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 June 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 July 23, 1997, 2,410,373 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 11
ITEM 2 CHANGES IN THE RIGHTS OF THE CORPORATION'S
SECURITY HOLDERS 11
ITEM 3 DEFAULTS BY THE CORPORATION ON ITS SENIOR
SECURITIES 11
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 11
ITEM 5 OTHER INFORMATION 12
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
<PAGE>
PART 1--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RARITAN BANCORP INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
JUNE 30, 1997 DECEMBER 31, 1996
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,315 $ 5,453
Federal funds sold 19,300 27,300
---------- ----------
Total cash and cash equivalents 27,615 32,753
Securities available-for-sale, at fair value 35,250 47,253
Investment securities, net (fair value: $47,470)
at June 30, 1997 and $51,202 at December 31, 1996) 48,193 51,919
Loans 254,077 235,474
Less: Unearned income 222 404
Allowance for loan losses 3,272 2,965
---------- ----------
Net loans 250,583 232,105
---------- ----------
Banking premises and equipment, net 3,708 3,689
Federal Home Loan Bank of New York stock, at cost 2,672 2,672
Accrued interest receivable 1,997 1,947
Other assets 9,410 3,055
---------- ----------
Total assets $ 379,428 $ 375,393
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Due to depositors:
Interest bearing $ 310,742 $ 309,569
Non-interest bearing 23,081 21,609
---------- ----------
Total deposits 333,823 331,178
Borrowings 10,154 10,154
Accrued interest payable 96 59
Accrued expenses and other liabilities 5,259 5,734
---------- ----------
Total liabilities 349,332 347,125
---------- ----------
Shareholders' equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized; none issued - -
Common stock, $.01 par value, 3,500,000
shares authorized; 2,587,500* shares issued
with 2,411,873* shares outstanding at
June 30, 1997 and 2,270,563* shares
outstanding at December 31, 1996 26 26
Additional paid-in capital 10,612 11,165
Retained earnings 21,411 20,007
Fair value adjustment of securities available-
for-sale, net of tax 155 204
Less: Unallocated common stock acquired by the ESOP (154) (154)
Unearned deferred compensation (265) -
Cost of common stock in treasury, 175,627*
shares at June 30, 1997 and 316,937* shares
at December 31, 1996 (1,689) (2,980)
---------- ----------
Total shareholders' equity 30,096 28,268
Commitments and contingencies ---------- ----------
Total liabilities and shareholders' equity $ 379,428 $ 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 SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- ---------------------
1997 1996 1997 1996
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on real estate loans $ 4,168 $ 3,182 $ 8,095 $ 6,278
Interest and fees on other loans 1,018 922 2,027 1,825
Interest and dividends on investment securities:
Taxable 1,336 1,747 2,843 3,439
Tax-exempt 13 13 25 26
Interest on deposits in other banks 267 198 474 513
---------- ---------- ---------- ----------
Total interest income 6,802 6,062 13,464 12,081
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposit accounts 3,373 3,158 6,639 6,368
Interest on borrowings 147 5 192 15
---------- ---------- ---------- ----------
Total interest expense 3,520 3,163 6,831 6,383
---------- ---------- ---------- ----------
Net interest income 3,282 2,899 6,633 5,698
PROVISION FOR LOAN LOSSES 150 75 300 150
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 3,132 2,824 6,333 5,548
OTHER INCOME:
Service charges and other income 238 178 415 352
Gains on net securities transactions 83 1 83 1
---------- ---------- ---------- ----------
Total other income 321 179 498 353
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Salaries and employee benefits 1,034 1,031 2,034 1,938
Occupancy expense 190 171 378 370
FDIC insurance premium 20 44 40 87
Net cost of operation of other real estate 13 15 22 23
Other operating expenses 615 472 1,229 1,032
---------- ---------- ---------- ----------
Total operating expenses 1,872 1,733 3,703 3,450
---------- ---------- ---------- ----------
Income before income tax expense 1,581 1,270 3,128 2,451
Income tax expense 599 466 1,176 904
---------- ---------- ---------- ----------
Net income $ 982 $ 804 $ 1,952 $ 1,547
---------- ---------- ---------- ----------
AVERAGE NUMBER OF SHARES OUTSTANDING:
Primary 2,540,333* 2,327,502* 2,513,871* 2,362,164*
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully diluted 2,543,255* 2,327,502* 2,525,013* 2,362,164*
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NET INCOME PER SHARE:
Primary $ 0.39* $ 0.35* $ 0.78* $ 0.65*
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully diluted $ 0.39* $ 0.35* $ 0.77* $ 0.65*
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
*These figures 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>
RARITAN BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
FOR THE SIX MONTHS ENDED JUNE 30
--------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,952 $ 1,547
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Increase in accrued interest receivable (50) (193)
Amortization on securities, net 74 103
Provision for loan losses 300 150
Gain on net securities transactions (83) (1)
Increase (decrease) in accrued interest payable 37 (9)
Increase in accrued expenses 310 1,342
Decrease in prepaid expenses 103 53
Depreciation 178 179
Deferred income taxes 117 (19)
Decrease in income taxes payable (114) (71)
Net (decrease) increase, other (36) 1,320
----------- -----------
Total cash provided by operating activities 2,788 4,401
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds rom call, maturities and repayments of securities
available-for-sale 5,042 9,201
Proceeds from sale of securities available-for-sale 6,937 -
Proceeds from repayments of investment securities, net 3,681 5,251
Purchase of securities available-for-sale - (16,916)
Purchase of corporate-owned life insurance (7,200) -
Net disbursements for loans (18,742) (11,563)
Capital expenditures (197) (568)
----------- -----------
Net cash used in investing activities (10,479) (14,595)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, money market
accounts, NOW accounts, prime performance accounts,
and savings accounts 5,992 (7,993)
Net (decrease) increase in market-rate certificates (3,347) 6,637
Proceeds from issuance of common stock 611 30
Treasury stock acquired, at cost (154) (1,561)
Repayment of borrowings - (10,000)
Cash dividends paid (549) (433)
----------- -----------
Net cash provided by (used in) financing activities 2,553 (13,320)
----------- -----------
Net decrease in cash and cash equivalents (5,138) (23,514)
Cash and cash equivalents at beginning of period 32,753 39,886
----------- -----------
Cash and cash equivalents at end of period $ 27,615 $ 16,372
----------- -----------
----------- -----------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION: FOR THE SIX MONTHS ENDED JUNE 30
--------------------------------
1997 1996
-------------- -------------
Interest paid $ 6,794 $ 6,392
----------- -----------
----------- -----------
Income taxes paid $ 1,173 $ 994
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
<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 June 30, 1997, the consolidated
statements of income for the three and six month periods ended
June 30, 1997 and 1996, and the consolidated statements of cash
flows for the six month periods ended June 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
June 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 June 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 $14,339 $ 28 $ (26) $14,341
Obligations of states and political
subdivisions 695 42 - 737
Equity security 129 86 - 215
Mortgage-backed securities issued by
Federal agencies 19,840 264 (147) 19,957
------- ----- ------ -------
$35,003 $ 420 $ (173) $35,250
------- ----- ------ -------
------- ----- ------ -------
Investment securities, net:
Mortgage-backed securities issued by
Federal agencies $48,193 $ 16 $ (739) $47,470
------- ----- ------ -------
------- ----- ------ -------
</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 six month period ending June 30, 1997, the Corporation
sold securities which were classified as available-for-sale in
the amount of $6,937,000 at a gross gain of $78,000. In
addition, securities classified as available-for-sale in the
amount of $2,015,000 were called at a gross gain of $5,000.
During the six month period ended June 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>
June 30, 1997 December 31, 1996
(Unaudited) (Audited)
(In thousands)
<S> <C> <C>
Real estate:
Conventional $198,945 $179,135
Construction 10,466 11,019
-------- --------
209,411 190,154
Consumer Loans 35,340 35,300
Commercial Loans 9,326 10,020
-------- --------
$254,077 $235,474
-------- --------
-------- --------
</TABLE>
<PAGE>
The activity in the allowance for loan losses follows:
<TABLE>
Three Months Ended June 30 Six Months Ended June 30
1997 1996 1997 1996
(Unaudited) (Unaudited)
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $3,127 $2,606 $2,965 $2,582
Provision charged to operations 150 75 300 150
Charge-offs (136) (217) (139) (271)
Recoveries 131 1 146 4
------ ------ ------ ------
Balance at end of period $3,272 $2,465 $3,272 $2,465
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
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 $1,127,000 and
$1,486,000 at June 30, 1997 and December 31, 1996, respectively,
as follows:
<TABLE>
June 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 4 $ 403 4 $ 576
Home equity loans 5 248 2 115
Second mortgage loans 1 51 1 47
Commercial loans 1 120 2 326
Loans with modified terms 2 175 3 253
---- ------- ---- --------
Total non-performing loans 13 997 12 1,317
Real estate acquired by foreclosure 1 103 1 103
---- ------- ---- --------
14 1,100 13 1,420
Non-accrual loans less than 90 days delinquent 2 27 4 66
---- ------- ---- --------
16 $ 1,127 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 $22,000 and $60,000
for the second quarter and first six months of 1997, compared to
$55,000 and $110,000, respectively, for the corresponding 1996
periods.
At June 30, 1997 and December 31, 1996, the Corporation had
impaired loans totaling $997,000 and $1,317,000, respectively.
The Corporation calculated a total allowance for impaired loans
of $95,000 and $112,000 at June 30, 1997 and December 31, 1996,
respectively. Impaired loans averaged $1,232,000 and $1,237,000
for the three and six month periods ended June 30, 1997,
respectively, compared to $1,794,000 and $1,806,000 for the
comparable 1996 periods. Interest income totaling $9,000 and
$19,000 was recognized, all on a cash basis, on impaired loans
for the three and six month periods ended June 30, 1997,
respectively, compared to $3,000 and $26,000 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.
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.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations
At June 30, 1997, the Corporation's total assets increased to
$379.4 million from $375.4 million at December 31, 1996. Net
loans increased to $250.6 million at June 30, 1997 from $232.1
million at December 31, 1996, as loan disbursements exceeded
repayments by $18.6 million. Deposits increased to $333.8
million at June 30, 1997 from $331.2 at December 31, 1996.
Deposits outflows, exclusive of interest credited, exceeded
inflows by $4.0 million during the first six 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 $1,127,000 or
0.45% of total net loans plus real estate acquired by foreclosure
at June 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 six month periods ended June 30, 1997 the
Corporation added $150,000 and $300,000 to the allowance for loan
losses compared to $75,000 and $150,000 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.
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 $1,127,000 and
$1,486,000 at June 30, 1997 and December 31, 1996, respectively,
as follows:
<TABLE>
June 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 4 $ 403 4 $ 576
Home equity loans 5 248 2 115
Second mortgage loans 1 51 1 47
Commercial loans 1 120 2 326
Loans with modified terms 2 175 3 253
---- ------- ---- --------
Total non-performing loans 13 997 12 1,317
Real estate acquired by foreclosure 1 103 1 103
---- ------- ---- --------
14 1,100 13 1,420
Non-accrual loans less than 90 days delinquent 2 27 4 66
---- ------- ---- --------
16 $ 1,127 17 $ 1,486
---- ------- ---- --------
---- ------- ---- --------
</TABLE>
The thirteen non-performing loans at June 30, 1997 are
collateralized by real estate. Real estate acquired by
foreclosure consists of one two-family dwelling . The two non-
accrual loans are secured by real estate.
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 $1,100,000 has been allocated
to such loans, together with a general allowance of $2,172,000 on
the remaining loan portfolio taken as a whole. During the
quarter and six months ended June 30, 1997 loans totaling
$136,000 and $139,000, respectively, were charged off, compared
to $217,000 and $271,000 for the corresponding 1996 periods.
<PAGE>
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 $30.1 million, or $12.48 per share
at June 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 $1,952,000 for the six months
ended June 30, 1997, the issuance of 132,862 shares of common
stock for $611,000 via the exercise of stock options, offset by a
decrease in the fair value adjustment of securities available-
for-sale of $49,000, dividend payments of $549,000 to
shareholders and the repurchase of 9,554 shares of the
Corporation's common stock for $154,000.
Results of Operations:
Raritan Bancorp Inc. and its subsidiary recorded net income of
$982,000 for the second quarter of 1997 compared to $804,000 for
the same period in 1996, an increase of 22.1%. For the second
six months of 1997, net income was $1,952,000 compared to
$1,547,000 for the corresponding period in 1996, an increase of
26.2%.
Net interest income increased for the second quarter of 1997 to
$3.3 million from $2.9 million, or 13.8%, for the comparable
quarter in 1996, as a result of an increase in average net
earning assets to $38.2 million from $34.0 million a year
earlier, together with an increase in the interest rate spread to
3.20% from 3.07% a year earlier. Net interest income increased
for the first six months of 1997 to $6.6 million from $5.7
million, or 15.8%, for the corresponding period in 1996, as a
result of an increase in average net earning assets to $39.2
million from $34.3 million a year earlier, together with an
increase in the interest rate spread to 3.26% from 3.00% a year
earlier. The increased spread is the result of investing
available funds into higher-yielding loan products instead of
lower-yielding investment securities. The Corporation's net
interest margin may decline moderately in the second half of 1997
due to the effect of an investment in corporate-owned life
insurance in June, 1997 which, although increasing non-interest
income, will slightly reduce the Corporation's interest-earning
asset base.
Net interest income for the second quarter and first six 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
second quarter and first six months of 1997 was approximately
$22,000 and $60,000, respectively, compared to $55,000 and
$110,000, respectively, for the corresponding 1996 periods.
The provision for loan losses for the second quarter and first
six months of 1997 was $150,000 and $300,000, respectively,
compared to $75,000 and $150,000 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
<PAGE>
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 June 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 $1,100,000 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 $2,172,000 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 expenses for the second quarter and first six months of
1997 were $1,872,000 and $3,703,000, respectively, compared to
$1,733,000 and $3,450,000 for the corresponding periods in 1996.
Salaries and employee benefits increased $3,000, or 0.3%, to
$1,034,000 for the second quarter of 1997 from $1,031,000 for the
comparable period in 1996, and increased $96,000, or 5.0%, to
$2,034,000 from $1,938,000 for the first six months of 1996. 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. In addition, during the second quarter of 1996 a
$175,000 ESOP contribution was made versus a $25,000 ESOP
contribution accrual for the second quarter of 1997. Occupancy
expense increased $19,000 to $190,000 for the second quarter of
1997 from $171,000 for comparable 1996 period and increased
$8,000 to $378,000 for the first six months of 1997 from $370,000
for comparable 1996 period primarily as a result of lease-related
expenses pertaining to the new Manville, New Jersey branch office
acquired via the Manville Savings Bank merger and acquisition in
August, 1996. The FDIC insurance premium decreased $24,000 to
$20,000 for the second quarter of 1997, and decreased $47,000 to
$40,000 for the first six months of 1997 as a result of the
recapitalization of the Savings Association Insurance Fund in
1996 which assesses a lower FDIC premium rate for the Bank
beginning in 1997. Other operating expenses increased $143,000,
or 30.3%, to $615,000, for the second quarter of 1997 compared to
the second quarter of 1996, and increased $197,000, or 19.1%, to
$1,229,000 for the first six months of 1997 compared to
$1,032,000 for the comparable 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 1.05% and 13.27%, respectively,
for the second quarter of 1997, compared to 0.94% and 12.76%,
respectively, for the comparable period in 1996. For the first
six months of 1997, the annualized return on average total assets
and average shareholders' equity was 1.05% and 13.39%,
respectively, compared to .90% and 12.08%, 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 June
30, 1997, the Corporation's liquid assets (cash and cash
equivalents and investment securities maturing in one year or
less) totaled $29.8 million which represents 7.9% of total
assets.
The Corporation's main liquidity demands come from loan
disbursements which totaled approximately $51.2 million for the
first six months of 1997. At June 30, 1997 outstanding
commitments to extend credit totaled $37.6 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 June 30, 1997, this borrowing capacity totaled $35.4 million.
<PAGE>
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.
The following chart presents the minimum capital requirement
ratios and the actual ratios for both the Corporation and the
Bank:
<TABLE>
June 30, 1997
Required Actual Excess
THE CORPORATION:
Risk-based capital:
<S> <C> <C> <C>
Tier 1 4.00% 12.800% 8.800%
Total 8.00 14.053 6.053
Leverage capital ratio 4.00 7.64 3.64
THE BANK:
Risk-based capital:
Tier 1 4.00 12.699 8.699
Total 8.00 13.951 5.951
Leverage capital ratio 4.00 7.58 3.58
</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: July 23, 1997 By: /s/ Arlyn D. Rus
------------------------------
Arlyn D. Rus
Chairman, President and
Chief Executive Officer
Director
Date: July 23, 1997 By: /s/ Thomas F. Tansey
------------------------------
Thomas F. Tansey
Executive Vice President
Chief Operating Officer &
Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<CAPTION>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 8315
<INT-BEARING-DEPOSITS> 310742
<FED-FUNDS-SOLD> 19300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 35250
<INVESTMENTS-CARRYING> 48193
<INVESTMENTS-MARKET> 47470
<LOANS> 254077
<ALLOWANCE> 3272
<TOTAL-ASSETS> 379428
<DEPOSITS> 333823
<SHORT-TERM> 10051
<LIABILITIES-OTHER> 5355
<LONG-TERM> 103
<COMMON> 26
0
0
<OTHER-SE> 30070
<TOTAL-LIABILITIES-AND-EQUITY> 379428
<INTEREST-LOAN> 10122
<INTEREST-INVEST> 2868
<INTEREST-OTHER> 474
<INTEREST-TOTAL> 13464
<INTEREST-DEPOSIT> 6639
<INTEREST-EXPENSE> 6831
<INTEREST-INCOME-NET> 6633
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 83
<EXPENSE-OTHER> 3703
<INCOME-PRETAX> 3128
<INCOME-PRE-EXTRAORDINARY> 3128
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1952
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.77
<YIELD-ACTUAL> 3.20
<LOANS-NON> 1024
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2965
<CHARGE-OFFS> 139
<RECOVERIES> 146
<ALLOWANCE-CLOSE> 3272
<ALLOWANCE-DOMESTIC> 3272
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
