Provision charged to operations 150 150 450 300
Charge-offs (116) (69) (255) (340)
Recoveries 4 7 150 11
------ ------ ------ ------
Balance at end of period $3,310 $2,856 $3,310 $2,856
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
<PAGE>
Non-performing loans (over 90 days delinquent), real estate
acquired by foreclosure (included in Other Assets) and non-
accrual loans less than 90 days delinquent totaled $1,646,000 and
$1,486,000 at September 30, 1997 and December 31, 1996,
respectively, as follows:
<TABLE>
September 30, 1997 December 31, 1996
Number Amount Number Amount
of Loans (In thousands) of Loans (In thousands)
Description: (Unaudited) (Audited)
<S> <C> <C> <C> <C>
First mortgage loans 6 $ 675 4 $ 576
Construction loan 1 44 - -
Home equity loans 2 109 2 115
Second mortgage loans 1 52 1 47
Consumer loans 6 50 - -
Commercial loans 2 380 2 326
Loans with modified terms 2 174 3 253
-- ------- -- --------
Total non-performing loans 20 1,484 12 1,317
Real estate acquired by foreclosure 1 103 1 103
-- ------- -- --------
21 1,587 13 1,420
Non-accrual loans less than 90 days delinquent 3 59 4 66
-- ------- -- --------
24 $ 1,646 17 $ 1,486
-- ------- -- --------
-- ------- -- --------
</TABLE>
The loss of interest on loans charged-off, non-performing loans,
real estate acquired by foreclosure and non-accrual loans less
than 90 days delinquent totaled approximately $31,000 and $91,000
for the third quarter and first nine months of 1997, compared to
$15,000 and $125,000, respectively, for the corresponding 1996
periods.
At September 30, 1997 and December 31, 1996, the Corporation had
impaired loans totaling $1,484,000 and $1,317,000, respectively.
The Corporation calculated a total allowance for impaired loans
of $177,000 and $112,000 at September 30, 1997 and December 31,
1996, respectively. Impaired loans averaged $1,411,000 and
$1,330,000 for the three and nine month periods ended September
30, 1997, respectively, compared to $1,630,000 and $1,264,000 for
the comparable 1996 periods. Interest income totaling $11,000
and $30,000 was recognized, all on a cash basis, on impaired
loans for the three and nine month periods ended September 30,
1997, respectively, compared to $-0- and $27,000 for the
comparable 1996 periods, respectively.
Note 4: Recently Issued Accounting Pronouncements:
FASB Statement No. 128 "Earnings Per Share":
In February, 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("Statement 128"). Statement 128
supersedes APB Opinion No. 15, "Earnings Per Share", and
specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS") for entities with
publicly held common stock or potential common stock. Statement
128 replaces Primary EPS and Fully Diluted EPS with Basic EPS and
Diluted EPS, respectively. Statement 128 also requires dual
presentation of Basic and Diluted EPS on the face of the income
statement for entities with complex capital structures and a
reconciliation of the information utilized to calculate Basic EPS
to that used to calculate Diluted EPS.
<PAGE>
Statement 128 is effective for financial statement periods ending
after December 15, 1997. Earlier application is not permitted.
After adoption, all prior EPS is required to be restated to
conform with Statement 128. The Corporation expects that the
adoption of Statement 128 will result in Basic EPS being higher
than Primary EPS and Diluted EPS will be approximately the same
as Fully Diluted EPS.
FASB Statement No. 129 "Disclosure of Information about Capital
Structure":
Statement of Financial Accounting Standards No. 129, "Disclosure
of Information about Capital Structure" ("Statement 129") was
issued in February, 1997. Statement 129 is effective for periods
ending after December 15, 1997. Statement 129 lists required
disclosures about capital structure that had been included in a
number of separate statements and opinions of authoritative
accounting literature. As such, the adoption of Statement 129 is
not expected to have a significant impact on the disclosures in
financial statements of the Corporation.
FASB Statement No. 130 "Reporting Comprehensive Income":
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("Statement 130") was issued in June, 1997.
Statement 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general
purpose financial statements. Under Statement 130, comprehensive
income is divided into net income and other comprehensive income.
Other comprehensive income includes items previously recorded
directly in equity, such as unrealized gains or losses on
securities available-for-sale. Statement 130 is effective for
interim and annual periods beginning after December 15, 1997.
Comparative financial statements provided for earlier periods are
required to be reclassified to reflect application of the
provisions of the Statement.
FASB Statement No. 131 "Disclosures about Segments of an
Enterprise and Related Information":
Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" ("Statement 131") was issued in June, 1997.
Statement 131 establishes standards for the way public business
enterprises are to report information about operating segments in
annual financial statements and requires those enterprises to
report selected financial information about operating segments in
interim financial reports to shareholders. Statement 131 is
effective for financial statements for periods beginning after
December 15, 1997.
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
At September 30, 1997, the Corporation's total assets increased
to $407.3 million from $375.4 million at December 31, 1996. Net
loans increased to $258.5 million at September 30, 1997 from
$232.1 million at December 31, 1996, as loan disbursements
exceeded repayments by $26.4 million. Deposits increased to
$335.9 million at September 30, 1997 from $331.2 at December 31,
1996. Deposits outflows, exclusive of interest credited,
exceeded inflows by $5.4 million during the first nine months of
1997.
Non-performing loans (over 90 days delinquent), real estate
acquired by foreclosure (included in Other Assets) and non-
accrual loans less than 90 days delinquent totaled $1,646,000 or
0.63% of total net loans plus real estate acquired by foreclosure
at September 30, 1997, compared to $1,486,000 or 0.64% of total
net loans plus real estate acquired by foreclosure at December
31, 1996.
During the three and nine month periods ended September 30, 1997
the Corporation added $150,000 and $450,000 to the allowance for
loan losses compared to $150,000 and $300,000 during the
corresponding periods in 1996. The increased provision was in
response to a growing diversified loan portfolio. All non-
performing assets are individually reviewed as well as the
overall loan portfolio when calculating the provision.
<PAGE>
Non-performing loans (over 90 days delinquent), real estate
acquired by foreclosure (included in Other Assets) and non-
accrual loans less than 90 days delinquent totaled $1,646,000 and
$1,486,000 at September 30, 1997 and December 31, 1996,
respectively, as follows:
<TABLE>
September 30, 1997 December 31, 1996
Number Amount Number Amount
of Loans (In thousands) of Loans (In thousands)
Description: (Unaudited) (Audited)
<S> <C> <C> <C> <C>
First mortgage loans 6 $ 675 4 $ 576
Construction loan 1 44 - -
Home equity loans 2 109 2 115
Second mortgage loans 1 52 1 47
Consumer loans 6 50 - -
Commercial loans 2 380 2 326
Loans with modified terms 2 174 3 253
-- ------- -- --------
Total non-performing loans 20 1,484 12 1,317
Real estate acquired by foreclosure 1 103 1 103
-- ------- -- --------
21 1,587 13 1,420
Non-accrual loans less than 90 days delinquent 3 59 4 66
-- ------- -- --------
24 $ 1,646 17 $ 1,486
-- ------- -- --------
-- ------- -- --------
</TABLE>
Of the twenty non-performing loans at September 30, 1997 fourteen
($1.434 million) are collateralized by real estate, two ($40,000)
are secured by deposit accounts, one ($7,000) is secured by
stock, one is ($-0-) is secured by an automobile and two ($3,000)
are unsecured. Real estate acquired by foreclosure consists of
one two-family dwelling . Of the three non-accrual loans, one is
secured by real estate ($14,000), one ($30,000) is secured by
the borrower's business receivables and one ($15,000) is
unsecured.
Based on a review of each individual non-performing loan and non-
accrual loan less than 90 days delinquent, and loans rated loss,
doubtful, substandard and special mention according to regulatory
definition, a specific allowance of $1,064,000 has been allocated
to such loans, together with a general allowance of $2,246,000 on
the remaining loan portfolio taken as a whole. During the
quarter and nine months ended September 30, 1997 loans totaling
$116,000 and $255,000, respectively, were charged off, compared
to $69,000 and $340,000 for the corresponding 1996 periods.
On an ongoing basis, management reviews 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. When reviewing the adequacy of the allowance for loan
losses, management reviews the status of the current (and
potential) non-performing loans, delinquency trends, coverage
ratios and various economic and other factors, and determines
what levels of allowance for loan losses are necessary to absorb
current losses in the loan portfolio.
Shareholders' equity totaled $30.0 million, or $12.64 per share
at September 30, 1997, compared to $28.3 million, or $12.45 per
share at December 31, 1996. The increase in shareholders' equity
is the result of net income totaling $2,919,000 for the nine
months ended September 30, 1997, the issuance of 132,862 shares
of common stock for $611,000 via the exercise of stock options, a
decrease of $51,000 in the ESOP debt, an increase in the fair
value adjustment of securities available-for-sale of $11,000, the
amortization of unearned deferred compensation of $39,000,
partially offset by dividend payments of $840,000 to shareholders
and the repurchase of 49,113 shares of the Corporation's common
stock for $1,063,000.
<PAGE>
Results of Operations:
Raritan Bancorp Inc. and its subsidiary recorded net income of
$967,000 for the third quarter of 1997 compared to $613,000 for
the same period in 1996, an increase of 57.7%. For the first
nine months of 1997, net income was $2,919,000 compared to
$2,160,000 for the corresponding period in 1996, an increase of
35.1%. The results for the third quarter and first nine months
of 1996 include the one-time recapitalization charge (net of tax)
of $290,000 assessed by the Savings Association Insurance Fund.
Net interest income increased moderately for the third quarter of
1997 to $3.2 million from $3.1 million, or 3.2%, for the
comparable quarter in 1996. An increase in interest income
resulting from both the volume change of $498,000 and yield
change of $68,000 on interest-earning assets contributed $566,000
to the overall increase in net interest income, but was partially
offset by an increase in interest expense from both the volume
change totaling $314,000 and interest rate change totaling
$179,000 on interest-bearing liabilities. The Corporation's net
interest margin was affected during the third quarter of 1997 by
an investment in corporate-owned life insurance in June, 1997
which, although increasing non-interest income, reduced the
Corporation's interest-earning asset base by $7.2 million. Net
interest income increased for the first nine months of 1997 to
$9.8 million from $8.8 million, or 11.4%, for the corresponding
period in 1996, as a result of an increase in average net earning
assets to $37.8 million from $35.3 million a year earlier,
together with an increase in the interest rate spread to 3.21%
from 3.09% a year earlier. An increase in interest income
resulting from both the volume change of $1,414,000 and yield
change of $535,000 on interest-earning assets contributed
$1,949,000 to the overall increase in net interest income, but
was partially offset by an increase in interest expense from both
the volume change totaling $736,000 and interest rate change
totaling $205,000 on interest-bearing liabilities. The increased
spread is also the result of investing available funds into
higher-yielding loan products instead of lower-yielding
investment securities.
Net interest income for the third quarter and first nine months
of 1997 was also affected by the loss of interest on non-
performing loans, non-accrual loans and real estate acquired by
foreclosure. Generally, when a loan becomes more than thirty
days delinquent, the Corporation ceases to accrue 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, non-
accrual loans, and real estate acquired by foreclosure for the
third quarter and first nine months of 1997 was approximately
$31,000 and $91,000, respectively, compared to $15,000 and
$125,000, respectively, for the corresponding 1996 periods.
The provision for loan losses for the third quarter and first
nine months of 1997 was $150,000 and $450,000, respectively,
compared to $150,000 and $300,000 for the corresponding 1996
periods. As described in the discussion of the Corporation's
financial condition, the increased provision was in response to a
growing diversified loan portfolio. All non-performing assets are
individually reviewed for collectibility as well as the overall
loan portfolio when calculating the provision.
Management calculated the provision based on a review of the
required allowance at September 30, 1997. All non-performing
loans and loans rated loss, doubtful, substandard and special
mention according to regulatory definition were reviewed and a
specific allowance of $1,064,000 was determined to be adequate by
comparing the existing loan balances with the value of supporting
collateral. A review of the remaining loan portfolio was made
and a general allowance of approximately $2,246,000 was deemed
reasonable and was established by assigning risk factors to the
various loan categories based on the collateral securing the
appropriate loans and historical trends.
Other income for the third quarter and first nine months of 1997
increased to $309,000 and $807,000, respectively, from $183,000
and $536,000 for the corresponding 1996 periods, as a result of
the increase in the cash surrender value of aforementioned
corporate-owned life insurance totaling $109,000 and $138,000,
respectively, during the 1997 periods indicated.
Operating expenses for the third quarter and first nine months of
1997 were $1,857,000 and $5,560,000, respectively, compared to
$2,193,000 and $5,643,000 for the corresponding periods in 1996.
Salaries and employee benefits increased $196,000, or 22.8%, to
$1,055,000 for the third quarter of 1997 from $859,000 for the
comparable period in 1996, and increased $292,000, or 10.4%, to
$3,089,000 from
<PAGE>
$2,797,000 for the first nine months of 1996. The full impact of
the addition of five employees as a result of the Manville
Savings Bank merger and acquisition in August, 1996, together
with normal merit and cost of living adjustments contributed to
the increases. The FDIC insurance premium decreased $481,000 to
$20,000 for the third quarter of 1997, and decreased $528,000 to
$40,000 for the first nine months of 1997. During the third
quarter of 1996 there was a $436,000 charge which represented a
one-time assessment to recapitalize the Savings Association
Insurance Fund. In addition, this recapitalization assesses a
lower FDIC premium rate for the Bank beginning in 1997. Other
operating expenses decreased $36,000, or 5.7%, to $596,000, for
the third quarter of 1997 compared to the third quarter of 1996
primarily as a result of the accretion of negative goodwill
resulting from the previously-mentioned Manville Savings Bank
merger and acquisition during the third quarter of 1996. Other
operating expenses increased $161,000, or 9.7%, to $1,825,000 for
the first nine months of 1997 compared to $1,664,000 for the
corresponding 1996 period primarily as a result of a $200,000
reversal of an expense accrual during the second quarter of
1996.
The Corporation's annualized return on average total assets and
average shareholders' equity was 1.01% and 12.81%, respectively,
for the third quarter of 1997, compared to 0.70% and 9.20%,
respectively, for the comparable period in 1996. For the first
nine months of 1997, the annualized return on average total
assets and average shareholders' equity was 1.04% and 13.20%,
respectively, compared to .83% and 11.10%, respectively, for the
corresponding period in 1996.
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 repayment of loan principal, maturities of
investment securities and funds provided by operations. At
September 30, 1997, the Corporation's liquid assets (cash and
cash equivalents and investment securities maturing in one year
or less) totaled $29.3 million which represents 7.2% of total
assets.
The Corporation's main liquidity demands come from loan
disbursements which totaled approximately $75.6 million for the
first nine months of 1997. At September 30, 1997 outstanding
commitments to extend credit totaled $45.6 million. Management
believes that the Corporation has adequate sources of liquidity
to fund these commitments.
The Bank has a borrowing arrangement with the Federal Home Loan
Bank of New York which can provide additional funds, if needed.
At September 30, 1997, this borrowing capacity totaled $35.4
million.
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 ratio (Tier 1 and Total) and leverage capital ratio.
<PAGE>
The following chart presents the minimum capital requirement
ratios and the actual ratios for both the
Corporation and the Bank:
<TABLE>
September 30, 1997
Required Actual Excess
<S> <C> <C> <C>
THE CORPORATION:
Risk-based capital:
Tier 1 4.00% 12.173% 8.173%
Total 8.00 13.425 5.425
Leverage capital ratio 4.00 7.42 3.42
THE BANK:
Risk-based capital:
Tier 1 4.00 12.163 8.163
Total 8.00 13.415 5.415
Leverage capital ratio 4.00 7.42 3.42
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders.
Not applicable.
Item 5. Other Information.
Not applicable
Item 6. Exhibits and Reports on Form 8-K.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
RARITAN BANCORP INC.
(Registrant)
Date: October 24,1997 By: /s/ Arlyn D. Rus
----------------------------------
Arlyn D. Rus
Chairman, President and
Chief Executive Officer
Director
Date: October 24, 1997 By: /s/ Thomas F. Tansey
----------------------------------
Thomas F. Tansey
Executive Vice President
Chief Operating Officer &
Treasurer
Director
