<PAGE>
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 March 31,1998
Commission File Number: 0-15831
Raritan Bancorp Inc.
(exact name of registrant as specified in its charter)
Delaware 22-2792402
(State of Incorporation) (I.R.S. Employer Identification Number)
454 Route 28, Bridgewater, New Jersey 08807
(address of principal executive offices) (zip code)
908-231-8100
(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 April 27, 1998, 2,387,714 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 11
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>
<CAPTION>
MARCH 31,1998 DECEMBER 31, 1997
(UNAUDITED) (AUDITED)
--------------- -----------------
<S> <C> <C>
ASSETS
- ------
CASH AND DUE FROM BANKS $ 8,113 $ 7,316
FEDERAL FUNDS SOLD 25,400 26,700
SHORT-TERM INVESTMENT 1,500 -
---------------- ----------------
TOTAL CASH AND CASH EQUIVALENTS 35,013 34,016
SECURITIES AVAILABLE-FOR-SALE, AT FAIR VALUE 46,933 48,951
INVESTMENT SECURITIES HELD-TO-MATURITY, net (FAIR VALUE: $38,555
AT MARCH 31, 1998 AND $40,919 AT DECEMBER 31, 1997) 38,815 41,307
LOANS 281,002 267,764
PLUS: NET AMORTIZED COSTS (FEES) 80 (64)
LESS: ALLOWANCE FOR LOAN LOSSES 3,378 3,305
---------------- ----------------
NET LOANS 277,704 264,395
---------------- ----------------
BANKING PREMISES AND EQUIPMENT, NET 5,989 5,861
FEDERAL HOME LOAN BANK of NEW YORK STOCK, at COST 2,672 2,672
ACCRUED INTEREST RECEIVABLE 2,117 2,070
OTHER ASSETS 9,568 9,036
---------------- ----------------
TOTAL ASSETS $ 418,811 $ 408,308
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
DUE TO DEPOSITORS:
INTEREST-BEARING $ 320,433 $ 312,719
NON-INTEREST-BEARING 25,443 24,365
---------------- ----------------
TOTAL DEPOSITS 345,876 337,084
BORROWINGS 35,103 35,103
ACCRUED INTEREST PAYABLE 137 155
ACCRUED EXPENSES
AND OTHER LIABILITIES 6,120 5,092
---------------- ----------------
TOTAL LIABILITIES 387,236 377,434
---------------- ----------------
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
MARCH 31, 1998 AND DECEMBER 31, 1997,
WITH 2,387,714 SHARES OUTSTANDING AT
MARCH 31, 1998 AND 2,372,226 SHARES
OUTSTANDING AT DECEMBER 31, 1997 26 26
ADDITIONAL PAID-IN CAPITAL 11,188 11,275
RETAINED EARNINGS 22,776 22,133
ACCUMULATED OTHER COMPREHENSIVE INCOME: FAIR VALUE ADJUSTMENT OF
SECURITIES AVAILABLE-FOR-SALE, NET OF TAX 328 369
LESS: UNALLOCATED COMMON STOCK ACQUIRED BY THE ESOP (103) (103)
UNEARNED RESTRICTED STOCK (219) (230)
COST OF COMMON STOCK IN TREASURY, 199,698
SHARES AT MARCH 31, 1998 AND 215,186 SHARES
AT DECEMBER 31, 1997 (2,421) (2,596)
---------------- ----------------
TOTAL SHAREHOLDERS' EQUITY 31,575 30,874
COMMITMENTS AND CONTINGENCIES
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 418,811 $ 408,308
================ ================
</TABLE>
SHARE AMOUNTS 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.
1
<PAGE>
RARITAN BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31
-------------------------
1998 1997
---------- -----------
INTEREST INCOME:
INTEREST AND FEES ON REAL ESTATE LOANS $ 4,419 $ 3,927
INTEREST AND FEES ON OTHER LOANS 1,101 1,009
INTEREST AND DIVIDENDS ON INVESTMENT SECURITIES:
TAXABLE 1,386 1,507
TAX-EXEMPT 12 12
INTEREST ON DEPOSITS IN OTHER BANKS 330 207
---------- -----------
TOTAL INTEREST INCOME 7,248 6,662
---------- -----------
INTEREST EXPENSE:
INTEREST ON DEPOSIT ACCOUNTS 3,479 3,266
INTEREST ON BORROWINGS 469 45
---------- -----------
TOTAL INTEREST EXPENSE 3,948 3,311
---------- -----------
NET INTEREST INCOME 3,300 3,351
PROVISION FOR LOAN LOSSES 75 150
---------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,225 3,201
OTHER INCOME:
SERVICE CHARGES AND OTHER INCOME 295 177
---------- -----------
TOTAL OTHER INCOME 295 177
---------- -----------
OPERATING EXPENSES:
SALARIES AND EMPLOYEE BENEFITS 1,090 1,000
OCCUPANCY EXPENSE 320 188
(INCOME FROM) NET COST OF OPERATION
OF OTHER REAL ESTATE (1) 9
OTHER OPERATING EXPENSES 692 634
---------- -----------
TOTAL OPERATING EXPENSES 2,101 1,831
---------- -----------
INCOME BEFORE INCOME TAX EXPENSE 1,419 1,547
INCOME TAX EXPENSE 416 577
---------- -----------
NET INCOME $ 1,003 $ 970
========== ===========
AVERAGE NUMBER OF SHARES OUTSTANDING:
BASIC 2,367,198 2,283,378
========== ===========
DILUTED 2,532,982 2,509,103
========== ===========
NET INCOME PER SHARE:
BASIC $ 0.42 $ 0.42
========== ===========
DILUTED $ 0.40 $ 0.39
========== ===========
ALL SHARE DATA 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.
2
<PAGE>
RARITAN BANCORP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31
-----------------------------------
1998 1997
------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES;
NET INCOME $ 1,003 $ 970
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
INCREASE IN ACCRUED INTEREST RECEIVABLE (47) (142)
AMORTIZATION, NET, ON SECURITIES 45 39
PROVISION FOR LOAN LOSSES 75 150
(DECREASE) INCREASE IN ACCRUED INTEREST PAYABLE (18) 39
INCREASE IN ACCRUED EXPENSES 572 101
(INCREASE) DECREASE IN PREPAID EXPENSES (193) 33
DEPRECIATION 151 88
DEFERRED INCOME TAXES (106) 60
INCREASE IN INCOME TAXES PAYABLE 311 419
NET DECREASE, OTHER (200) (595)
------------- ------------
TOTAL CASH PROVIDED BY OPERATING ACTIVITIES $ 1,593 $ 1,162
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM CALL AND REPAYMENTS OF SECURITIES
AVAILABLE-FOR-SALE 1,938 1,468
PROCEEDS FROM REPAYMENTS OF INVESTMENT
SECURITIES, NET 2,471 1,874
NET DISBURSEMENTS FOR LOANS (13,243) (11,627)
CAPITAL EXPENDITURES (279) (59)
------------- ------------
NET CASH USED IN INVESTING ACTIVITIES (9,113) (8,344)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET INCREASE (DECREASE) IN DEMAND DEPOSITS, MONEY
MARKET ACCOUNTS, NOW ACCOUNTS, PRIME
PERFORMANCE ACCOUNTS, AND SAVINGS ACCOUNTS 9,333 (475)
NET DECREASE IN MARKET-RATE CERTIFICATES (541) (232)
PROCEEDS FROM ISSUANCE OF COMMON STOCK 106 173
TREASURY STOCK ACQUIRED, AT COST (23) (119)
CASH DIVIDENDS PAID (358) (267)
------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 8,517 (920)
--------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 997 (8,102)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 34,016 32,753
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 35,013 $ 24,651
========= ==========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
FOR THE THREE MONTHS ENDED MARCH 31
-----------------------------------
1998 1997
----------- ----------
INTEREST PAID $ 3,966 $ 3,272
========= ==========
INCOME TAXES PAID $ 211 $ 98
========= ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<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 sheets at March 31, 1998, the consolidated statements
of income for the three month periods ended March 31, 1998 and 1997, and the
consolidated statements of cash flows for the three month periods ended March
31, 1998 and 1997, 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 March 31, 1998 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, 1997 audited financial statements and notes
thereto.
Interim results are not necessarily indicative of results for the full year.
Effective January 1, 1998, the Corporation adopted the provisions of Statement
of Financial Standards No. 130, "Reporting Comprehensive Income" ("Statement
130"). 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. Comparative financial statements provided for
earlier periods are required to be reclassified to reflect application of the
provisions of Statement 130.
Statement 130 requires total comprehensive income and its components to be
displayed on the face of a financial statement for annual financial statements.
For interim financial statements, Statement 130 requires only total
comprehensive income to be reported and allows such disclosure to be presented
in the notes to the interim financial statements.
For the three-month periods ended March 31, 1998 and 1997, total comprehensive
income amounted to $962,000 and $740,000, respectively.
4
<PAGE>
Note 2: Securities Available-for-Sale, at fair value, and Investment
Securities, net:
The amortized cost of securities and their estimated fair values at March 31,
1998, were as follows:
<TABLE>
<CAPTION>
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 $10,161 $32 $ - $10,193
Obligations of states and political
subdivisions 696 51 - 747
Equity security 129 162 - 291
Mortgage-backed securities issued by
Federal agencies 35,427 317 (42) 35,702
-------------------------------------------------
$46,413 $562 $ (42) $46,933
=================================================
Investment securities, net:
Mortgage-backed securities issued by Federal agencies $38,815 $ 35 $(295) $38,555
=================================================
</TABLE>
The amortized cost of securities and their estimated fair values at December 31,
1997, were as follows:
<TABLE>
<CAPTION>
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 $10,157 $ 41 $ (1) $10,197
Obligations of states and political
subdivisions 695 52 - 747
Equity security 129 129 - 258
Mortgage-backed securities issued by
Federal agencies 37,390 384 (25) 37,749
-------------------------------------------------
$48,371 $ 606 $(26) $48,951
=================================================
Investment securities, net:
Mortgage-backed securities issued by Federal agencies $41,307 $ 15 $(403) $40,919
=================================================
</TABLE>
There were no sales of securities during the three-month periods ending March
31, 1998 and 1997.
5
<PAGE>
Note 3: Loans and Allowance for Loan Losses:
Loans are summarized as follows:
March 31, 1998 December 31, 1997
--------------- ------------------
(Unaudited) (Audited)
(In thousands)
Real estate:
Conventional $263,019 $246,438
Construction 5,356 8,695
----------------------------
268,375 255,133
Consumer Loans 7,143 7,235
Commercial Loans 5,484 5,396
----------------------------
$281,002 $267,764
============================
The activity in the allowance for loan losses follows:
Three Months Ended March 31
----------------------------
1998 1997
---- ----
(Unaudited)
(In thousands)
Balance at beginning of period $ 3,305 $ 2,965
Provision charged to operations 75 150
Charge-offs (5) (3)
Recoveries 3 15
----------------------------
Balance at end of period $ 3,378 $ 3,127
============================
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 $1,600,000 and $1,091,000 at March 31, 1998 and December 31,
1997, respectively, as follows:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
Number Amount Number Amount
of Loans (In thousands) of Loans (In thousands)
-------- -------------- -------- --------------
Description: (Unaudited) (Audited)
<S> <S> <C> <C> <C>
First mortgage loans 7 $ 739 6 $569
Home equity loan 1 30 - -
Second mortgage loan - - 1 54
Consumer loans 1 6 1 11
Loans with modified terms 3 430 2 177
Matured loans 2 198 1 94
-----------------------------------------------------
Total non-performing loans 14 1,403 11 905
Real estate acquired by foreclosure 1 40 1 40
-----------------------------------------------------
15 1,443 12 945
Non-accrual loans less than 90 days delinquent 4 157 1 146
-----------------------------------------------------
19 $1,600 13 $1,091
=====================================================
</TABLE>
6
<PAGE>
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 $34,000 and $38,000 for the three months ended March 31,
1998 and 1997, respectively.
At March 31, 1998 and December 31, 1997, the Corporation had impaired loans
totaling $1,403,000 and $905,000, respectively. The Corporation calculated a
total allowance for impaired loans of $265,000 and $157,000 at March 31, 1998
and December 31, 1997, respectively. Impaired loans averaged $1,096,000 and
$1,342,000 for the three months ended March 31, 1998 and 1997, respectively.
Interest income totaling $-0- and $10,000 was recognized, all on a cash basis,
on impaired loans for the three months ended March 31, 1998 and 1997,
respectively.
Note 4: Recently Issued Accounting Pronouncements:
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132 "Employers' Disclosures about Pensions
and Other Postretirement Benefits" ("Statement 132"). Statement 132 revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. It standardizes
the disclosure requirements for pensions and other postretirement benefits to
the extent practicable, requires additional information in changes in the
benefit obligations and fair value of plan assets that will facilitate financial
analysis, and eliminates certain required disclosures of previous accounting
pronouncements.
Statement 132 is effective for fiscal years beginning after December 15, 1997.
Earlier application is encouraged. Restatement of disclosures for earlier
periods provided for comparative purposes is required unless the information is
not readily available. As Statement 132 affects disclosure requirements, it is
not expected to have an impact on the financial statements of the Corporation.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
At March 31, 1998, the Corporation's total assets increased to $418.8 million
from $408.3 million at December 31, 1997. Net loans increased to $277.7 million
at March 31, 1998 from $264.4 million at December 31, 1997, as loan
disbursements exceeded repayments by $13.3 million. Deposits increased to $345.9
million at March 31, 1998 from $337.1 at December 31, 1997. Deposits inflows,
exclusive of interest credited, exceeded outflows by $5.3 million during the
first three months of 1998.
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 $1,600,000 or 0.58% of total net loans plus real estate
acquired by foreclosure at March 31, 1998, compared to $1,091,000 or 0.41% of
total net loans plus real estate acquired by foreclosure at December 31, 1997.
During the three months ended March 31, 1998 the Corporation added $75,000 to
the allowance for loan losses compared to $150,000 during the corresponding
period in 1997. The decreased provision was the result of reviewing the
collectibility of all non-performing loans and "watch list" loans (loans on the
"watch list" include performing loans rated substandard and special mention) at
March 31, 1998. In addition, the entire loan portfolio was reviewed for volume,
quality, maturity, adequacy of collateral, and potential charge-offs.
7
<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 $1,600,000 and $1,091,000 at March 31, 1998 and December 31,
1997, respectively, as follows:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
Number Amount Number Amount
of Loans (In thousands) of Loans (In thousands)
-------- -------------- -------- --------------
Description: (Unaudited) (Audited)
<S> <C> <C> <C> <C>
First mortgage loans 7 $ 739 6 $569
Home equity loan 1 30 - -
Second mortgage loan - - 1 54
Consumer loans 1 6 1 11
Loans with modified terms 3 430 2 177
Matured loans 2 198 1 94
-----------------------------------------------------------
Total non-performing loans 14 1,403 11 905
Real estate acquired by foreclosure 1 40 1 40
-----------------------------------------------------------
15 1,443 12 945
Non-accrual loans less than 90 days delinquent 4 157 1 146
-----------------------------------------------------------
19 $1,600 13 $1,091
===========================================================
</TABLE>
Of the fourteen non-performing loans at March 31, 1998 thirteen ($1.397 million)
are collateralized by real estate and one ($6,000) is unsecured. Real estate
acquired by foreclosure consists of one single-family dwelling. Of the four non-
accrual loans, three are secured by real estate ($147,000) and one ($10,000) 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
$1,217,000 has been allocated to such loans, together with a general allowance
of $2,161,000 on the remaining loan portfolio taken as a whole. During the
quarter ended March 31, 1998 loans totaling $5,000 were charged off, compared to
$3,000 during the first three months of 1997.
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 $31.6 million, or $13.23 per share at March 31,
1998, compared to $30.9 million, or $13.01 per share at December 31, 1997. The
increase in shareholders' equity is the result of net income totaling $1,003,000
for the quarter ended March 31, 1998, the $14,000 amortization of a restricted
stock award, the issuance of 16,350 shares of common stock for $106,000 via the
exercise of stock options, partially offset by dividends paid to shareholders of
$358,000, a decrease in the fair value adjustment of securities available-for-
sale of $41,000, and the repurchase of 862 shares of the Corporation's common
stock for $23,000.
8
<PAGE>
Results of Operations:
Raritan Bancorp Inc. and its subsidiary recorded net income of $1,003,000 for
the first quarter of 1998 compared to $970,000 for the first quarter of 1997, an
increase of 3.4%.
Net interest income decreased moderately for the first quarter of 1998 to
$3.300 million from $3.351 million, or 1.5%, for the comparable quarter in 1997
as declining interest rate spreads compressed new loan yields and deposit costs.
The net interest spread for the first quarter of 1998 decreased to 2.99% from
3.33% a year earlier, together with a decrease in average net earning assets to
$36.5 million from $40.4 million a year earlier. The comparable decline in net
interest income was also affected by the sale, in April, 1997, of mortgage-
backed securities (classified as available-for-sale) totaling $6.9 million with
a weighted average yield of 7.08% with the proceeds invested in a corporate-
owned life insurance policy whose cash surrender value is being reflected in
service charges and other income in the Consolidated Statements of Income.
Net interest income for the first quarter of 1998 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 less than 90 days delinquent, and real estate acquired by foreclosure for
the first quarter of 1998 was approximately $34,000 compared to $38,000 for the
corresponding 1997 period.
The provision for loan losses for the first quarter of 1998 was $75,000 compared
to $150,000 for the corresponding 1997 period. As described in the discussion of
the Corporation's financial condition, the decreased provision was the result of
reviewing the collectibility of all non-performing loans and "watch list" loans
(loans on the "watch list" include performing loans rated substandard and
special mention) at March 31, 1998. In addition, the entire loan portfolio was
reviewed for volume, quality, maturity, adequacy of collateral, and potential
charge-offs.
Management calculated the provision based on a review of the required allowance
at March 31, 1998. All non-performing loans and loans rated loss, doubtful,
substandard and special mention according to regulatory definition were reviewed
and a specific allowance of $1,217,000 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 $2,161,000 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 first quarter of 1998 increased to $295,000 from $177,000
for the corresponding 1997 period, primarily as a result of the increase in the
cash surrender value of aforementioned corporate-owned life insurance totaling
$111,000 for 1998 versus $-0- for 1997.
Operating expenses for the first quarter of 1998 was $2,101,000 compared to
$1,831,000 for the corresponding periods in 1997. Salaries and employee benefits
increased 9% to $1,090,000 for the first quarter of 1998 from $1,000,000 for the
comparable period in 1997. The addition of five employees in the new
Bridgewater, New Jersey banking office together with normal merit and cost of
living adjustments contributed to the increase. Occupancy expense increased
$132,000, or 70.2%, primarily as a result of the costs associated with leasing
the new corporate headquarters and aforementioned banking office in Bridgewater,
New Jersey, This location became operational in December, 1997. Other operating
expenses increased $58,000, or 9.1%, to $692,000, for the first quarter of 1998
compared to the first quarter of 1997 primarily as a result of increases in
furniture and fixture, legal and marketing expenses.
9
<PAGE>
The amount of income tax expense for the first quarter of 1998 was $416,000
compared to $577,000 for the first quarter of 1997. The effective tax rate for
the first quarter of 1998 was 29.32% compared to an effective tax rate of 37.30%
for the corresponding 1997 quarter. The reduced tax rate for the first quarter
of 1998 is primarily the result of the tax effect of the increase in the cash
surrender value of corporate-owned life insurance which was purchased in June,
1997.
The Corporation's annualized return on average total assets and average
shareholders' equity was .98% and 12.79%, respectively, for the first quarter of
1998, compared to 1.06% and 13.55%, respectively, for the comparable period in
1997.
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, borrowings, scheduled amortization and repayment
of loan principal, maturities of investment securities and funds provided by
operations. At March 31, 1998, the Corporation's liquid assets (cash and cash
equivalents and investment securities maturing in one year or less) totaled
$31.1 million which represents 7.4% of total assets.
The Corporation's main liquidity demands come from loan disbursements which
totaled approximately $29.8 million for the first three months of 1998. At March
31, 1998 outstanding commitments to extend credit totaled $57.4 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 March 31, 1998, this borrowing
capacity totaled $30.7 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.
The following chart presents the minimum capital requirement ratios and the
actual ratios for both the Corporation and the Bank:
March 31, 1998
--------------
Required Actual Excess
-------- ------ ------
THE CORPORATION:
Risk-based capital:
Tier 1 4.00% 12.115% 8.115%
Total 8.00 13.366 5.366
Leverage capital ratio 4.00 7.45 3.45
THE BANK:
Risk-based capital:
Tier 1 4.00 12.092 8.092
Total 8.00 13.343 5.343
Leverage capital ratio 4.00 7.44 3.44
10
<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.
(a) The annual meeting of the security holders of Raritan Bancorp
Inc. took place on April 22, 1998.
(b)(i) The following directors were elected to a three-year term:
Number of Votes Number of Votes
Name Expiration of Term in Favor Withheld
---- ------------------ -------- --------
Peter S. Johnson 2001 2,021,082 5,437
Arlyn D. Rus 2001 2,021,407 5,112
(b)(ii) The following directors' term of office continued after the
meeting:
Name Expiration of Term
---- ------------------
William T. Anderson, M.D. 1999
William W. Crouse 1999
William T. Kelleher, Jr. 2000
Thomas F. Tansey 2000
(c) KPMG Peat Marwick LLP was ratified as the Corporation's auditors by a
vote of 2,021,783 shares For, 4,362 shares Against and 373 shares
Abstained.
(d) An amendment to the Corporation's Certificate of Incorporation
increasing the number of authorized shares of common stock from 3,500,000
shares to 6,500,000 shares was approved by a vote of 1,968,856 shares For,
28,256 shares Against, and 5,516 shares Abstained.
Item 5. Other Information.
Not applicable
11
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
Not applicable.
12
<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: April 27, 1998 By: /s/ Arlyn D. Rus
----------------
Arlyn D. Rus
Chairman, President and
Chief Executive Officer
Director
Date: April 27, 1998 By: /s/ Thomas F. Tansey
--------------------
Thomas F. Tansey
Executive Vice President
Chief Operating Officer &
Treasurer
Director
13
