<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 June 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 July 27, 1998, 2,373,569 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 8
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 11
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 12
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS 12
ITEM 3 DEFAULTS BY THE CORPORATION ON ITS SENIOR
SECURITIES 12
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 12
ITEM 5 OTHER INFORMATION 12
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RARITAN BANCORP INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
(UNAUDITED) (AUDITED)
-------------- -------------------
ASSETS
- ------
<S> <C> <C>
CASH AND DUE FROM BANKS $ 9,382 $ 7,316
FEDERAL FUNDS SOLD 33,200 26,700
SHORT-TERM INVESTMENT - -
------------- ------------
TOTAL CASH AND CASH EQUIVALENTS 42,582 34,016
SECURITIES AVAILABLE-FOR-SALE, AT FAIR VALUE 41,725 48,951
INVESTMENT SECURITIES HELD-TO-MATURITY, net (FAIR VALUE: $29,662
AT JUNE 30, 1998 AND $40,919 AT DECEMBER 31, 1997) 29,863 41,307
LOANS 302,893 267,764
PLUS: NET UNAMORTIZED COSTS (FEES) 321 (64)
LESS: ALLOWANCE FOR LOAN LOSSES 3,459 3,305
------------- ------------
NET LOANS 299,755 264,395
------------- ------------
BANKING PREMISES AND EQUIPMENT, NET 5,937 5,861
FEDERAL HOME LOAN BANK of NEW YORK STOCK, at COST 2,672 2,672
ACCRUED INTEREST RECEIVABLE 2,055 2,070
OTHER ASSETS 10,017 9,036
------------- ------------
TOTAL ASSETS $ 434,606 $ 408,308
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
DUE TO DEPOSITORS:
INTEREST-BEARING $ 325,240 $ 312,719
NON-INTEREST-BEARING 25,690 24,365
------------- ------------
TOTAL DEPOSITS 350,930 337,084
BORROWINGS 45,103 35,103
ACCRUED INTEREST PAYABLE 343 155
ACCRUED EXPENSES
AND OTHER LIABILITIES 6,393 5,092
------------- ------------
TOTAL LIABILITIES 402,769 377,434
------------- ------------
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 JUNE 30, 1998 AND
3,500,000 SHARES AUTHORIZED AT DECEMBER 31, 1997;
2,587,412 SHARES ISSUED AT JUNE 30, 1998 AND DECEMBER 31, 1997
WITH 2,373,007 SHARES OUTSTANDING AT JUNE 30, 1998
AND 2,372,226 SHARES OUTSTANDING AT DECEMBER 31, 1997 26 26
ADDITIONAL PAID-IN CAPITAL 11,188 11,275
RETAINED EARNINGS 23,445 22,133
ACCUMULATED OTHER COMPREHENSIVE INCOME: FAIR VALUE ADJUSTMENT OF
SECURITIES AVAILABLE-FOR-SALE, NET OF TAX 339 369
LESS: UNALLOCATED COMMON STOCK ACQUIRED BY THE ESOP (103) (103)
UNEARNED RESTRICTED STOCK (207) (230)
COST OF COMMON STOCK IN TREASURY, 214,405
SHARES AT JUNE 30, 1998 AND 215,186 SHARES
AT DECEMBER 31, 1997 (2,851) (2,596)
------------- ------------
TOTAL SHAREHOLDERS' EQUITY 31,837 30,874
COMMITMENTS AND CONTINGENCIES
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 434,606 $ 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 SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------------- --------------------------------
1998 1997 1998 1997
------------ ------------- ------------- ---------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
INTEREST AND FEES ON REAL ESTATE LOANS $ 4,661 $ 4,168 $ 9,080 $ 8,095
INTEREST AND FEES ON OTHER LOANS 1,175 1,018 2,276 2,027
INTEREST AND DIVIDENDS ON INVESTMENT SECURITIES:
TAXABLE 1,237 1,336 2,623 2,843
TAX-EXEMPT 12 13 24 25
INTEREST ON DEPOSITS IN OTHER BANKS 363 267 693 474
------------ ------------- ------------- ---------------
TOTAL INTEREST INCOME 7,448 6,802 14,696 13,464
------------ ------------- ------------- ---------------
INTEREST EXPENSE:
INTEREST ON DEPOSIT ACCOUNTS 3,557 3,373 7,036 6,639
INTEREST ON BORROWINGS 577 147 1,046 192
------------ ------------- ------------- ---------------
TOTAL INTEREST EXPENSE 4,134 3,520 8,082 6,831
------------ ------------- ------------- ---------------
NET INTEREST INCOME 3,314 3,282 6,614 6,633
PROVISION FOR LOAN LOSSES 75 150 150 300
------------ ------------- ------------- ---------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,239 3,132 6,464 6,333
OTHER INCOME:
SERVICE CHARGES AND OTHER INCOME 324 238 619 415
GAINS ON NET SECURITIES TRANSACTIONS 7 83 7 83
------------ ------------- ------------- ---------------
TOTAL OTHER INCOME 331 321 626 498
------------ ------------- ------------- ---------------
OPERATING EXPENSES:
SALARIES AND EMPLOYEE BENEFITS 1,070 1,034 2,160 2,034
OCCUPANCY EXPENSE 330 190 650 378
(INCOME FROM) NET COST OF OPERATION OF OTHER REAL ESTATE (5) 13 (6) 22
OTHER OPERATING EXPENSES 720 635 1,412 1,269
------------ ------------- ------------- ---------------
TOTAL OPERATING EXPENSES 2,115 1,872 4,216 3,703
------------ ------------- ------------- ---------------
INCOME BEFORE INCOME TAX EXPENSE 1,455 1,581 2,874 3,128
INCOME TAX EXPENSE 429 599 845 1,176
------------ ------------- ------------- ---------------
NET INCOME $ 1,026 $ 982 $ 2,029 $ 1,952
============ ============= ============= ===============
AVERAGE NUMBER OF SHARES OUTSTANDING:
BASIC 2,370,824 2,380,994 2,369,021 2,332,456
============ ============= ============= ===============
DILUTED 2,537,462 2,533,987 2,535,754 2,512,693
============ ============= ============= ===============
NET INCOME PER SHARE:
BASIC $ 0.43 $ 0.41 $ 0.86 $ 0.84
============ ============= ============= ===============
DILUTED $ 0.40 $ 0.39 $ 0.80 $ 0.78
============ ============= ============= ===============
</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 SIX MONTHS ENDED JUNE 30
--------------------------------
1998 1997
-------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $2,029 $1,952
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DECREASE (INCREASE) IN ACCRUED INTEREST RECEIVABLE 15 (50)
AMORTIZATION, NET, ON SECURITIES 144 74
PROVISION FOR LOAN LOSSES 150 300
GAINS ON NET SECURITIES TRANSACTIONS (7) (83)
INCREASE IN ACCRUED INTEREST PAYABLE 188 37
INCREASE IN ACCRUED EXPENSES 1,222 310
(INCREASE) DECREASE IN PREPAID EXPENSES (85) 103
DEPRECIATION 307 178
DEFERRED INCOME TAXES (52) 117
INCREASE IN INCOME TAXES PAYABLE (267) (114)
NET DECREASE, OTHER (828) (36)
---------- ----------
TOTAL CASH PROVIDED BY OPERATING ACTIVITIES $2,816 $2,788
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM CALL AND REPAYMENTS OF SECURITIES AVAILABLE-
FOR-SALE 6,547 5,042
PROCEEDS FROM SALE OF SECURITIES AVAILABLE-FOR-SALE 540 6,937
PROCEEDS FROM REPAYMENTS OF INVESTMENT SECURITIES HELD-TO-MATURITY, NET 11,405 3,681
PURCHASE OF CORPORATE-OWNED LIFE INSURANCE - (7,200)
NET DISBURSEMENTS FOR LOANS (35,142) (18,742)
CAPITAL EXPENDITURES (383) (197)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (17,033) (10,479)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET INCREASE IN DEMAND DEPOSITS, MONEY MARKET
ACCOUNTS, NOW ACCOUNTS, PRIME PERFORMANCE ACCOUNTS,
AND SAVINGS ACCOUNTS 14,047 5,992
NET DECREASE IN MARKET-RATE CERTIFICATES (201) (3,347)
PROCEEDS FROM ISSUANCE OF COMMON STOCK 111 611
TREASURY STOCK ACQUIRED, AT COST (457) (154)
PROCEEDS FROM BORROWINGS 10,000 -
CASH DIVIDENDS PAID (717) (549)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 22,783 2,553
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,566 (5,138)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 34,016 32,753
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 42,582 $ 27,615
========== ==========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION: FOR THE SIX MONTHS ENDED JUNE 30
--------------------------------
1998 1997
---------- ----------
INTEREST PAID $7,894 $6,794
========== ==========
INCOME TAXES PAID $1,164 $1,173
========== ==========
</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 June 30, 1998, the consolidated statements of
income for the three and six month periods ended June 30, 1998 and 1997, and the
consolidated statements of cash flows for the six month periods ended June 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 June 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 166,638 and 166,733 for the three and
six month periods ended June 30, 1998, respectively, and 152,993 and 180,237 for
the three and six month periods ended June 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 six month periods ended June 30, 1998, total comprehensive
income amounted to $1,037,000 and $1,999,000, respectively, and for the three
and six month periods ended June 30, 1997, total comprehensive income amounted
to $1,163,000 and $1,903,000, 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 June 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 and obligations
of U.S. Government agencies $ 8,164 $ 31 $ - $ 8,195
Obligations of states and political
subdivisions 645 51 - 696
Equity security 129 160 - 289
Mortgage-backed securities issued by
Federal agencies 32,248 335 (38) 32,545
-----------------------------------------------------------
$41,186 $577 $ (38) $41,725
===========================================================
Investment securities held-to-maturity, net:
Mortgage-backed securities issued by Federal agencies $29,863 $ - $(201) $29,662
===========================================================
</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
---- ----- ------ -----
(Audited)
(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>
During the three and six month periods ending June 30, 1998, the Corporation
sold a security which was classified as available-for-sale in the amount of
$540,000 at a gross gain of $6,000. In addition, a security classified as
available-for-sale in the amount of $50,000 was called at a gross gain of
$1,000.
5
<PAGE>
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.
Note 3: Loans and Allowance for Loan Losses:
Loans are summarized as follows:
June 30, 1998 December 31, 1997
------------- -----------------
(Unaudited) (Audited)
(In thousands)
Real estate:
Conventional $280,023 $246,438
Construction 8,657 8,695
--------------------------------------
288,680 255,133
Consumer Loans 7,361 7,235
Commerical Loans 6,852 5,396
--------------------------------------
$302,893 $267,764
======================================
The activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $3,378 $3,127 $3,305 $2,965
Provision charged to operations 75 150 150 300
Charge-offs (8) (136) (13) (139)
Recoveries 14 131 17 146
------------------------ -----------------------
Balance at end of period $3,459 $3,272 $3,459 $3,272
======================== =======================
</TABLE>
6
<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 $1,915,000 and $1,091,000 at June 30, 1998 and December 31,
1997, respectively, as follows:
<TABLE>
<CAPTION>
June 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 8 $ 740 6 $ 569
Home equity loans 1 12 - -
Second mortgage loans - - 1 54
Consumer loans 1 10 1 11
Commercial loan 1 173 - -
Loans with modified terms 4 576 2 177
Matured loans 3 341 1 94
----------------------------------------------------------------------
Total non-performing loans 18 1,852 11 905
Real estate acquired by
foreclosure - - 1 40
----------------------------------------------------------------------
18 1,852 12 945
Non-accrual loans less
than 90 days delinquent 3 63 1 146
----------------------------------------------------------------------
21 $1,915 13 $1,091
======================================================================
</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 $37,000 and $71,000 for the second quarter and first six
months of 1998, compared to $22,000 and $60,000, respectively, for the
corresponding 1997 periods.
At June 30, 1998 and December 31, 1997, the Corporation had impaired loans
totaling $1,852,000 and $905,000, respectively. The Corporation calculated a
total allowance for impaired loans of $316,000 and $157,000 at June 30, 1998 and
December 31, 1997, respectively. Impaired loans averaged $1,936,000 and
$1,532,000 for the three and six month periods ended June 30, 1998,
respectively, compared to $1,232,000 and $1,237,000 for the comparable 1997
periods. There was no interest income collected on impaired loans for the three
and six month periods ending June 30, 1998. 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.
Note 4: Recently Issued Accounting Pronouncements:
In February 1998, the Financial Accounting Standards Board ("FASB") 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 June 1998, the FASB issued Statement 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities.
Statement 133 supercedes the disclosure requirements in Statements No. 80, 105,
and 119. This statement is effective for periods after June 15, 1999. The
adoption of Statement No. 133 is not expected to have a material impact on the
financial position or results of operations of the Corporation.
7
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
At June 30, 1998, the Corporation's total assets increased to $434.6 million
from $408.3 million at December 31, 1997. Net loans increased to $299.8 million
at June 30, 1998 from $264.4 million at December 31, 1997, as loan disbursements
exceeded repayments by $35.4 million. Deposits increased to $350.9 million at
June 30, 1998 from $337.1 at December 31, 1997. Deposits inflows, exclusive of
interest credited, exceeded outflows by $6.8 million during the first six months
of 1998.
Non-performing loans (over 90 days delinquent) and non-accrual loans less than
90 days delinquent totaled $1,915,000 or 0.64% of total net loans plus real
estate acquired by foreclosure at June 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 June 30, 1998.
During the three and six month periods ended June 30, 1998 the Corporation added
$75,000 and $150,000 to the allowance for loan losses compared to $150,000 and
$300,000 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 June 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 $1,915,000 and $1,091,000 at June 30, 1998 and December 31,
1997, respectively, as follows:
<TABLE>
<CAPTION>
June 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 8 $ 740 6 $569
Home equity loans 1 12 - -
Second mortgage loans - - 1 54
Consumer loans 1 10 1 11
Commercial loan 1 173 - -
Loans with modified terms 4 576 2 177
Matured loans 3 341 1 94
---------------------------------------------
Total non-performing loans 18 1,852 11 905
Real estate acquired by
foreclosure - - 1 40
---------------------------------------------
18 1,852 12 945
Non-accrual loans less
than 90 days delinquent 3 63 1 146
---------------------------------------------
21 $1,915 13 $1,091
=============================================
</TABLE>
Of the eighteen non-performing loans at June 30, 1998 seventeen ($1.842
million) are collateralized by real estate and one ($10,000) is unsecured. Of
the three non-accrual loans (less than 90 days delinquent), one is secured by
real estate ($38,000) and two ($25,000) are 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
$1,375,000 has been allocated to such loans, together with a general
<PAGE>
allowance of $2,084,000 on the remaining loan portfolio taken as a whole. During
the quarter and six months ended June 30, 1998 loans totaling $8,000 and
$13,000, respectively, were charged off, compared to $136,000 and $139,000 for
the corresponding 1997 periods.
On an ongoing basis, management reviews the overall adequacy of the allowance
for loan losses based on an evaluation of the risk characteristics of the loan
portfolio both on potential individual problem loans, and on the aggregate loan
portfolio taken as a whole. Such factors as the financial condition of the
borrower, the fair value of the underlying collateral and other items which, in
management's opinion, deserve recognition in estimating the adequacy of the
allowance for loan losses are evaluated. When reviewing the adequacy of the
allowance for loan losses, management reviews the status of the current
(and potential) non-performing loans, delinquency trends, coverage ratios and
various economic and other factors, and determines what levels of allowance for
loan losses are necessary to absorb current losses in the loan portfolio.
Shareholders' equity totaled $31.8 million, or $13.42 per share at June 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 $2,029,000
for the six months ended June 30, 1998, $27,000 in amortization of a restricted
stock award, the issuance of 16,700 shares of common stock for $111,000 via the
exercise of stock options, partially offset by dividends paid to shareholders of
$717,000, a decrease in the fair value adjustment of securities available-for-
sale of $30,000, and the repurchase of 15,919 shares of the Corporation's common
stock for $457,000.
Results of Operations:
Raritan Bancorp Inc. and its subsidiary recorded net income of $1,026,000 for
the second quarter of 1998 compared to $982,000 for the second quarter of 1997,
an increase of 4.5%. For the first six months of 1998, net income was
$2,029,000 compared to $1,952,000 for the corresponding period in 1996, an
increase of 3.9%.
Net interest income increased slightly for the second quarter of 1998 to
$3,314,000 from $3,282,000 a year earlier and decreased moderately for the
first six months of 1998 to $6,614,000 from $6,633,000 for the comparable period
in 1997 as declining interest rate spreads compressed new loan yields and
deposit costs. The net interest spread for the second quarter of 1998 decreased
to 2.88% from 3.20% a year earlier, offset by an increase in average net earning
assets to $38.8 million from $38.2 million a year earlier. The net interest
spread for the first six months of 1998 decreased to 2.93% from 3.26% a year
earlier, together with a decrease in average net earning assets to $38.0 million
from $39.2 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,
real estate acquired by foreclosure and non-accrual loans less than 90 days
delinquent totaled approximately $37,000 and $71,000 for the second quarter and
first six months of 1998, compared to $22,000 and $60,000, respectively, for the
corresponding 1997 periods.
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
<PAGE>
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 June 30, 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 June 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 $1,375,000 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 $2,084,000 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 second quarter of 1998 increased to $331,000 from $321,000
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 $113,000 for 1998 versus $29,000 for 1997, offset by a decrease in
gains on net securities transactions to $7,000 from $83,000 a year earlier.
Other income for the first six months of 1998 increased to $626,000 from
$498,000 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 $225,000 for 1998 versus $29,000 for 1997, offset by a
decrease in gains on net securities transactions to $7,000 from $83,000 a year
earlier.
Operating expenses for the second quarter and first six months of 1998 were $2.1
million and $4.2 million, respectively, compared to $1.9 million and $3.7
million for the corresponding periods in 1997. Salaries and employee benefits
increased $36,000, or 3.5%, to $1,070,000 for the second quarter of 1998 from
$1,034,000 for the comparable quarter in 1997, and increased $126,000, or 6.2%,
to $2.2 million for the first six months of 1998 from $2.0 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
second quarter and first six months of 1998 were $330,000 and $650,000,
respectively, compared to $190,000 and $378,000 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 $85,000, or 13.4%, to $720,000, for the second quarter of
1998 compared to $635,000 for the comparable 1997 quarter, and increased
$143,000 to $1.4 million for the first six months of 1998 from $1.3 million for
the comparable 1997 quarter primarily as a result of increases in furniture and
fixture, legal, and marketing expenses.
The amount of income tax expense for the second quarter of 1998 was $429,000
compared to $599,000 for the second quarter of 1997 and was $845,000 for the
first six months of 1998 compared to $1.176,000 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 .97% and 12.86%, respectively, for the second quarter
of 1998, compared to 1.05% and 13.27%, respectively, for the comparable period
in 1997. For the first six months of 1998, the annualized return on average
total assets and average shareholders' equity was .97% and 12.83%, respectively,
compared to 1.05% and 13.39%, respectively.
<PAGE>
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 June 30, 1998, the Corporation's liquid assets (cash and cash
equivalents and investment securities maturing in one year or less) totaled
$35.4 million which represents 8.1% of total assets.
The Corporation's main liquidity demands come from loan disbursements which
totaled approximately $70.3 million for the first six months of 1998. At June
30, 1998 outstanding commitments to extend credit totaled $54.7 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, 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.
The following chart presents the minimum capital requirement ratios and the
actual ratios for both the Corporation and the Bank:
June 30, 1998
-------------
Required Actual Excess
-------- ------ ------
THE CORPORATION:
Risk-based capital:
Tier 1 4.00% 11.611% 7.611%
Total 8.00 12.862 4.862
Leverage capital ratio 4.00 7.28 3.28
THE BANK:
Risk-based capital:
Tier 1 4.00 11.585 7.585
Total 8.00 12.836 4.836
Leverage capital ratio 4.00 7.26 3.26
Item 3: Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to information required regarding
quantitative and qualitative disclosrues about market risk from the end of the
prior year to the date of the most recent interim balance sheet (June 30, 1998).
11
<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.
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: July 27, 1998 By: /s/ Arlyn D. Rus
----------------
Arlyn D. Rus
Chairman, President and
Chief Executive Officer
Director
Date: July 27, 1998 By: /s/ Thomas F. Tansey
--------------------
Thomas F. Tansey
Executive Vice President
Chief Operating Officer &
Treasurer
Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 9,382
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 33,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 41,725
<INVESTMENTS-CARRYING> 29,863
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<ALLOWANCE> 3,459
<TOTAL-ASSETS> 434,606
<DEPOSITS> 350,930
<SHORT-TERM> 10,103
<LIABILITIES-OTHER> 6,736
<LONG-TERM> 35,000
0
0
<COMMON> 26
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<TOTAL-LIABILITIES-AND-EQUITY> 434,606
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<EPS-PRIMARY> 0.86
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