<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 Quarterly Period Ended September 30,1998
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 October 27, 1998, 2,460,781 common shares, $.01 par value per share
were outstanding.
<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>
SEPTEMBER 30,1998 DECEMBER 31, 1997
(UNAUDITED) (AUDITED)
----------------- -----------------
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $ 9,454 $ 7,316
FEDERAL FUNDS SOLD 44,500 26,700
--------- ---------
TOTAL CASH AND CASH EQUIVALENTS 53,954 34,016
SECURITIES AVAILABLE-FOR-SALE, AT FAIR VALUE 33,403 48,951
INVESTMENT SECURITIES HELD-TO-MATURITY, net (FAIR VALUE: $23,616
AT SEPTEMBER 30, 1998 AND $40,919 AT DECEMBER 31, 1997) 23,645 41,307
LOANS 305,760 267,764
PLUS: NET UNAMORTIZED COSTS (FEES) 393 (64)
LESS: ALLOWANCE FOR LOAN LOSSES 3,774 3,305
--------- ---------
NET LOANS 302,379 264,395
--------- ---------
BANKING PREMISES AND EQUIPMENT, NET 5,824 5,861
FEDERAL HOME LOAN BANK of NEW YORK STOCK, at COST 2,672 2,672
ACCRUED INTEREST RECEIVABLE 2,034 2,070
OTHER ASSETS 9,644 9,036
--------- ---------
TOTAL ASSETS $ 433,555 $ 408,308
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
DUE TO DEPOSITORS:
INTEREST-BEARING $ 332,385 $ 312,719
NON-INTEREST-BEARING 27,106 24,365
--------- ---------
TOTAL DEPOSITS 359,491 337,084
BORROWINGS 35,000 35,103
ACCRUED INTEREST PAYABLE 518 155
ACCRUED EXPENSES
AND OTHER LIABILITIES 4,963 5,092
--------- ---------
TOTAL LIABILITIES 399,972 377,434
--------- ---------
SHAREHOLDERS' EQUITY:
PREFERRED STOCK, $.01 PAR VALUE, 2,000,000
SHARES AUTHORIZED; NONE ISSUED -- --
COMMON STOCK, $.01 PAR VALUE, 6,500,000
SHARES AUTHORIZED AT SEPTEMBER 30, 1998 AND
3,500,000 SHARES AUTHORIZED AT DECEMBER 31, 1997;
2,587,412 SHARES ISSUED AT SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
WITH 2,455,931 SHARES OUTSTANDING AT SEPTEMBER 30, 1998
AND 2,372,226 SHARES OUTSTANDING AT DECEMBER 31, 1997 26 26
ADDITIONAL PAID-IN CAPITAL 11,280 11,275
RETAINED EARNINGS 23,762 22,133
ACCUMULATED OTHER COMPREHENSIVE INCOME: FAIR VALUE ADJUSTMENT OF
SECURITIES AVAILABLE-FOR-SALE, NET OF TAX 458 369
LESS: UNALLOCATED COMMON STOCK ACQUIRED BY THE ESOP -- (103)
UNEARNED RESTRICTED STOCK (195) (230)
COST OF COMMON STOCK IN TREASURY, 131,481
SHARES AT SEPTEMBER 30, 1998 AND 215,186 SHARES
AT DECEMBER 31, 1997 (1,748) (2,596)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 33,583 30,874
COMMITMENTS AND CONTINGENCIES
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 433,555 $ 408,308
========= =========
</TABLE>
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)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------- --------------------------
1998 1997 1998 1997
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
INTEREST AND FEES ON REAL ESTATE LOANS $ 4,867 $ 4,226 $ 13,947 $ 12,321
INTEREST AND FEES ON OTHER LOANS 1,190 1,030 3,466 3,057
INTEREST AND DIVIDENDS ON INVESTMENT SECURITIES:
TAXABLE 973 1,268 3,596 4,111
TAX-EXEMPT 11 12 35 37
INTEREST ON DEPOSITS IN OTHER BANKS 586 336 1,279 810
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME 7,627 6,872 22,323 20,336
----------- ----------- ----------- -----------
INTEREST EXPENSE:
INTEREST ON DEPOSIT ACCOUNTS 3,696 3,448 10,732 10,087
INTEREST ON BORROWINGS 588 229 1,634 421
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 4,284 3,677 12,366 10,508
----------- ----------- ----------- -----------
NET INTEREST INCOME 3,343 3,195 9,957 9,828
PROVISION FOR LOAN LOSSES 75 150 225 450
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,268 3,045 9,732 9,378
OTHER INCOME:
SERVICE CHARGES AND OTHER INCOME 322 302 941 717
GAINS ON NET SECURITIES TRANSACTIONS 34 7 41 90
NET GAINS (LOSSES) ON DISPOSAL OF PREMISES AND EQUIPMENT 160 -- 158 (11)
----------- ----------- ----------- -----------
TOTAL OTHER INCOME 516 309 1,140 796
----------- ----------- ----------- -----------
OPERATING EXPENSES:
SALARIES AND EMPLOYEE BENEFITS 1,079 1,055 3,239 3,089
OCCUPANCY EXPENSE 333 181 983 559
OTHER OPERATING EXPENSES 678 621 2,082 1,901
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 2,090 1,857 6,304 5,549
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE 1,694 1,497 4,568 4,625
INCOME TAX EXPENSE 513 530 1,358 1,706
----------- ----------- ----------- -----------
NET INCOME $ 1,181 $ 967 $ 3,210 $ 2,919
=========== =========== =========== ===========
AVERAGE NUMBER OF SHARES OUTSTANDING:
BASIC 2,370,763 2,376,660 2,369,608 2,347,352
=========== =========== =========== ===========
DILUTED 2,531,168 2,532,544 2,537,417 2,530,261
=========== =========== =========== ===========
NET INCOME PER SHARE:
BASIC $ 0.50 $ 0.41 $ 1.35 $ 1.24
=========== =========== =========== ===========
DILUTED $ 0.47 $ 0.38 $ 1.27 $ 1.15
=========== =========== =========== ===========
</TABLE>
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 NINE MONTHS ENDED
SEPTEMBER 30
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 3,210 $ 2,919
ADJUSTMENTS TO RECONCILE NET INCOME TO CASH:
PROVIDED BY OPERATING ACTIVITIES:
DECREASE (INCREASE) IN ACCRUED INTEREST RECEIVABLE 36 (197)
AMORTIZATION ON SECURITIES, NET 139 110
PROVISION FOR LOAN LOSSES 225 450
GAINS ON NET SECURITIES TRANSACTIONS (41) (90)
INCREASE IN ACCRUED INTEREST PAYABLE 363 101
(DECREASE) INCREASE IN ACCRUED EXPENSES (185) 445
DECREASE IN PREPAID EXPENSES 31 183
DEPRECIATION 465 265
DEFERRED INCOME TAXES (269) 230
INCREASE (DECREASE) IN INCOME TAXES PAYABLE 141 (245)
NET (DECREASE) INCREASE, OTHER (561) 354
-------- --------
TOTAL CASH PROVIDED BY OPERATING ACTIVITIES $ 3,554 $ 4,525
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM CALL AND REPAYMENTS OF SECURITIES AVAILABLE-
FOR-SALE 15,073 8,394
PROCEEDS FROM SALE OF SECURITIES AVAILABLE-FOR-SALE 574 6,944
PROCEEDS FROM REPAYMENTS OF INVESTMENT SECURITIES HELD-TO-MATURITY, NET 17,612 6,560
PURCHASE OF SECURITIES AVAILABLE-FOR-SALE -- (20,322)
PURCHASE OF CORPORATE-OWNED LIFE INSURANCE -- (7,200)
NET DISBURSEMENTS FOR LOANS (38,019) (26,748)
CAPITAL EXPENDITURES (428) (1,046)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (5,188) (33,418)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET INCREASE IN DEMAND DEPOSITS, MONEY MARKET
ACCOUNTS, NOW ACCOUNTS, PRIME PERFORMANCE ACCOUNTS,
AND SAVINGS ACCOUNTS 22,945 9,157
NET DECREASE IN MARKET-RATE CERTIFICATES (538) (4,425)
PROCEEDS FROM ISSUANCE OF COMMON STOCK 795 611
TREASURY STOCK ACQUIRED, AT COST (455) (1,063)
PROCEEDS FROM BORROWINGS -- 25,000
REPAYMENT OF BORROWINGS (103) (51)
CASH DIVIDENDS PAID (1,072) (840)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 21,572 28,389
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 19,938 (504)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 34,016 32,753
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 53,954 $ 32,249
======== ========
<CAPTION>
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
FOR THE NINE MONTHS ENDED
SEPTEMBER 30
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
INTEREST PAID $ 12,003 $ 10,407
======== ========
INCOME TAXES PAID $ 1,486 $ 1,721
======== ========
</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 sheet at September 30, 1998, the consolidated
statements of income for the three and nine month periods ended September 30,
1998 and 1997, and the consolidated statements of cash flows for the nine month
periods ended September 30, 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 September 30,
1998 and for all periods presented have been made.
Basic net income per share is calculated by dividing net income by the weighted-
average number of common shares outstanding during the period. Diluted net
income per share is calculated by dividing net income by the weighted-average
number of common shares outstanding plus the weighted-average number of net
shares that would be issued upon exercise of stock options pursuant to the
treasury stock method. Options totaling 160,405 and 167,809 for the three and
nine month periods ended September 30, 1998, respectively, and 155,884 and
182,909 for the three and nine month periods ended September 30, 1997,
respectively, are included in the diluted weighted-average shares outstanding.
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 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 and nine month periods ended September 30, 1998, total
comprehensive income amounted to $1,300,000 and $3,299,000, respectively, and
for the three and nine month periods ended September 30, 1997, total
comprehensive income amounted to $1,027,000 and $2,930,000, respectively.
4
<PAGE>
Note 2: Securities Available-for-Sale, at fair value, and Investment Securities
Held-to-Maturity, net: The amortized cost of securities and their estimated fair
values at September 30, 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 $ 2,200 $ 15 $ - $ 2,215
Obligations of states and political
subdivisions 645 59 - 704
Equity security 129 176 - 305
Mortgage-backed securities issued by
Federal agencies 29,701 494 (16) 30,179
--------------------------------------------
$32,675 $ 744 $(16) $33,403
============================================
Investment securities held-to-maturity, net:
Mortgage-backed securities issued by Federal agencies $23,645 $ 26 $(55) $23,616
============================================
</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 held-to-maturity, net:
Mortgage-backed securities issued by Federal
agencies $41,307 $ 15 $ (403) $40,919
==============================================
</TABLE>
For the three months ended September 30, 1998, securities classified as
available-for-sale in the amount of $3,966,000 were called at a gross gain of
$34,000. For the nine months ended September 30, 1998, securities classified as
available-for-sale in the amount of $4,016,000 were called at a gross gain of
$41,000. 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.
5
<PAGE>
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.
Note 3: Loans and Allowance for Loan Losses:
Loans are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
(Unaudited) (Audited)
(In thousands)
<S> <C> <C>
Real estate:
Conventional $281,979 $246,438
Construction 8,445 8,695
-----------------------------
290,424 255,133
Consumer Loans 8,299 7,235
Commercial and OtherLoans 7,037 5,396
-----------------------------
$305,760 $267,764
=============================
</TABLE>
The activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $3,459 $ 3,272 $3,305 $ 2,965
Provision charged to operations 75 150 225 450
Charge-offs (10) (116) (23) (255)
Recoveries 250 4 267 150
----------------------------------------------------
Balance at end of period $3,774 $ 3,310 $3,774 $ 3,310
====================================================
</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 $1,484,000 and $1,091,000 at September 30, 1998 and December
31, 1997, respectively, as follows:
<TABLE>
<CAPTION>
September 30, 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 3 $ 332 6 $ 569
Home equity loans 2 34 - -
Second mortgage loans - - 1 54
Consumer loans 1 23 1 11
Loans with modified terms 4 564 2 177
Matured loans 4 329 1 94
---------------------------------------------------
Total non-performing loans 14 1,282 11 905
Real estate acquired by foreclosure - - 1 40
---------------------------------------------------
14 1,282 12 945
Non-accrual loans less than 90 days delinquent 3 202 1 146
---------------------------------------------------
17 $1,484 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 $13,000 and $84,000 for the third quarter and first nine
months of 1998, compared to $31,000 and $91,000, respectively, for the
corresponding 1997 periods.
At September 30, 1998 and December 31, 1997, the Corporation had impaired loans
totaling $1,282,000 and $905,000, respectively. The Corporation calculated a
total allowance for impaired loans of $264,000 and $157,000 at September 30,
1998 and December 31, 1997, respectively. Impaired loans averaged $1,526,000 and
$1,498,000 for the three and nine month periods ended September 30, 1998,
respectively, compared to $1,411,000 and $1,330,000 for the comparable 1997
periods. Interest income totaling $1,000 and $3,000 was recognized, all on a
cash basis, on impaired loans for the three and nine month periods ended
September 30, 1998, compared to $11,000 and $30,000 for the comparable 1997
periods, respectively.
Note 4: On September 22, 1998, the Corporation entered into a definitive
agreement in which United National Bancorp ("United National"), headquartered in
Bridgewater, New Jersey, will acquire the Corporation in a tax-free exchange of
stock. Under the terms of the merger agreement, which was approved by the board
of directors of both the Corporation and United National, the Corporation's
shareholders will receive 1.45 shares of United National's common stock for each
share of the Corporation's common stock. United National paid a 10% stock
dividend on November 2, 1998 causing the exchange ratio to be adjusted to 1.595.
For this transaction, United National received a share option to purchase 19.9%
of Raritan stock exercisable under certain limited circumstances.
The transaction, which is expected to be completed during the first quarter of
1999, is conditioned upon receiving necessary regulatory approvals and the
approval of shareholders from both the Corporation and United National.
Note 5: 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.
In September 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
No. 133 supercedes the disclosure requirements in SFAS No. 80, 105, and 119.
This statement is effective for periods after September 15, 1999. The Adoption
of SFAS No. 133 is not expected to have a material impact on the financial
position or results of operations of the Corporation.
In October, 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise." This statement amends SFAS No. 65, "Accounting
for Certain Mortgage Banking Activities" to require that after the
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed securities or other
retained interests based on its ability and intent to sell or hold those
investments. This statement is effective for the first fiscal quarter beginning
after December 15, 1998. The adoption of SFAS No. 134 is not expected to have a
material impact on the financial position of the Corporation.
7
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
At September 30, 1998, the Corporation's total assets increased to $433.6
million from $408.3 million at December 31, 1997. Net loans increased to $302.4
million at September 30, 1998 from $264.4 million at December 31, 1997, as loan
disbursements exceeded repayments by $38.0 million. Deposits increased to
$359.5 million at September 30, 1998 from $337.1 at December 31, 1997. Deposits
inflows, exclusive of interest credited, exceeded outflows by $11.7 million
during the first nine months of 1998.
Non-performing loans (over 90 days delinquent) and non-accrual loans less than
90 days delinquent totaled $1,484,000 or 0.49% of total net loans plus real
estate acquired by foreclosure at September 30, 1998, compared to $1,091,000 or
0.41% of total net loans plus real estate acquired by foreclosure at December
31, 1997. There was no real estate acquired by foreclosure at September 30,
1998.
During the three and nine month periods ended September 30, 1998 the Corporation
added $75,000 and $225,000 to the allowance for loan losses compared to $150,000
and $450,000 during the corresponding periods 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 September 30, 1998. In addition, the entire
loan portfolio was reviewed for volume, quality, maturity, adequacy of
collateral and potential charge-offs.
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 $1,484,000 and $1,091,000 at September 30, 1998 and December
31, 1997, respectively, as follows:
<TABLE>
<CAPTION>
September 30, 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 3 $ 332 6 $ 569
Home equity loans 2 34 - -
Second mortgage loans - - 1 54
Consumer loans 1 23 1 11
Loans with modified terms 4 564 2 177
Matured loans 4 329 1 94
-------------------------------------------------
Total non-performing loans 14 1,282 11 905
Real estate acquired by foreclosure - - 1 40
-------------------------------------------------
14 1,282 12 945
Non-accrual loans less than 90 days delinquent 3 202 1 146
-------------------------------------------------
17 $1,484 13 $1,091
=================================================
</TABLE>
Of the fourteen non-performing loans at September 30, 1998, twelve ($1.253
million) are collateralized by real estate, one ($6,000) is secured by stock
and one ($23,000) is unsecured. Of the three non-accrual loans (less than 90
days delinquent), two are secured by real estate ($128,000) and one ($74,000)
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
$1,297,000 has been allocated to such loans, together with a general allowance
of $2,477,000 on the remaining loan portfolio taken as a whole. During the
quarter and nine months ended September 30, 1998 loans totaling $10,000 and
$23,000, respectively, were charged off, compared to $116,000 and $255,000 for
the corresponding 1997 periods.
8
<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 $33.6 million, or $13.67 per share at September 30,
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 $3,210,000
for the nine months ended September 30, 1998, $39,000 in amortization of a
restricted stock award, the issuance of 99,624 shares of common stock for
$795,000 via the exercise of stock options, a decrease of $103,000 in the ESOP
debt, an increase in the fair value adjustment of securities available-for-sale
of $89,000, partially offset by dividends paid to shareholders of $1,072,000,
and the repurchase of 15,919 shares of the Corporation's common stock for
$455,000.
Results of Operations:
Raritan Bancorp Inc. and its subsidiary recorded net income of $1,181,000 for
the third quarter of 1998 compared to $967,000 for the third quarter of 1997, an
increase of 22.1%. For the first nine months of 1998, net income was $3,210,000
compared to $2,919,000 for the corresponding period in 1997, an increase of
10.0%.
Net interest income increased for the third quarter of 1998 to $3,343,000 from
$3,195,000 a year earlier and also increased for the first nine months of 1998
to $9,957,000 from $9,828,000 for the comparable period in 1997 as a result of
increased loan disbursement volume partially offset by declining interest rate
spreads. Average net earning assets for the third quarter of 1998 increased to
$40.7 million from $35.0 million a year earlier, partially offset by a decrease
in the net interest spread to 2.80% from 3.10% a year earlier. Average net
earning assets for the first nine months of 1998 increased to $39.0 million from
$37.8 million a year earlier, partially offset by a decrease in the net interest
spread to 2.89% from 3.21% a year earlier. 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
increase in 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,
real estate acquired by foreclosure and non-accrual loans less than 90 days
delinquent totaled approximately $13,000 and $84,000 for the third quarter and
first nine months of 1998, compared to $31,000 and $91,000, respectively, for
the corresponding 1997 periods.
The provision for loan losses for the third quarter and first nine months of
1998 was $75,000 and $225,000, respectively, compared to $150,000 and $450,000
for the corresponding 1997 periods. 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 September 30, 1998. In addition, the entire loan portfolio
was reviewed for volume, quality, maturity, adequacy of collateral, and
potential charge-offs.
9
<PAGE>
Management calculated the provision based on a review of the required allowance
at September 30, 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 $1,297,000 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 $2,477,000 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 of 1998 increased to $516,000 from $309,000
for the corresponding 1997 period, primarily as a result of a gain of $168,000
from the sale of bank property in Manville, New Jersey. Other income for the
first nine months of 1998 increased to $1,140,000 from $796,000 for the
corresponding 1997 period, primarily as a result of the increase in the cash
surrender value of the aforementioned corporate-owned life insurance totaling
$320,000 for 1998 versus $138,000 for 1997, together with the previously-
mentioned $168,000 gain on the sale of bank property in Manville, New Jersey.
Operating expenses for the third quarter and first nine months of 1998 were $2.1
million and $6.3 million, respectively, compared to $1.9 million and $5.5
million for the corresponding periods in 1997. Salaries and employee benefits
increased $24,000, or 2.3%, to $1,079,000 for the third quarter of 1998 from
$1,055,000 for the comparable quarter in 1997, and increased $150,000, or 4.9%,
to $3.2 million for the first nine months of 1998 from $3.1 million for the
corresponding 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 for the third
quarter and first nine months of 1998 were $333,000 and $983,000, respectively,
compared to $181,000 and $559,000 for the comparable 1997 periods The increases
were primarily as the 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 $57,000, or 9.2%, to $678,000, for the third quarter of 1998
compared to $621,000 for the comparable 1997 quarter, primarily as a result of
increases in outside services and furniture and fixture expenses. Other
operating expenses increased $181,000 to $2.1 million for the first nine months
of 1998 from $1.9 million for the comparable 1997 period primarily as a result
of increases in outside services, furniture and fixture, legal and marketing
expenses.
The amount of income tax expense for the third quarter of 1998 was $513,000
compared to $530,000 for the third quarter of 1997 and was $1,358,000 for the
first nine months of 1998 compared to $1.706,000 for the comparable 1997 period.
The reduced tax rate for 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), and a reduction in the deferred tax asset
valuation account.
The Corporation's annualized return on average total assets and average
shareholders' equity was 1.09% and 14.48%, respectively, for the third quarter
of 1998, compared to 1.01% and 12.81%, respectively, for the comparable period
in 1997. For the first nine months of 1998, the annualized return on average
total assets and average shareholders' equity was 1.01% and 13.37%,
respectively, compared to 1.04% and 13.20%, respectively.
Impact of the Year 2000 Issue
The Year 2000 Issue involves preparing computer systems and programs to identify
the arrival of January 1, 2000. In the past, computer programs were written
using two digits rather than four to define the applicable year. Given this
programming, the year 2000 could be confused with the year 1900. This could
result in a system failure or miscalculations which could disrupt operations,
cause a temporary inability to process transactions, or engage in similar normal
business activities.
10
<PAGE>
The Corporation is continually assessing the impact of the Year 2000 issue on
its operations and the possible consequences for its customers. The Corporation
has determined that the third party vendors with whom it contracts most of its
software applications will be required to modify their computer systems so as to
be Year 2000 compliant. The Corporation believes that with modifications or
replacements to existing software and hardware, the Year 2000 Issue will not
pose significant operational problems to the overall functioning of its computer
system. However, if such modifications and conversions are not made, or are not
completed on a timely basis, the Year 2000 Issue could have a material impact on
the operations of the Corporation.
Since most of the Corporation's computer requirements are handled by outside
third party vendors, it is utilizing these outside parties to reprogram, replace
and test the appropriate software and hardware for Year 2000 modifications.
Periodic updates are received from these vendors regarding the progress being
made in addressing the issue. The Corporation believes that these vendors are
making satisfactory progress to address the Year 2000 Issue.
It is estimated that the necessary hardware upgrades and replacement costs to
address the Year 2000 Issue to be approximately $100,000, and that the software
and application upgrades will total approximately $20,000.
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 September 30, 1998, the Corporation's liquid assets (cash and
cash equivalents and investment securities maturing in one year or less) totaled
$44.7 million which represents 10.3% of total assets.
The Corporation's main liquidity demands come from loan disbursements which
totaled approximately $105.4 million for the first nine months of 1998. At
September 30, 1998 outstanding commitments to extend credit totaled $47.2
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, 1998, this
borrowing capacity totaled $40.7 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.
11
<PAGE>
The following chart presents the minimum capital requirement ratios and the
actual ratios for both the Corporation and the Bank:
September 30, 1998
------------------
Required Actual Excess
-------- ------ ------
THE CORPORATION:
Risk-based capital:
Tier 1 4.00% 12.246% 8.246%
Total 8.00 13.498 5.498
Leverage capital ratio 4.00 7.45 3.45
THE BANK:
Risk-based capital:
Tier 1 4.00 11.928 7.928
Total 8.00 13.180 5.180
Leverage capital ratio 4.00 7.25 3.25
Item 3: Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to information required regarding
quantitative and qualitative disclosures about market risk from the end of the
prior year to the date of the most recent interim balance sheet (September 30,
1998).
12
<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 Security Holders.
Not applicable
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
On October 6, 1998, the Corporation filed a Current Report on Form
8-K to report that on September 22, 1998 the Corporation had entered
into an Agreement and Plan of Merger providing for the merger of the
Corporation with and into United National Bancorp.
13
<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 27, 1998
By: /s/Arlyn D. Rus
---------------
Arlyn D. Rus
Chairman, President and
Chief Executive Officer
Director
Date: October 27, 1998
By: /s/ Thomas F. Tansey
---------------------
Thomas F. Tansey
Executive Vice President
Chief Operating Officer & Treasurer
Director
14
<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 8
ITEM 3 QUANTATATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK. 12
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 13
ITEM 2 CHANGES IN SECURITIES 13
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 13
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 13
ITEM 5 OTHER INFORMATION 13
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 9,454
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 44,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 33,403
<INVESTMENTS-CARRYING> 23,645
<INVESTMENTS-MARKET> 23,616
<LOANS> 305,760
<ALLOWANCE> 3,774
<TOTAL-ASSETS> 433,555
<DEPOSITS> 359,491
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,481
<LONG-TERM> 35,000
0
0
<COMMON> 26
<OTHER-SE> 33,557
<TOTAL-LIABILITIES-AND-EQUITY> 433,555
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<INTEREST-INVEST> 3,631
<INTEREST-OTHER> 18,692
<INTEREST-TOTAL> 22,323
<INTEREST-DEPOSIT> 10,732
<INTEREST-EXPENSE> 12,366
<INTEREST-INCOME-NET> 9,957
<LOAN-LOSSES> 225
<SECURITIES-GAINS> 41
<EXPENSE-OTHER> 2,082
<INCOME-PRETAX> 4,568
<INCOME-PRE-EXTRAORDINARY> 4,568
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,210
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.27
<YIELD-ACTUAL> 2.89
<LOANS-NON> 1,484
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 3,305
<CHARGE-OFFS> 23
<RECOVERIES> 267
<ALLOWANCE-CLOSE> 3,774
<ALLOWANCE-DOMESTIC> 3,774
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
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