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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended December 31, 1997
Commission file number 0-15830
Raritan Bancorp Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-2792402
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
454 Route 28
Bridgewater, New Jersey 08807
(Address of principal executive (Zip Code)
offices)
Telephone Number: (908) 725-0080
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No ___
Securities Registered Pursuant to Section 12(g) of the Exchange Act: Common
Stock
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed by reference to the last reported sales price of such stock
on the NASDAQ National Market System on March 9, 1998 was approximately
$48,846,700.
The number of shares outstanding of the registrant's Common Stock, the
registrant's only class of outstanding capital stock, as of March 9, 1998 was
2,388,289.
Documents Incorporated by Reference
The following documents, in whole or in part, are specifically incorporated
by reference in the indicated Part of this Annual Report on Form 10-K:
I. Portions of the Raritan Bancorp Inc. 1997 Annual Report are incorporated
by reference into certain items of Part I and Part II.
II. Portions of the Raritan Bancorp Inc. Proxy Statement for the 1997 Annual
Meeting of Shareholders are incorporated by reference into certain items of
Part III.
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RARITAN BANCORP INC.
FORM 10-K
TABLE OF CONTENTS
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Page
PART I
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Item 1. Business................................................................................. 1
(a) General Development of Business...................................................... 1
(b) Financial Information About Industry Segments........................................ 1
(c) Narrative Description of Business.................................................... 1
(1) General Description of Business.................................................. 1
(2) Regulation and Supervision....................................................... 2
(3) Monetary Policies................................................................ 9
(4) Employees........................................................................ 9
(5) Statistical Information.......................................................... 9
(a) Distribution of Assets, Liabilities and Shareholders'
Equity; Interest Rates and Interest Differential............................. 9
(b) Securities Portfolio......................................................... 10
(c) Loan Portfolio............................................................... 12
(d) Maturity of Loans............................................................ 12
(e) Nonperforming Assets......................................................... 15
(f) Summary of Loan Loss Experience and Allocation
of the Allowance for Loan Losses............................................. 16
(g) Deposits..................................................................... 17
(h) Maturities of Time Deposits.................................................. 17
(i) Return on Equity and Assets.................................................. 18
(j) Short-term Borrowings........................................................ 18
(k) Competition.................................................................. 19
(l) Executive Officers........................................................... 19
Item 2. Properties............................................................................... 20
Item 3. Legal Proceedings........................................................................ 21
Item 4. Submission of Matters to a Vote of Security Holders...................................... 21
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters.................................................................................. 21
(a) Market Information................................................................... 21
(b) Shareholders......................................................................... 21
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(c) Dividends............................................................................ 21
Item 6. Selected Financial Data.................................................................. 22
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................................ 22
Item 7A. Quantitative and Qualitative Disclosure About Market Risk................................ 22
Item 8. Financial Statements and Supplementary Data.............................................. 23
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................................... 23
PART III
Item 10. Directors and Officers of the Registrant................................................. 23
Item 11. Executive Compensation................................................................... 23
Item 12. Security Ownership of Certain Beneficial Owners and Management........................... 23
Item 13. Certain Relationships and Related Transactions........................................... 23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................... 24
(a) (1) Consolidated Financial Statements............................................... 24
(2) Consolidated Financial Statement Schedules...................................... 24
(b) Reports on Form 8-K.................................................................. 24
(c) Exhibits Required by Securities and Exchange Commission
Regulation S-K....................................................................... 24
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PART I
Item 1. Business
(a) General Development of Business
Raritan Bancorp Inc.
Raritan Bancorp Inc. (the "Corporation"), a Delaware Corporation, is a
bank holding company whose only subsidiary is The Raritan Savings Bank (the
"Bank"), an FDIC/BIF insured, New Jersey chartered savings bank, headquartered
in Bridgewater, New Jersey. The Corporation was formed at the direction of the
Bank in connection with the Bank's conversion from a mutual to stock form of
organization (the "Conversion"). The Conversion of the Bank and its acquisition
by the Corporation was consummated on May 21, 1987. The sole activity of the
Corporation is its ownership of all of the issued and outstanding common stock
of the Bank.
The Raritan Savings Bank
The Bank is a New Jersey chartered stock savings bank organized in 1869.
Its main office is located at 9 West Somerset Street, Raritan, New Jersey 08869,
and its telephone number is 908-725-0080. Its corporate headquarters is located
at 454 Route 28, Bridgewater, New Jersey 08807 and its telephone number is
908-231-8100. It also operates branch offices in Bridgewater, Manville,
Martinsville, Somerville, Warren and Whitehouse Station, New Jersey. The deposit
accounts in the Bank are insured by the Federal Deposit Insurance Corporation
(the "FDIC") primarily through the Bank Insurance Fund (the "BIF").
The Bank considers its primary market area for deposits to be the areas
serviced by these seven offices, while its primary market area for lending is
more widespread and includes Somerset and Hunterdon Counties, as well as
contiguous municipalities in Morris, Middlesex, Union and Mercer Counties, New
Jersey. These areas include mostly manufacturing and service companies.
(b) Financial Information About Industry Segments
Not applicable.
(c) Narrative Description of Business
(1) General Description of Business
The Corporation is a bank holding company whose only subsidiary is the
Bank.
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The Bank is engaged primarily in the business of attracting deposits from
the general public and originating residential mortgage, construction and
consumer loans, and small business loans. In addition, a portion of its assets
is invested in securities, including mortgage-backed securities.
It is the Bank's policy primarily to originate adjustable-rate mortgage
loans and other loans of an adjustable or short-term nature. However, in order
to meet the demands of borrowers in the Bank's local lending area for long-term,
fixed-rate mortgage loans in the current interest rate environment, the Bank
began originating such loans (both 15 and 30 year loans) in 1991. Of the $62.1
million of first mortgage loans disbursed during 1997, $2.8 million were
fixed-rate, while the balance of $59.3 million were of an adjustable or
short-term nature. Consumer and commercial lending disbursements totaled $35.5
million for 1997 and consisted primarily of loans which are tied to the prime
lending rate and are of a short-term nature.
The Bank offers a wide range of services to both consumer and commercial
customers. These services include consumer and commercial checking accounts, NOW
and money market accounts, regular savings accounts, prime performance accounts
whose rates are tied to the prime lending rate, market-rate certificates,
IRA/Keough accounts, automated teller machine ("ATM") accessibility using the
MAC(R) Plus(R) system, real estate mortgage loans, various consumer and
commercial time and demand loans, and home equity lines of credit.
(2) Regulation and Supervision
General. As a New Jersey chartered savings bank, the deposits of which are
insured by the FDIC primarily through the BIF, the Bank is subject to extensive
regulation by the FDIC and the New Jersey Department of Banking and Insurance
(the "Banking Department"). Both the Banking Department and FDIC periodically
examine the Bank for compliance with various regulatory requirements. The Bank
must file reports with the FDIC and the Banking Department describing its
activities and financial condition. The Board of Governors of the Federal
Reserve System ("FRB") approved the Corporation's application to acquire the
capital stock of the Bank and thereby to become a bank holding company. The
Corporation is therefore subject to regulation, examination, supervision by
the FRB. This supervision and regulation is intended primarily for the
protection of depositors. The regulatory structure also gives the regulatory
authorities extensive discretion in connection with their supervisory and
enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such regulations could
have a material adverse impact on the Corporation, the Bank and their
operations. Certain of these regulatory requirements are referred to below or
appear elsewhere herein. The Corporation is also subject to the reporting
requirements of the Securities and Exchange Commission ("SEC").
To the extent that the following information describes statutory and
regulatory provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions involved. In this regard, it
should be noted that there have been numerous statements by legislative
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and regulatory officials and industry officials regarding the potential for
legislative and regulatory changes.
New Jersey Law. The Bank is a stock-form savings bank organized under the
laws of the State of New Jersey, and its deposits are insured by the FDIC. The
Bank derives its lending, investment and other powers from the applicable
provisions of New Jersey law and the regulations of the Banking Department,
subject to limitations or other modifications under applicable federal laws and
regulations of such agencies as the FDIC and the Federal Reserve Board.
The Banking Department regulates the Bank's internal organization as well
as its deposit, lending and investment activities. The Commissioner of the
Banking Department must approve changes to the Bank's Certificate of
Incorporation, establishing or relocating branch offices, mergers and the
issuance of additional stock. Many of the areas regulated by the Banking
Department are subject to similar regulation by the FDIC. New Jersey-chartered
savings banks have lending, investment and other powers similar to those
authorized for federally-chartered savings institutions, including commercial
lending authority and the ability to offer personal and commercial checking and
NOW accounts, and have virtually the same powers as commercial banks.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989. On
August 9, 1989, the President of the United States signed into law the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), a major
reform intended primarily to recapitalize the savings and loan industry.
Although the primary emphasis of the new law was to recapitalize and restructure
the regulation and insurance of the savings and loan industry, certain
provisions did affect banks and FDIC-insured savings banks. Notably, FIRREA
abolished the Federal Savings and Loan Insurance Corporation and required that
the FDIC establish two separate insurance funds, the Bank Insurance Fund ("BIF")
and the Savings Association Insurance Fund ("SAIF"). Banks, including
state-chartered savings banks, are insured under the BIF. "Savings associations"
(i.e., savings and loan associations) are insured under the SAIF. Under FIRREA,
the BIF may not be commingled with the SAIF and vice versa. See "Insurance of
Deposits." Also under FIRREA, bank holding companies now are able to acquire any
savings association without the imposition of cross-marketing restrictions on
transactions between the association and its holding company affiliates.
The Federal Deposit Insurance Corporation Improvement Act of 1991. On
December 19, 1991 the Federal Deposit Insurance Corporation Improvement Act of
1991 (the "Act") was signed by the President. Among other things, the Act
provided additional sources of funding to the BIF, which generally insures the
deposits of banks, including state-chartered savings banks. The Act also
authorizes the FDIC to impose emergency special assessments on BIF-members where
deemed necessary, in addition to the regular insurance assessments. The Act also
adopted a number of new mandatory supervisory measures designed to reduce costs
to the deposit insurance fund. For example, effective December 19, 1992, the
regulatory agencies were required to take certain supervisory actions (the
"Prompt Corrective Action" provisions) against undercapitalized banks. The
severity of such action depends upon the degree of undercapitalization. The Act
generally requires, subject to a narrow exception, the appointment of a receiver
or conservator for banks whose
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tangible capital level falls below 2%, which appointment must be made within a
maximum of 270 days after the threshold is reached. The final Prompt Corrective
Action rules generally provide that an insured institution that has total
risk-based capital of less than 8.0% or a leverage ratio that is less than 4.0%
would be considered to be "undercapitalized", an insured institution that has
total risk-based capital less than 6.0% or a leverage ratio that is less than
3.0% would be considered to be "significantly under-capitalized" and an insured
institution that has a tangible capital to assets ratio equal to or less than 2%
would be deemed to be "critically undercapitalized." Generally, under the rule,
an insured institution that is "undercapitalized," "significantly
under-capitalized," or "critically undercapitalized" becomes immediately subject
to certain regulatory restrictions, including, but not limited to, restrictions
on growth, investment activities, capital distributions, and affiliate
transactions. The filing of a capital restoration plan, which must be guaranteed
by the parent holding company, is also required. In addition, "critically
undercapitalized" institutions must receive prior written approval from the FDIC
to engage in any material transaction other than in the normal course of
business.
Pursuant to the Act, the federal regulatory agencies adopted final
regulations prescribing standards relating to a variety of operating matters
such as internal controls, information systems and external audit systems, loan
documentation and credit underwriting, interest rate exposure, asset growth and
quality and employee compensation.
The Act also places new restrictions on investments by, and the activities
of, insured state banks such as the Bank. Effective December 19, 1992, neither
state banks nor their subsidiaries may engage in activities not permissible for
national banks or their subsidiaries unless the FDIC determines that the
activity would pose no significant risk to the deposit insurance fund and the
bank is and continues to comply with applicable federal capital standards.
Additionally, subject to exceptions for majority-owned subsidiaries and certain
other limited exceptions, state banks may not acquire or retain any equity
investment of a type or in an amount not permissible for national banks.
Generally, nonconforming investments must be divested over a five-year
transition period.
Insurance of Deposits. The Bank's deposit accounts primarily are insured by
the BIF up to applicable limits, generally $100,000 per insured depositor. In
September 1991, the Bank assumed $80.3 million of insured deposit liabilities
relating to the Warren and Whitehouse Station, New Jersey branch offices of a
savings association being operated by the Resolution Trust Corporation, and also
acquired deposits totaling $12.5 million as a result of the Manville Savings
Bank merger and acquisition in August, 1996. These deposits are insured by the
Savings Association Insurance Fund ("SAIF"), up to applicable limits, generally
$100,000 per insured depositor. The SAIF, like the BIF, is administered by the
FDIC. The FDIC promulgates regulations, conducts periodic examinations, requires
the filing of reports and generally supervises the operations of its insured
banks. The approval of the FDIC is required prior to a merger or consolidation
or the establishment or relocation of an office facility. This supervision and
regulation is intended primarily for the protection of depositors.
On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on SAIF Insured Deposits, including
approximately $83.0 million in
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"Oakar" and "Sasser" deposits held by the Bank, to recapitalize the SAIF and
spread the obligations for payment of Financing Corporation (FICO) bonds across
all SAIF and Bank Insurance Fund (BIF) members. The Federal Deposit Insurance
Corporation (FDIC) special assessment levied amounted to 65.7 basis points on
SAIF assessable deposits held as of March 31, 1995. The Bank recorded a charge
of $436,000 before tax-effect, as a result of the special assessment. This
legislation eliminated the substantial disparity between the amount that BIF and
SAIF member institutions had been paying for deposit insurance premiums.
Currently, BIF members paid a portion of the FICO payment equal to 1.3
basis points on BIF-insured deposits compared to 6.4 basis points on SAIF
insured deposits and will pay a pro-rata share of the FICO payment on the
earlier of January 1, 2000, or the date upon which the last savings association
ceases to exist. The legislation also requires BIF and SAIF to be merged by
January 1, 1999, provided that subsequent legislation is adopted to eliminate
the savings association charter and no savings associations remain as of that
time.
During 1997, SAIF assessment rates ranged from 0 to 27 basis points, based
upon an institution's regulatory risk classification and capital group. Based
upon its current classification the rate applicable to the SAIF deposits held by
the Bank was zero.
Capital Requirements. Both the FRB and the FDIC have issued regulations
which require both the Corporation and the Bank, respectively, to maintain
minimum levels of capital. In general, the regulations require a leverage
capital ratio of 4% of total assets to be maintained. At December 31, 1997, the
Corporation's and Bank's leverage capital ratio was 7.330% and 7.319%,
respectively.
The FDIC and the FRB also have adopted a risk-based capital policy which
imposes an additional capital standard on insured banks and bank holding
companies. Under this regulation, the Corporation and Bank must classify its
assets and certain off-balance sheet activities into categories, and maintain
specified levels of capital for each category. The least capital is required for
the category having the least risk, and the most capital is required for the
category deemed to have the greatest risk. At December 31, 1997, the Corporation
and the Bank were required to have a Tier 1 risk-based capital ratio of 4% and
total-risk-based capital ratio of 8%. At December 31, 1997, the Corporation's
Tier 1 and total risk-based capital ratios were 12.255% and 13.507%,
respectively. The Bank's Tier 1 and total risk-based capital ratios were 12.235%
and 13.486%, respectively.
Under the Act, the capital regulations of the FDIC and the FRB are required
eventually to include a component that takes into account, and may require
additional capital as a result of, the interest rate risk inherent in an
institution's portfolio.
Any insured bank which does not operate in accordance with or conform to
FDIC regulations, policies and directives may be sanctioned for noncompliance.
For example, enforcement proceedings may be instituted against any insured bank,
or any director, officer or employee thereof who engages in unsafe and unsound
practices including the violation of applicable
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laws and regulations. The FDIC has the authority to terminate or suspend
insurance of accounts pursuant to procedures established for that purpose.
Federal Reserve System. Under the FRB regulations, the Bank is required to
maintain reserves against its transaction accounts (primarily checking and NOW
accounts), nonpersonal money market deposit accounts, and nonpersonal time
deposits. Because reserves must generally be maintained in cash or in
noninterest bearing accounts, the effect of the reserve requirement is to reduce
the Bank's level of investable funds. These regulations generally require
reserves of 3% of total transaction accounts of up to $49.3 million. Total
transaction accounts amounting to over $49.3 million require a reserve of $1.5
million plus 10% (subject to adjustment by the FRB of between 8% and 14%) of
that portion of total transaction accounts in excess of such amount. In
addition, reserves in the amount of 3% must be maintained on nonpersonal money
market deposit accounts and on nonpersonal time deposits that have original
maturities of less than one and one half years and Eurocurrency liabilities.
Institutions are permitted to designate and exempt $4.4 million of reservable
liabilities from these reserve requirements. These amounts and percentages are
subject to adjustment by the FRB. The Bank was in compliance with these
requirements at December 31, 1997.
The Corporation received the approval of the FRB under the BHCA for the
acquisition of the Bank. As a condition for obtaining FRB approval, the
Corporation has agreed that it will not engage in real estate investment
activities unless it provides the FRB with 30 days notice of such activities and
the FRB notifies the Corporation of its nonobjections.
The Corporation will be required to obtain the prior approval of the FRB to
acquire all, or substantially all, of the assets of any bank or bank holding
company. Prior FRB approval will be required for the Corporation to acquire
direct or indirect ownership or control of any voting securities of any bank or
bank holding company if, after giving effect to such acquisition, it would,
directly or indirectly, own or control more than 5% of any voting shares of such
bank or bank holding company. In addition to the approval of the FRB, before any
bank acquisition can be completed, prior approval thereof may also be required
to be obtained from other agencies having supervisory jurisdiction over the bank
to be acquired.
In addition, a bank holding company is generally prohibited from engaging
in, or acquiring direct or indirect control of any company engaged in nonbanking
activities. One of the principal exceptions to this prohibition is for
activities found by the FRB to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Some of the principal
activities that the FRB has determined by regulation to be so closely related to
banking are: (i) making or servicing loans; (ii) performing certain data
processing services; (iii) providing discount brokerage services; (iv) acting as
fiduciary, investment or financial advisor; (v) leasing personal or real
property; (vi) making investments in corporations or projects designed primarily
to promote community welfare; and (vii) acquiring a savings and loan
association. Legislation has been proposed in Congress to relax, and even
eliminate, the restrictions on activities that may be engaged in by nonbank
subsidiaries of a bank holding company.
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Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extension of credit to
the bank holding company or any of its subsidiaries, on investments in the stock
or other securities of such holding company or its subsidiaries, and on the
acceptance of such stocks or securities as collateral for loans. Moreover,
subsidiaries of bank holding companies are prohibited from engaging in certain
tie-in arrangements (with the Corporation or any of its subsidiaries) in
connection with any extension of credit, lease or sale of property or furnishing
of services.
The Corporation and its subsidiary Bank are affected by the monetary and
fiscal policies of various agencies of the United States Government, including
the Federal Reserve System. In view of changing conditions in the national
economy and in the money markets, it is impossible for the management of the
Corporation to accurately predict future changes in monetary policy or the
effect of such changes on the business or financial condition of the Corporation
and the Bank.
Community Reinvestment Act. Under the Community Reinvestment Act ("CRA"),
as implemented by FDIC regulations, a savings institution has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the FDIC, in connection with its examination of a savings institution,
to assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such institution. Public disclosure of an institution's CRA rating is
required. The FDIC provides a written evaluation of an institution's CRA
performance utilizing a four-tiered descriptive rating system which replaced the
five-tiered numerical rating system. The Bank has a satisfactory rating.
Acquisition of the Corporation. Under the Federal Change in Bank Control
Act ("CIBCA"), a notice must be submitted to the FRB if any person or group
acting in concert seeks to acquire 10% or more of the Corporation's shares of
Common Stock outstanding, unless the FRB finds that the acquisition will not
result in a change in control of the Corporation. Under the CIBCA, the FRB has
60 days within which to act on such notices, taking into consideration certain
factors, including the financial and managerial resources of the acquiror, the
convenience and needs of the communities served by the Corporation and the Bank,
and the antitrust effects of the acquisition. Under the BHCA, any company would
be required to obtain prior approval from the FRB before it may obtain control
of the Corporation. Control generally is defined to mean the beneficial
ownership of 25% or more of any class of voting securities of the Corporation.
Under New Jersey law, the Commissioner is required to approve in advance any
acquisition of the Corporation's Common Stock in excess of 25% of the shares
outstanding.
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Federal Income Taxation. For Federal income tax purposes, the Corporation
files a consolidated return with its subsidiary Bank, using the accrual method
of accounting. The Bank is, with certain exceptions, subject to the rules of
Federal income taxation generally applicable to corporations. The maximum
Federal corporate income tax rate for all taxable income including capital gains
is currently 34%.
Based upon 1996 Federal tax law changes, thrift institutions are generally
required to recapture into income the portion of its bad debt reserve (other
than supplemental reserve) that exceeds its base year (December 31, 1987)
reserves. The recapture amount generally will be taken into income ratably (on a
straight-line basis) over a six-year period. Under a small thrift exception, the
Corporation's tax reserves for bad debts equaled its allowable experience
reserve method and therefore, the Corporation will have no recapture.
The Corporation has not recognized a deferred tax liability of
approximately $746,000 for bad debt reserves for tax purposes which arose in tax
years beginning before December 31, 1987 (i.e., base year). A deferred tax
liability will be recognized if the Corporation expects that charges to the bad
debt reserves, other than the losses on loans or recomputations of bad debt
deductions resulting from operating loss carrybacks to prior years, would result
in taxable income. The Corporation does not anticipate any such recognition in
the foreseeable future.
To the extent that (i) the Bank's reserve for losses on qualifying real
property loans exceeds the amount that would have been allowed under the
experience method and (ii) the Bank makes distributions to shareholders (as
dividends or redemptions of stock or in partial or complete liquidation) that
are considered to result in distributions from the excess bad debt reserve or
the supplemental reserve for losses on loans ("Excess Distributions"), then the
amounts considered distributed will be included in the Bank's taxable income.
The amount considered distributed includes the federal income tax payable on the
Excess Distribution. In contrast, dividends paid out of the Bank's current or
accumulated earnings and profits, as calculated for federal income tax purposes,
will not be considered to result in distributions from the Bank's bad debt
reserves. Distributions in excess of the Bank's current and accumulated earnings
and profits, distributions in redemption of stock and distributions in partial
or complete liquidation of the Bank generally are considered, in whole or in
part, to result in distributions from the Bank's bad debt reserves and the
supplemental reserve for losses on loans.
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State Income Taxation
The Bank is taxed under the New Jersey Savings Institutions Tax Act. The
tax is an annual privilege tax imposed at the rate of 3% on the net income of
the Bank as reported for federal income tax purposes with certain modifications.
The Corporation is taxed under the New Jersey Corporation Business Tax Act. If
it meets certain tests, the Corporation would be taxed as an investment company
at an effective annual rate of 2.34% of New Jersey taxable income. If it fails
to meet such test, it will be taxed at an annual rate of 9.375% of New Jersey
taxable income. As a Delaware business corporation, the Corporation is subject
to an annual Delaware franchise tax.
(3) Monetary Policies
The Corporation and its subsidiary Bank are affected by the monetary and
fiscal policies of various agencies of the United States Government, including
the Federal Reserve System. In view of changing conditions in the national
economy and in the money markets, it is impossible for the management of the
Corporation to accurately predict future changes in monetary policy or the
effect of such changes on the business or financial condition of the
Corporation.
(4) Employees
The Corporation had 85 full-time and 10 part-time employees on December 31,
1997
(5) Statistical Information
The statistical information on the Corporation set forth in the following
sections is furnished pursuant to Industry Guide 3 under the Securities Exchange
Act of 1934.
(a) Distribution of Assets, Liabilities and Shareholders'
Equity; Interest Rates and Interest Differential.
Information regarding the distribution of assets, liabilities and
shareholders' equity; interest rates and interest differential appear on pages
14 and 15 of the Annual Report to Shareholders for the year ended December 31,
1997, and are incorporated herein by reference.
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(b) Securities Portfolio
The following table sets forth the carrying amount of securities at the
dates indicated.
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At December 31,
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1997 1996 1995
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(In thousands)
U.S. government obligations and obligations
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of U.S. government agencies...................... $ 10,197 $ 17,143 $ 12,584
Obligations of states and political
subdivisions..................................... 747 748 804
Mortgage-backed securities issued
by Federal agencies.............................. 79,056 81,111 98,565
Federal Home Loan Mortgage
Corporation common stock......................... 258 170 --
----------- ----------- -----------
$ 90,258 $ 99,172 $ 111,953
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The mortgage-backed securities owned by the Bank are issued and guaranteed
by the Government National Mortgage Association, ("GNMA"), the Federal National
Mortgage Association, ("FNMA"), or the Federal Home Loan Mortgage Corporation,
("FHLMC") . These securities consist of pools of underlying mortgages with
similar interest rates and similar maturities. The Bank receives a pro rata
share (based on its percentage ownership in each individual pool) in the
principal and interest cash flows to be received as the underlying mortgages are
repaid by the mortgagors.
The overall return (i.e. yield) earned on mortgage backed securities is
highly sensitive to repayments on the underlying mortgage loans which can be
made before their scheduled maturity date. In periods of falling market interest
rates, prepayment of the underlying mortgages may accelerate and reduce the
yield on a particular mortgage backed security.
The credit risk associated with mortgage backed securities is nonexistent
because payment of interest and ultimate repayment of principal is guaranteed by
the Government National Mortgage Association, the Federal National Mortgage
Association, or the Federal Home Loan Mortgage Corporation as applicable.
The following table sets forth the maturities and average weighted yields
for the securities available-for-sale and investment securities, net, portfolios
at December 31, 1997. Yields on tax-exempt securities are shown on a fully
tax-equivalent basis assuming an approximate 36% combined Federal and New Jersey
State income tax rates:
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Mortgage-
Obligations of backed
U.S.Gov't State and Securities Issued FHLMC
U.S. Gov't. Agency Political by Federal Common
Obligations Obligations Subdivisions Agencies Stock Total
----------- ----------- ------------ -------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Due within 1 year
Amount................. $1,197 $4,003 $-- $-- $-- $5,200
Yield.................. 5.70% 5.83% -- -- -- 5.80%
Due from 1-5 years:
Amount................. 1,003 3,994 -- -- -- 4,997
Yield.................. 5.81% 6.72% -- -- -- 6.54%
Due after 10 years:
Amount................. -- -- 747 -- -- 747
Yield.................. -- -- 10.70% -- -- 10.70%
Mortgage-backed
securities issued by
Federal agencies:
Amount................. -- -- -- 79,056 -- 79,056
Yield.................. -- -- -- 6.31% -- 6.31%
FHLMC Common Stock
Amount -- -- -- -- 258 258
Yield -- -- -- -- 1.90% 1.90%
Total:
Amount................. $2,200 $7,997 $747 $79,056 $258 $90,258
Yield.................. 5.75% 6.27% 10.70% 6.31% 1.90% 6.32%
</TABLE>
Mortgage-backed securities issued by Federal agencies are disclosed
separately because the principal balance is not due at a single maturity date.
At December 31, 1997, there were no securities held of a single issuer
(excluding U.S. Government Obligations and U.S. Government Agency Obligations)
which exceeded 10% of shareholders' equity.
11
<PAGE>
(c) Loan Portfolio
The following table sets forth the composition of the Corporation's loan
portfolio.
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995 1994 1993
--------- --------- ---------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Real estate-mortgage................ $ 246,438 $ 216,946 $ 181,626 $ 173,242 $ 157,852
Real estate-construction............ 8,695 11,019 8,536 6,454 4,379
Consumer............................ 7,235 3,532 3,811 3,363 3,256
Commercial.......................... 5,396 3,977 1,666 738 822
--------- --------- ---------- --------- ---------
Total loans..................... 267,764 235,474 195,639 183,797 166,309
Less: Unearned income............. (64) (404) (467) (474) (514)
Allowance for loan losses... (3,305) (2,965) (2,582) (2,729) (3,094)
--------- --------- ---------- --------- ---------
Net loans........................... $ 264,395 $ 232,105 $ 192,590 $ 180,594 $ 162,701
========= ========= ========== ========= =========
</TABLE>
(d) Maturity of Loans
The following table sets forth the maturities and sensitivities of loans to
changes in interest rates at December 31, 1997. The table does not take into
consideration scheduled loan amortization or prepayments.
<TABLE>
<CAPTION>
Maturing
One Year One Through After
or Less Five Years Five Years Total
------- ---------- ---------- -----
(In thousands)
<S> <C> <C> <C> <C>
Real estate-mortgage.................... $ 61,753 $110,305 $74,380 $ 246,438
Real estate-construction................ 8,695 -- -- 8,695
Consumer................................ 5,693 1,524 18 7,235
Commercial.............................. 3,699 1,697 -- 5,396
-------- -------- ------- ----------
Total loans..................... $ 79,840 $113,526 $74,398 $ 267,764
======== ======== ======= ==========
Loans due after 1 year with:
Predetermined interest rates.......... $ 8,567 $43,612 $ 52,179
Floating or adjustable interest rates. 104,959 30,786 135,745
-------- ------- ----------
$113,526 $74,398 $ 187,924
======== ======= ==========
</TABLE>
The following loan products are currently being offered by the Bank:
Residential First Real Estate Loans: The Bank makes available to potential
borrowers in its primary consumer area a various range of residential loans
including adjustable rate mortgage loans ("ARMS") and fixed rate loans up to
terms of 30 years. ARMS are considered by management to
12
<PAGE>
be advantageous to the Bank because adjustable-rate loans better match its
shorter-term liability base.
Under the Bank's current ARM programs, the potential borrower may choose
among loans that have the initial interest rate fixed for one, three, five or
ten years before the adjustments begin. Currently, ARMS are indexed to the one,
three or five year U.S. Treasury constant maturities. All of the Bank's
residential mortgage lending is subject to non-discriminatory underwriting
standards. All loans are subject to underwriting review and approval by various
levels of Bank personnel, depending on the size of the loan. Generally, the Bank
requires a loan to value ratio of no more than 80%. However, circumstances may
allow a loan to value ratio as high as 90%. The collateral for these loans are
borrowers who own primary residences. These loans represent the least degree of
credit risk of all loan products offered (except loans secured by customers'
deposits) by the Bank.
In addition to interest earned on loans, the Bank receives fees for
originating loans and for providing loan commitments. The Bank also charges fees
for late payments and other miscellaneous services. Fees received in connection
with loan originations are deferred and amortized into interest income over the
estimated life of the loan. The Bank may also purchase such loans (servicing
also acquired) for which a fee may be paid. These fees are deferred and
amortized as charges to interest income over the estimated life of the loan.
Construction Loans: The Bank provides financing for basically two different
categories of construction loans. An individual construction loan is made to the
intended occupant of a house to finance its construction. Construction loans are
also made to developers who are in the business of improving lots and building
homes for resale. Generally, the Bank requires a loan to value ratio of not more
than 75% for these type of loans. These loans involve somewhat more risk than
residential real estate loans. Loans to developers are riskier than an
individual construction loan since payment of interest and repayment depends
upon the sale of the individual houses in the development. Construction loans
require approval by various levels of Bank personnel, depending on the size of
the loan.
Commercial (Small Business) Loans: As part of the overall diversification
of the loan portfolio, the Bank will entertain loan requests from entities that
manufacture wholesale or retail products and/or provide services in our market
area. The Bank will consider the following types of credits: real estate loans,
working capital lines of credit, and equipment/vehicle loans. Since commercial
lending entails greater risks than residential and construction lending and
repayment generally depends upon the cash flows of the borrowing entity,
interest rates are generally of a variable nature. Maturities or repricings are
of shorter terms (generally no longer than five years). Depending on the types
of collateral and repayment terms, loan to value ratios generally cannot be
greater than 80%. Depending on the nature of the loan requests, commercial loans
require approval at various levels of Bank personnel.
Second Mortgage and Other Consumer Loans: The Bank also offers consumer
loans which include second mortgage loans for a variety of purposes including
the renovation or remodeling of property, or for uses unrelated to the security.
Consumer loans for the purchases of automobiles are
13
<PAGE>
also originated. These type loans, in addition to being an important part of the
Bank's orientation toward consumer financial services, help promote increased
net interest income stability because of their somewhat shorter maturities and
faster prepayment characteristics. These loans are made based on an evaluation
of the collateral and potential borrower's creditworthiness, including such
factors as income, other indebtedness and credit history. Generally, second
mortgage loans do not exceed 80% of the value of the collateral, less the
outstanding balance of any fixed mortgage loan. These loans pose more credit
risk than residential first real estate loans, but is offset by higher interest
rates and are of a variable nature and shorter-term.
Other Types of Lending: The Bank will also offer collateral loans (secured
by deposit at the Bank or readily marketable securities) and personal loans to
individuals. These are generally loans of small dollar amounts and shorter
terms. Collateral loans offer no credit risk because of their 100% secured
status, and personal loans offer minimal credit risk because of their small
balances (average balance was approximately $8,000 at December 31, 1997).
The Bank will from time to time issue (for a fee) a standby letter of
credit which is an obligation of the Bank to a third party that in the event a
particular act or deed of one of the Bank's borrowers is not performed, then the
Bank will reimburse that third party. The most common purpose is to guaranty the
workmanship within a housing tract. Standby letters of credit are issued to the
Bank's most credit-worthy customers and require the same diligence as the Bank
would exercise in underwriting a loan in the amount of the guaranty. At December
31, 1997 the total amount of standby letters of credit outstanding totaled $1.7
million.
New Jersey's employment roll continued to grow with approximately 87,500
jobs added during 1997 which represents the most jobs added since 1984. The
state's average unemployment rate was 5.1%, the lowest since 1990. Of the new
jobs added in 1997, 48,400 were in the service sector, 7,200 were added in
finance, insurance and real estate, 5,700 were added in transportation,
communications and utilities, 3,600 were added in construction, and 22,600 jobs
were added in other segments.
14
<PAGE>
(e) Nonperforming Assets
The following table sets forth information with respect to nonperforming
assets, which includes ninety days or more past due loans, nonaccrual loans, and
real estate acquired by foreclosure:
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans:
90 days or more past due
(nonaccruing) .................................. $ 905 $1,317 $1,055 $1,022 $1,759
Nonaccrual loans (less than
90 days past due) ................................ 146 66 -- 197 734
------ ------ ------ ------ ------
Total non-performing loans ....................... 1,051 1,383 1,055 1,219 2,493
Real estate acquired by
foreclosure ...................................... 40 103 170 1,083 1,828
------ ------ ------ ------ ------
Total nonperforming assets ..................... 1,091 1,486 1,225 2,302 4,321
Loans with modified terms .......................... -- -- -- -- --
------ ------ ------ ------ ------
$1,091 $1,486 $1,225 $2,302 $4,321
====== ====== ====== ====== ======
Total non-performing loans as
a percentage of total net loans .................. 0.40% 0.60% 0.55% 0.67% 1.53%
Non-performing assets as a
percentage of total net loans
and real estate acquired by
foreclosure ...................................... 0.41% 0.64% 0.64% 1.27% 2.63%
</TABLE>
Gross interest on loans charged-off, non-performing loans, real estate
acquired by foreclosure, non-accrual loans and impaired loans at December 31,
1997 that would have been recorded in accordance with the original terms of
these loans had they been performing totaled $94,000 for 1997. There was no
interest income recognized on non-performing loans at December 31, 1997.
The accrual of income on loans is generally discontinued and all interest
income previously accrued and unpaid is deducted from income when a loan becomes
more than ninety days delinquent, or when certain factors indicate reasonable
doubt as to the timely collectibility of such income. Income is recognized
subsequently only in the period collected.
At December 31, 1997, there were no loans, other than those referred to
above or included in the above table, which could be considered potential
problem loans. It is management's policy to review all delinquent loans to
determine future collectibility of both principal and interest.
15
<PAGE>
At December 31, 1997, there were no concentrations of loans exceeding 10%
total loans outstanding.
(f) Summary of Loan Loss Experience and Allocation of the
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes the collectibility of the principal is unlikely.
The allowance is an amount that management believes will be adequate to absorb
inherent losses on existing loans that may become uncollectible. The
determination of the balance of the allowance for loan losses is based on an
analysis of the loan portfolio, economic conditions, historical loan loss
experience, the borrower's ability to repay, collateral value and other factors
that warrant recognition in providing an adequate allowance. While management
uses available information to recognize losses on loans, future additions may be
necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for losses on loans. Such agencies may
require the Bank to recognize additions to the allowance based on their
judgments of information available to them at the time of their examination.
The following table analyzes the allowance for loan losses for the years
indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance ............................. $ 2,965 $ 2,582 $ 2,729 $ 3,094 $ 1,797
Loans charged off:
Real estate ........................... (374) (247) (213) (787) (891)
Consumer and commercial ............... (35) (133) (252) (38) (128)
------- ------- ------- ------- -------
(409) (380) (465) (825) (1,019)
Recoveries:
Real estate ........................... 143 -- 9 4 --
Consumer .............................. 6 10 9 6 26
------- ------- ------- ------- -------
149 10 18 10 26
------- ------- ------- ------- -------
Net charge-offs ............................... (260) (370) (447) (815) (993)
Provision for loan losses ..................... 600 450 300 450 2,290
Manville Savings' acquisition ................. -- 303 -- -- --
------- ------- ------- ------- -------
Ending balance ................................ $ 3,305 $ 2,965 $ 2,582 $ 2,729 $ 3,094
======= ======= ======= ======= =======
Ratio of net charge-offs
during the period to
average loans outstanding
during the period ..................... 0.10% 0.18% 0.24% 0.47% 0.63%
</TABLE>
16
<PAGE>
The following table presents the allocation of the allowance for loan
losses by loan category at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Real estate ................................... $2,558 $1,824 $1,432 $2,198 $1,968
Consumer and other ............................ 747 1,141 1,150 531 1,126
------ ------ ------ ------ ------
Total allowances for loan
losses ................................ $3,305 $2,965 $2,582 $2,729 $3,094
====== ====== ====== ====== ======
</TABLE>
The percentage of loans in each category to total loans is as follows:
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Real estate-mortgage ............................... 92.03% 92.13% 92.84% 94.26% 94.91%
Real estate-construction ........................... 3.25 4.68 4.36 3.51 2.64
Consumer ........................................... 2.70 1.50 1.95 1.83 1.96
Commercial ......................................... 2.02 1.69 0.85 0.40 .49
------ ------ ------ ------ ------
Total ...................................... 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
</TABLE>
(g) Deposits
The average balance of deposits and the average rates paid thereon are
summarized in Distribution of Assets, Liabilities and Shareholders' Equity;
Interest Rates and Interest Differential, on pages 14 and 15 of the Annual
Report to Shareholders for the year ended December 31, 1997, and are
incorporated herein by reference.
(h) Maturities of Time Deposits
The following table summarizes the maturity distribution of all time market rate
certificates in amounts of $100,000 or more, at December 31, 1997. There are no
other time deposits in amounts of $100,000 or more.
<TABLE>
<CAPTION>
Maturity Amount
-------- ------
(In thousands)
<S> <C>
3 months or less ....................................... $ 5,935
Over 3 through 6 months ................................ 4,375
Over 6 through 12 months ............................... 1,956
Over 12 months ......................................... 6,089
-------
Total .......................................... $18,355
=======
</TABLE>
17
<PAGE>
The above table includes accounts in domestic bank offices. The Bank does
not have any foreign banking offices.
(i) Return on Equity and Assets
The following table shows the operating and capital ratios for the
Corporation for the years indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net income to average assets ............... 1.02% 0.89% 0.80%
Net income to average shareholders
equity ................................. 13.13 11.71 10.53
Dividend payout ratio ...................... 30.52 31.50 32.11
Average shareholders' equity to
average total assets ................... 7.78 7.60 7.64
</TABLE>
(j) Short-term Borrowings
<TABLE>
<CAPTION>
At December 31,
-----------------------------
1997 1996 1995
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Federal Home Loan Bank of
New York Advances:
Interest rate based on LIBOR: 5.656%;
matured on 3/6/98 ......................... $10,000 $ -- $ --
Fixed interest rate: 5.86%; matures
on 8/21/98 ................................ 10,000 -- --
Fixed interest rate: 6.875%; matured
on 1/2/97 ................................. -- 10,000 --
Fixed interest rate: 5.375%; matured
on 1/2/96 ................................. -- -- 10,000
------- ------- -------
$20,000 $10,000 $10,000
======= ======= =======
</TABLE>
18
<PAGE>
(k) Competition
The Bank faces significant competition both in making mortgage and consumer
loans and in attracting deposits. The Bank's competition for loans comes
principally from savings and loan associations and savings banks, mortgage
banking companies (many of which are subsidiaries of major commercial banks),
insurance companies and other institutional lenders. Its most direct competition
for deposits has historically come from savings and loan associations, savings
banks, commercial banks, credit unions and other financial institutions. The
Bank faces additional competition for deposits from short-term money market
funds, stock funds, and other corporate and government securities funds. In
light of the elimination of federal interest rate controls on deposits, the Bank
may face increasing competition among financial institutions for deposits.
Competition may increase as a result of the continuing reduction in the
effective restrictions on the interstate operations of financial institutions.
Many of the Bank's competitors, whether traditional financial institutions or
otherwise, have much greater financial and marketing resources than those of the
Bank.
The Bank competes for loans principally through the interest rates and loan
fees it charges and the efficiency and quality of services it provides borrowers
and their real estate brokers and print media. It competes for deposits through
pricing and the offering of a variety of deposit accounts.
(l) Executive Officer
Information concerning the executive officer of the Corporation during
fiscal year 1997, who was not also director of the Corporation, is also provided
below.
Position with Corporation and
Name and Age Business Experience for Past Five Years
- ------------ ---------------------------------------
Lucille H. Daniel Vice President and Secretary of the Corporation
Age 63 and the Bank.
John J. Lukens Senior Vice President of the Corporation and
Age 50 Senior Vice President, Senior Loan Officer of the
Bank since June, 1992.
19
<PAGE>
Item 2. Properties
The following table sets forth certain information to each of the Bank's
offices. The total net book value of the Bank's premises and equipment at
December 31, 1997, was $5.9 million. See Note 5 to the Consolidated Financial
Statements. The Corporation believes that its facilities are adequate for
conduct of its current business.
<TABLE>
<CAPTION>
Expiration
Date of Current Lease
Location: Opened Owned Leased Lease Term Renewal Option
- --------- ------ ----- ------ ---------- --------------
<S> <C> <C> <C> <C> <C>
Corporate Headquarters, 1997 X 2007 two 5-year options
Operations Center, Loan
Production Office:
454 Route 28
Bridgewater, NJ 08807
Main office:
9 West Somerset Street 1869 X
Raritan, NJ 08869
Branches:
454 Route 28 1997 X 2007 two 5-year options
Bridgewater, NJ 08807
339 South Main Street 1996 X 2006 three 5-year options
Manville, NJ 08835
1921 Washington Valley Road 1976 X
Martinsville, NJ 08836
151 Adamsville Road 1980 X 2001 one 6-year option
Somerville, NJ 08876
51 Mountain Boulevard 1991 X
Warren, NJ 07059
Whitehouse Mall 1991 X 2001 one 5-year option
Routes 22 East and 523
Whitehouse Station, NJ 08889
</TABLE>
20
<PAGE>
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
(a) Market Information
Raritan Bancorp's common stock is quoted on the NASDAQ National Market
System under the symbol "RARB."
The following table presents the range of the high and low prices for
Raritan Bancorp's common stock as obtained from NASDAQ.
<TABLE>
<CAPTION>
1997 1996
--------------------------- --------------------------
Quarter Ending High Low High Low
- -------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
March 31....................... $29.50 $25.50 $15.67 $14.17
June 30........................ 25.75 19.50 14.67 13.50
September 30................... 20.50 16.33 14.67 13.83
December 31.................... 17.00 15.50 14.83 14.00
</TABLE>
NOTE: The above prices reflect the three-for-two stock split paid in the form of
a stock dividend on July 1, 1997.
(b) Shareholders
At March 9, 1998 Raritan Bancorp, Inc. had approximately 550 shareholders
of record, including brokerage firms, banks and registered clearing agencies
acting as nominees for an indeterminate number of beneficial owners.
(c) Dividends
Subject to applicable law, the Board of Directors of the Corporation and
the Bank may each provide for the payment of dividends.
21
<PAGE>
The Bank will not be permitted to pay dividends on its capital stock if its
retained earnings would thereby be reduced below the amount required for the
liquidation account established at the time of its conversion to stock form and
the issuance of stock resulting from the Manville merger and acquisition
(approximately $712,000 at December 31, 1997), or applicable regulatory capital
requirements. New Jersey law provides that no dividend may be paid unless, after
the payment of such dividend, the capital stock of the Bank will not be impaired
and either the Bank will have a statutory surplus of not less than 50% of its
capital stock or the payment of such dividend will not reduce the statutory
surplus of the Bank. The Bank has designated a capital surplus of $2.0 million,
which is not available for the payment of dividends.
The Bank may pay cash dividends when its Board of Directors determines that
dividend payments are appropriate, taking into account factors including,
without limitation, the Bank's net income, capital requirements, financial
condition, alternative investment options, tax implications, prevailing economic
conditions, industry practices, and other factors deemed to be relevant at the
time. The Corporation expects to follow the same dividend policy as that of the
Bank. The Corporation is subject to the requirements of Delaware law, which
generally limit dividends to an amount equal to the excess of the net assets of
the Corporation (the amount by which total assets exceed total liabilities) over
its statutory capital, or if there is no such excess, to its net profits for the
current and/or immediately preceding fiscal year.
During the years ended December 31, 1997 and 1996, the Corporation declared
and paid cash dividends totaling $0.47 and $0.40, respectively, per common
share (as adjusted for the three-for-two stock split paid in the form of a stock
dividend on July 1, 1997).
On January 20, 1998, the Board of Directors of the Corporation declared a
quarterly cash dividend in the amount of $0.15 per common share. The dividend
was paid on March 1, 1998 to shareholders of record as of February 15, 1998.
Item 6. Selected Financial Data
Information relating to Selected Consolidated Financial Data on page 17 of
the Annual Report to Shareholders for the year ended December 31, 1997 is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 8 to 17 of the Annual Report to Shareholders for the year
ended December 31, 1997, is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Information required hereunder is incorporated by reference to pages 11 and
12 of the Annual Report to Shareholders for the year ended December 31, 1997
22
<PAGE>
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements and Report by KPMG Peat Marwick LLP
dated January 16, 1998, appear on pages 17 to 42 of the Annual Report to
Shareholders for the year ended December 31, 1997 and are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Officers of the Registrant
Information is contained in "Election of Directors" on pages 4 to 6
inclusive of Raritan Bancorp Inc.'s Proxy Statement dated March 25, 1998, and is
incorporated herein by reference. Information regarding executive officers who
are not also directors of the Corporation or the Bank is contained in Part I of
this report in reliance of General Instruction G.
Item 11. Executive Compensation
Information is contained in Compensation of Directors and Officers on pages
6 through 10, inclusive, of Raritan Bancorp Inc.'s Proxy Statement dated March
25, 1998 and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information is contained on pages 4 to 6 inclusive of Raritan Bancorp
Inc.'s Proxy Statement dated March 25, 1998 and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
Information is contained in Certain Relationships and Related Transactions
on page 13 of Raritan Bancorp Inc.'s Proxy Statement dated March 25, 1998, and
is incorporated herein by reference.
23
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Consolidated Financial Statements
The following financial statements are incorporated herein by reference to
the Annual Report to Shareholders for the year ended December 31, 1997, a copy
of which is attached hereto.
<TABLE>
<CAPTION>
Annual Report
Page Reference
--------------
<S> <C>
Consolidated Balance Sheets.......................... 17
Consolidated Statements of Income.................... 18
Consolidated Statements of Changes in
Shareholders' Equity............................. 19
Consolidated Statements of Cash Flows................ 20
Notes to Consolidated Financial
Statements....................................... 21-41
Independent Auditors' Report......................... 42
</TABLE>
(2) Consolidated Financial Statement Schedules
All statement schedules are omitted as the information, if applicable, is
presented in the above financial statements or notes thereto.
(b) Reports on Form 8-K
None
(c) Exhibits Required by Securities and Exchange Commission Regulation
S-K.
24
<PAGE>
Exhibit
Number
3.1 Certificate of Incorporation of Raritan Bancorp Inc. (filed as
Exhibit 3.1 to the Form S-1 Registration Statement filed by Raritan
Bancorp, Inc. on March 10, 1987, Registration No. 33-12539).
3.1(a) Certificate of Amendment to the Certificate of Incorporation of
Raritan Bancorp Inc. (Filed as Exhibit 3.1(a) to the Annual Report
on Form 10-K for the year ended December 31, 1995).
3.2 Bylaws of Raritan Bancorp Inc. (filed as Exhibit 3.2 to the Form
S-1 Registration Statement filed by Raritan Bancorp, Inc., Statement
No. 33-12539 and Exhibit 28.1 to the Form 8-K filed on December 21,
1990).
10.1 Raritan Bancorp Inc. Incentive Stock Option Plans (see Annex A to
the Proxy Statement dated March 23, 1988 and Exhibit A to the Proxy
Statement dated March 24, 1993).
10.2 Raritan Bancorp Inc. Stock Option Plan for Outside Directors (see
Exhibit B to the Proxy Statement dated March 24, 1993).
10.3 Employment Agreement with Arlyn D. Rus (filed as Exhibit 10.2 to the
Form S-1 Registration Statement filed by Raritan Bancorp Inc.,
Registration No. 33-12539).
10.4 Employment Agreement with Thomas F. Tansey (filed as Exhibit 10.3 to
the Form S-1 Registration Statement filed by Raritan Bancorp Inc.,
Registration No. 33-12539).
10.5 Amended and Restated Special Termination Agreements with Lucille H.
Daniel (the original Special Termination Agreements were filed as
Exhibit 10.4 to the Form S-1 Registration Statement filed by Raritan
Bancorp Inc., Registration No. 33-12539; the Restated Termination
Agreements were filed as Exhibit 10.5 to the Annual Report on Form
10-K for the year ended December 31, 1995).
10.6 Special Termination Agreement with John J. Lukens (filed as Exhibit
10.6 to the Annual Report on Form 10-K for the year ended December
31, 1994).
10.7 Form of Restated Supplemental Executive Retirement.
11 Computation of net income per share (Incorporated by reference to
"Financial Highlights" on the inside cover, and the Consolidated
Statements of Income on page 18, of the Annual Report to
Stockholders for the year ended December 31, 1997).
25
<PAGE>
13 Annual Report to Shareholders for the year ended December 31, 1997.
22 Subsidiaries of Raritan Bancorp, Inc.*
23 Accountants' Consent.
- ----------
* See Part 1, Item 1(a) of Form 10-K.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed in
its behalf by the undersigned, thereunto duly authorized.
RARITAN BANCORP INC.
By: /s/ Arlyn D. Rus
--------------------------------
Arlyn D. Rus, President and
Chief Executive Officer
Date: March 16, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 16, 1998, by the following persons on
behalf of the Registration and in the capacities indicated.
/s/ Arlyn D. Rus /s/ Thomas F. Tansey
- ------------------------------------- -------------------------------------
Arlyn D. Rus, Chairman of the Board, Thomas F. Tansey, Executive Vice
President and Chief Executive Officer President, Chief Operating Officer
and Treasurer Director
(Principal Financial and Accounting
Officer)
/s/ William T. Anderson /s/ Willliam W. Crouse
- ------------------------------------- -------------------------------------
William T. Anderson, Director William W. Crouse
/s/ William T. Kelleher, Jr. /s/ Peter S. Johnson
- ------------------------------------- -------------------------------------
William T. Kelleher, Jr., Director Peter S. Johnson, Director
27
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FORM OF
RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT
INCOME AGREEMENT
THE RARITAN SAVINGS BANK
Raritan, New Jersey
June 1, 1997
Financial Institution Consulting Corporation
700 Colonial Road, Suite 260
Memphis, Tennessee 38117
WATS: 1-800-873-0089
FAX: (901) 684-7411
(901) 684-7400
<PAGE>
RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT
INCOME AGREEMENT FOR _________________
This Restated Executive Supplemental Retirement Income Agreement (the
"Agreement"), effective as of the 1st day of June, 1997, formalizes the
understanding by and between THE RARITAN SAVINGS BANK (the "Bank"), a stock
savings bank, and _________________ (hereinafter referred to as "Executive").
Raritan Bancorp Inc. (the "Holding Company") is a party to this Agreement for
the sole purpose of guaranteeing the Bank's performance hereunder.
W I T N E S S E T H :
WHEREAS, the Executive is employed by the Bank; and
WHEREAS, the Bank recognizes the valuable services heretofore performed by
the Executive and wishes to encourage his continued employment; and
WHEREAS, the Executive wishes to be assured that he will be entitled to a
certain amount of additional compensation for some definite period of time from
and after retirement from active service with the Bank or other termination of
employment and wishes to provide his beneficiary with benefits from and after
death; and
WHEREAS, the Bank and the Executive wish to provide the terms and
conditions upon which the Bank shall pay such additional compensation to the
Executive after retirement or other termination of employment and/or death
benefits to his beneficiary after death; and
WHEREAS, the Bank has adopted this Restated Executive Supplemental
Retirement Income Agreement which controls all issues relating to benefits as
described herein;
NOW, THEREFORE, in consideration of the premises and of the mutual promises
herein contained, the Bank and the Executive agree as follows:
<PAGE>
SECTION I
DEFINITIONS
When used herein, the following words and phrases shall have the meanings
below unless the context clearly indicates otherwise:
1.1 "Accrued Benefit Account" shall be represented by the bookkeeping entries
required to record the Executive's (i) Phantom Contributions plus (ii)
accrued interest, equal to the Interest Factor, earned to-date on such
amounts. However, neither the existence of such bookkeeping entries nor
the Accrued Benefit Account itself shall be deemed to create either a
trust of any kind, or a fiduciary relationship between the Bank and the
Executive or any Beneficiary.
1.2 "Act" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.3 "Administrator" means the Bank.
1.4 "Bank" means THE RARITAN SAVINGS BANK and any successor thereto.
1.5 "Beneficiary" means the person or persons (and their heirs) designated as
Beneficiary in Exhibit B of this Agreement to whom the deceased
Executive's benefits are payable. If no Beneficiary is so designated,
then the Executive's Spouse, if living, will be deemed the Beneficiary.
If the Executive's Spouse is not living, then the Children of the
Executive will be deemed the Beneficiaries and will take on a per stirpes
basis. If there are no Children, then the Estate of the Executive will be
deemed the Beneficiary.
1.6 "Benefit Age" means the later of: (i) the Executive's sixty-fifth (65th)
birthday or (ii) the actual date the Executive's full-time service with
the Bank terminates. In addition, the Board of Directors may, in its sole
discretion, amend clause (i) of this Subsection to lower the Executive's
Benefit Age in any instance in which the Executive's employment
terminates prior to Retirement Age and the Board of Directors determines
that such an amendment is advisable, based on the circumstances of such
termination, or amend clause (ii) of this Subsection, upon the
Executive's request, to permit the Executive to commence receiving his
Supplemental Retirement Income Benefit upon the attainment
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of age sixty-five (65) despite the fact that the Executive's full-time
service with the Bank has not terminated. Notwithstanding the above, the
Executive may, in his sole discretion, elect to retire on or after the
Executive's sixty-second (62nd) birthday and, in such event, the
Executive's age on such date shall constitute his "Benefit Age"; provide,
however, that in the event of a Change in Control, followed within
thirty-six (36) months by the Executive's voluntary termination of
employment on or after his sixty-second birthday for one of the reasons
set forth in Section 2.(b)(2)(ii) below, the Executive's termination
shall not be considered a retirement for purposes of lowering the
Executive's Benefit Age.
1.7 "Benefit Eligibility Date" means the date on which the Executive is
entitled to receive any benefit(s) pursuant to Section(s) III or V of
this Agreement. It shall be the first day of the month following the
month in which the Executive attains his Benefit Age.
1.8 "Board of Directors" means the board of directors of the Bank.
1.9 "Cause" means personal dishonesty, willful misconduct, willful
malfeasance, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than traffic violations or similar
offenses), or final cease-and-desist order, material breach of any
provision of this Agreement, or gross negligence in matters of material
importance to the Bank.
1.10 "Change in Control" shall mean and include the following with respect to
(i) the Bank or (ii) the Holding Company, or any successor thereto:
(1) a change in control of a nature that would be required to be
reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (hereinafter the
"Exchange Act"); or
(2) an acquisition of "control" as defined in the Home Owners Loan Act
and applicable regulations thereunder, as determined by the Board
of Directors of the Bank or the Holding Company; or
(3) at such time as:
(i) any "person" (as the term is used in Sections 13(d) and
14(d) of the Exchange Act) or "group acting in concert" is
or becomes the "beneficial owner" (as defined in
3
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Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Bank representing Twenty Percent (20%)
or more of the combined voting power of the Bank's or
Holding Company's outstanding securities ordinarily having
the right to vote at the elections of directors, except for
any stock purchased by the Bank's Employee Stock Ownership
Plan and/or the trust under such plan; or
(ii) individuals who constitute the board of directors of the
Bank or Holding Company on the date hereof (hereinafter the
"Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming
a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose
nomination for election by the Holding Company's
stockholders was approved by the Holding Company's
nominating committee which is comprised of members of the
Incumbent Board, shall be, for purposes of this clause
(ii), considered as though he were a member of the
Incumbent Board; or
(iii) merger, consolidation, or sale of all or substantially all
the assets of the Holding Company occurs; or
(iv) a proxy statement is issued soliciting proxies from the
stockholders of the Holding Company by someone other than
the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger,
or consolidation of the Holding Company with one or more
corporations as a result of which the outstanding shares of
the class of the Holding Company's securities are exchanged
for or converted into cash or property or securities not
issued by the Holding Company.
The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, an unincorporated
organization or similar company, a syndicate or any other group
formed for the purpose of acquiring, holding or disposing of
securities. The term "acquire" means obtaining ownership, control,
power to vote or sole power of disposition of stock, directly or
indirectly or through one or more transactions or subsidiaries,
through purchase, assignment, transfer, exchange, succession or
other means, including (1) an increase in percentage ownership
resulting from a redemption, repurchase, reverse stock split or a
4
<PAGE>
similar transaction involving other securities of the same class;
and (2) the acquisition of stock by a group of persons and/or
companies acting in concert which shall be deemed to occur upon
the formation of such group, provided that an investment advisor
shall not be deemed to acquire the voting stock of its advisee if
the advisor (a) votes the stock only upon instruction from the
beneficial owner and (b) does not provide the beneficial owner
with advice concerning the voting of such stock. The term
"security" includes nontransferable subscription rights issued
pursuant to a plan of conversion, as well as a "security," as
defined in 15 U.S.C. ss. 78c(2)(1); and the term "acting in
concert" means (1) knowing participation in a joint activity or
interdependent conscious parallel action towards a common goal
whether or not pursuant to an express agreement, or (2) a
combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any
contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise. Further, acting in
concert with any person or company shall also be deemed to be
acting in concert with any person or company that is acting in
concert with such other person or company.
Notwithstanding the above definitions, the boards of
directors of the Bank or the Holding Company, in their absolute
discretion, may make a finding that a Change in Control of the
Bank or the Holding Company has taken place without the occurrence
of any or all of the events enumerated above.
1.11 "Children" means all natural or adopted children of the Executive, and
issue of any predeceased child or children.
1.12 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
1.13 "Contribution(s)" means those annual contributions which the Bank is
required to make to the Retirement Income Trust Fund on behalf of the
Executive in accordance with Subsection 2.1(a) and in the amounts set
forth in Exhibit A of the Agreement.
5
<PAGE>
1.14 (a) "Disability Benefit" means the benefit payable to the Executive
following a determination, in accordance with Subsection 6.1(a), that he
is no longer able, properly and satisfactorily, to perform his duties at
the Bank.
(b) "Disability Benefit-Supplemental" (if applicable) means the benefit
payable to the Executive's Beneficiary upon the Executive's death in
accordance with Subsection 6.1(b).
1.15 "Effective Date" of this restated Agreement shall be June 1, 1997.
1.16 "Estate" means the estate of the Executive.
1.17 "Holding Company" means Raritan Bancorp Inc., a corporation organized
under the laws of the State of Delaware, the holding company for the
Bank, and any successor thereto.
1.18 "Interest Factor" means monthly compounding, discounting or annuitizing,
as applicable, at a rate set forth in Exhibit A.
1.19 "Payout Period" means the time frame during which certain benefits
payable hereunder shall be distributed. Payments shall be made in monthly
installments commencing on the first day of the month following the
occurrence of the event which triggers distribution and continuing for
the Executive's life or for a period of one hundred eighty (180) months,
whichever is longer. Should the Executive make a Timely Election to
receive a lump sum benefit payment, the Executive's Payout Period shall
be deemed to be one (1) month.
1.20 "Phantom Contributions" means those annual Contributions which the Bank
is no longer required to make on behalf of the Executive to the
Retirement Income Trust Fund. Rather, once the Executive has exercised
the withdrawal rights provided for in Subsection 2.2, the Bank shall be
required to record the annual amounts set forth in Exhibit A of the
Agreement in the Executive's Accrued Benefit Account, pursuant to
Subsection 2.1.
1.21 "Plan Year" shall mean the twelve (12) month period commencing January 1
and ending December 31.
6
<PAGE>
1.22 "Retirement Age" means the Executive's sixty-fifth (65th) birthday
provided, however, that the Executive's actual retirement from full-time
employment may occur on or after the Executive attains age sixty-two (62)
or at any later date mutually agreed upon by the parties.
1.23 "Retirement Income Trust Fund" means the trust fund account established
by the Executive and into which annual Contributions will be made by the
Bank on behalf of the Executive pursuant to Subsection 2.1. The
contractual rights of the Bank and the Executive with respect to the
Retirement Income Trust Fund shall be outlined in a separate writing to
be known as the _________________ Grantor Trust agreement.
1.24 "Spouse" means the individual to whom the Executive is legally married at
the time of the Executive's death, provided, however, that the term
"Spouse" shall not refer to an individual to whom the Executive is
legally married at the time of death if the Executive and such individual
have entered into a formal separation agreement or initiated divorce
proceedings.
1.25 "Supplemental Retirement Income Benefit" means an annual amount (before
taking into account federal and state income taxes), payable in monthly
installments throughout the Payout Period. Such benefit is projected
pursuant to the Agreement for the purpose of determining the
Contributions to be made to the Retirement Income Trust Fund (or Phantom
Contributions to be recorded in the Accrued Benefit Account). The annual
Contributions and Phantom Contributions have been actuarially determined,
using the assumptions set forth in Exhibit A, in order to fund for the
projected Supplemental Retirement Income Benefit. The Supplemental
Retirement Income Benefit for which Contributions (or Phantom
Contributions) are being made (or recorded) is set forth in Exhibit A.
1.26 "Timely Election" means the Executive has made an election to change the
form of his benefit payment(s) by filing with the Administrator a Notice
of Election to Change Form of Payment (Exhibit C of this Agreement). In
the case of benefits payable from the Accrued Benefit Account, such
election shall have been made prior to the event which triggers
distribution and at least two (2) years prior to the Executive's Benefit
Eligibility Date. In the case of benefits payable from the Retirement
Income Trust Fund, such election may be made at any time.
7
<PAGE>
SECTION II
BENEFITS - GENERALLY
2.1 (a) Retirement Income Trust Fund and Accrued Benefit Account. The
Executive shall establish the _________________ Grantor Trust into which
the Bank shall be required to make annual Contributions on the
Executive's behalf, pursuant to Exhibit A and this Section II of the
Agreement. A trustee shall be selected by the Executive. The trustee
shall maintain an account, separate and distinct from the Executive's
personal contributions, which account shall constitute the Retirement
Income Trust Fund. The trustee shall be charged with the responsibility
of investing all contributed funds. Distributions from the Retirement
Income Trust Fund of the _________________ Grantor Trust may be made by
the trustee to the Executive, for purposes of payment of any income or
employment taxes due and owing on Contributions by the Bank to the
Retirement Income Trust Fund, if any, and on any taxable earnings
associated with such Contributions which the Executive shall be required
to pay from year to year, under applicable law, prior to actual receipt
of any benefit payments from the Retirement Income Trust Fund. If the
Executive exercises his withdrawal rights pursuant to Subsection 2.2, the
Bank's obligation to make Contributions to the Retirement Income Trust
Fund shall cease and the Bank's obligation to record Phantom
Contributions in the Accrued Benefit Account shall immediately commence
pursuant to Exhibit A and this Section II of the Agreement. To the extent
this Agreement is inconsistent with the _________________ Grantor Trust
agreement, the _________________ Grantor Trust Agreement shall supersede
this Agreement.
The annual Contributions (or Phantom Contributions) required to be made
by the Bank to the Retirement Income Trust Fund (or recorded by the Bank
in the Accrued Benefit Account) have been actuarially determined and are
set forth in Exhibit A which is attached hereto and incorporated herein
by reference. Contributions shall be made by the Bank to the Retirement
Income Trust Fund (i) within seventy-five (75) days of establishment of
such trust, and (ii) within the first thirty (30) days of the beginning
of each subsequent Plan Year, unless this Section expressly provides
otherwise. Phantom Contributions, if any, shall be recorded in the
Accrued Benefit Account within the first thirty (30) days of the
beginning of each applicable Plan Year, unless this Section expressly
provides otherwise. Phantom Contributions shall accrue interest at a rate
equal to the Interest Factor, during the Payout Period, until the balance
of the Accrued Benefit Account has been fully
8
<PAGE>
distributed. Interest on any Phantom Contribution shall not commence
until such Payout Period commences.
The Administrator shall review the schedule of annual Contributions (or
Phantom Contributions) provided for in Exhibit A (i) within thirty (30)
days prior to the close of each Plan Year and (ii) if the Executive is
employed by the Bank until attaining Retirement Age, on or immediately
before attainment of such Retirement Age. Such review shall consist of an
evaluation of the accuracy of all assumptions used to establish the
schedule of Contributions (or Phantom Contributions). Provided that (i)
the Executive has not exercised his withdrawal rights pursuant to
Subsection 2.2 and (ii) the investments contained in the Retirement
Income Trust Fund have been deemed reasonable by the Bank, the
Administrator shall prospectively amend or supplement the schedule of
Contributions provided for in Exhibit A should the Administrator
determine during any such review that an increase in or supplement to the
schedule of Contributions is necessary in order to adequately fund the
Retirement Income Trust Fund so as to provide an annual benefit (or to
provide the lump sum equivalent of such benefit, as applicable) equal to
the Supplemental Retirement Income Benefit, on an after-tax basis,
commencing at Benefit Age and payable for the duration of the Payout
Period.
(b) Withdrawal Rights Not Exercised.
(1) Contributions Made Annually
If the Executive does not exercise any withdrawal rights pursuant to
Subsection 2.2, the annual Contributions to the Retirement Income Trust
Fund shall continue each year, unless this Subsection 2.1(b) specifically
states otherwise, until the earlier of (i) the last Plan Year that
Contributions are required pursuant to Exhibit A, or (ii) the Plan Year
of the Executive's termination of employment.
(2) Termination Following a Change in Control
If the Executive does not exercise his withdrawal rights pursuant to
Subsection 2.2 and a Change in Control occurs at the Bank, followed
within thirty-six (36) months by either (i) the Executive's involuntary
termination of employment, or (ii) Executive's voluntary termination of
employment after: (A) a material change in the Executive's function,
duties, or responsibilities, which change would cause the Executive's
position to become one of lesser responsibility, importance, or scope
9
<PAGE>
from the position the Executive held at the time of the Change in
Control, (B) a relocation of the Executive's principal place of
employment by more than thirty (30) miles from its location prior to the
Change in Control, or (C) a material reduction in the benefits and
perquisites to the Executive from those being provided at the time of the
Change in Control, the Contribution set forth on Schedule A shall
continue to be required of the Bank. The Bank shall be required to make
such Contributions in the same manner and at the same time as if
Executive had remained in the employ of the Bank until Benefit Age;
provided, however, in no event shall the Contribution be less than an
amount which is sufficient to provide the Executive with after-tax
benefits (assuming a constant tax rate equal to the rate in effect as of
the date of Executive's termination) beginning at his Benefit Age, equal
in amount to that benefit which would have been payable to the Executive
if no secular trust had been implemented and the benefit obligation had
been accrued under APB Opinion No. 12, as amended by FAS 106.
(3) Termination For Cause
If the Executive does not exercise his withdrawal rights pursuant to
Subsection 2.2, and is terminated for Cause pursuant to Subsection 5.2,
no further Contribution(s) to the Retirement Income Trust Fund shall be
required of the Bank, and if not yet made, no Contribution shall be
required for the Plan Year in which such termination for Cause occurs.
(4) Involuntary Termination of Employment.
If the Executive does not exercise his withdrawal rights pursuant to
Subsection 2.2, and the Executive's employment with the Bank is
involuntarily terminated for any reason, including a termination due to
disability of the Executive but excluding termination for Cause, or
termination following a Change in Control within twenty-four (24) months
of such Change in Control, within thirty (30) days of such involuntary
termination of employment, the Bank shall be required to make an
immediate lump sum Contribution to the Executive's Retirement Income
Trust Fund in an amount equal to the: (i) the full Contribution required
for the Plan Year in which such involuntary termination occurs, if not
yet made, plus (ii) the present value (computed using a discount rate
equal to the Interest Factor) of all remaining Contributions to the
Retirement Income Trust Fund; provided however, that, if necessary, an
amount shall be contributed to the Retirement Income Trust Fund which is
sufficient to provide the Executive with after tax benefits (assuming a
constant tax rate equal to the rate in effect as of the date of the
Executive's termination) beginning at his Benefit Age,
10
<PAGE>
equal in amount to that benefit which would have been payable to the
Executive if no secular trust had been implemented and the benefit
obligation had been accrued under APB Opinion No. 12, as amended by FAS
106.
(5) Death During Employment.
If the Executive does not exercise any withdrawal rights pursuant to
Subsection 2.2, and dies while employed by the Bank, and if, following
the Executive's death, the assets of the Retirement Income Trust Fund are
insufficient to provide the Supplemental Retirement Income Benefit to
which the Executive is entitled, the Bank shall be required to make a
Contribution to the Retirement Income Trust Fund equal to the sum of the
remaining Contributions set forth on Exhibit A, after taking into
consideration any payments under any life insurance policies that may
have been obtained on the Executive's life by the Retirement Income Trust
Fund. Such final contribution shall be payable in a lump sum to the
Retirement Income Trust Fund within thirty (30) days of the Executive's
death.
(c) Withdrawal Rights Exercised.
(1) Phantom Contributions Made Annually.
If the Executive exercises his withdrawal rights pursuant to Subsection
2.2, no further Contributions to the Retirement Income Trust Fund shall
be required of the Bank. Thereafter, Phantom Contributions shall be
recorded annually in the Executive's Accrued Benefit Account within
thirty (30) days of the beginning of each Plan Year, commencing with the
first Plan Year following the Plan Year in which the Executive exercises
his withdrawal rights. Such Phantom Contributions shall continue to be
recorded annually, unless this Subsection 2.1(c) specifically states
otherwise, until the earlier of (i) the last Plan Year that Phantom
Contributions are required pursuant to Exhibit A, or (ii) the Plan Year
of the Executive's termination of employment.
(2) Termination Following a Change in Control
If the Executive exercises his withdrawal rights pursuant to Subsection
2.2, Phantom Contributions shall commence in the Plan Year following the
Plan Year in which the Executive first exercises his withdrawal rights.
If a Change in Control occurs at the Bank, and within thirty-six (36)
months of such Change in Control, the Executive's employment is either
(i) involuntarily terminated, or (ii) voluntarily terminated by the
Executive after: (A) a material change in the Executive's function,
11
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duties, or responsibilities, which change would cause the Executive's
position to become one of lesser responsibility, importance, or scope
from the position the Executive held at the time of the Change in
Control, (B) a relocation of the Executive's principal place of
employment by more than thirty (30) miles from its location prior to the
Change in Control, or (C) a material reduction in the benefits and
perquisites to the Executive from those being provided at the time of the
Change in Control, the Phantom Contribution set forth below shall be
required of the Bank. The Bank shall be required to record a lump sum
Phantom Contribution in the Accrued Benefit Account within ten (10) days
of the Executive's termination of employment. The amount of such final
Phantom Contribution shall be actuarially determined based on the Phantom
Contribution required, at such time, in order to provide a benefit via
this Agreement equivalent to the Supplemental Retirement Income Benefit,
on an after-tax basis, commencing on the Executive's Benefit Eligibility
Date and continuing for the duration of the Payout Period. (Such
actuarial determination shall reflect the fact that amounts shall be
payable from both the Accrued Benefit Account as well as the Retirement
Income Trust Fund and shall also reflect the amount and timing of any
withdrawal(s) made by the Executive from the Retirement Income Trust Fund
pursuant to Subsection 2.2.)
(3) Termination For Cause
If the Executive is terminated for Cause pursuant to Subsection 5.2, the
entire balance of the Executive's Accrued Benefit Account at the time of
such termination, which shall include any Phantom Contributions which
have been recorded plus interest accrued on such Phantom Contributions,
shall be forfeited.
(4) Involuntary Termination of Employment.
If the Executive exercises his withdrawal rights pursuant to Subsection
2.2, and the Executive's employment with the Bank is involuntarily
terminated for any reason including termination due to disability of the
Executive, but excluding termination for Cause, or termination following
a Change in Control, within thirty (30) days of such involuntary
termination of employment, the Bank shall be required to record a final
Phantom Contribution in an amount equal to: (i) the full Phantom
Contribution required for the Plan Year in which such involuntary
termination occurs, if not yet made, plus (ii) the present value
(computed using a discount rate equal to the Interest Factor) of all
remaining Phantom Contributions.
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(5) Death During Employment.
If the Executive exercises his withdrawal rights pursuant to Subsection
2.2, and dies while employed by the Bank, Phantom Contributions included
on Exhibit A shall be required of the Bank. Such Phantom Contributions
shall commence in the Plan Year following the Plan Year in which the
Executive exercises his withdrawal rights and shall continue through the
Plan Year in which the Executive dies. The Bank shall also be required to
record a final Phantom Contribution within thirty (30) days of the
Executive's death. The amount of such final Phantom Contribution shall be
actuarially determined based on the Phantom Contribution required at such
time (if any), in order to provide a benefit via this Agreement
equivalent to the Supplemental Retirement Income Benefit commencing
within thirty (30) days of the date the Administrator receives notice of
the Executive's death and continuing for the duration of the Payout
Period. (Such actuarial determination shall reflect the fact that amounts
shall be payable from the Accrued Benefit Account as well as the
Retirement Income Trust Fund and shall also reflect the amount and timing
of any withdrawal(s) made by the Executive pursuant to Subsection 2.2.)
2.2 Withdrawals From Retirement Income Trust Fund.
Exercise of withdrawal rights by the Executive pursuant to the
_________________ Grantor Trust agreement shall terminate the Bank's
obligation to make any further Contributions to the Retirement Income
Trust Fund, and the Bank's obligation to record Phantom Contributions
pursuant to Subsection 2.1(c) shall commence. For purposes of this
Subsection 2.2, "exercise of withdrawal rights" shall mean those
withdrawal rights to which the Executive is entitled under Article III of
the _________________ Grantor Trust agreement and shall exclude any
distributions made by the trustee of the Retirement Income Trust Fund to
the Executive for purposes of payment of income taxes in accordance with
Subsection 2.1 of this Agreement and the tax reimbursement formula
contained in the trust document, or other trust expenses properly payable
from the _________________ Grantor Trust pursuant to the provisions of
the trust document.
2.3 Benefits Payable From Retirement Income Trust Fund
Notwithstanding anything else to the contrary in this Agreement, in the
event that the trustee of the Retirement Income Trust Fund purchases a
life insurance policy with the Contributions to and, if applicable,
earnings of the Trust, and such life insurance policy is intended to
continue in force beyond the Payout Period for the disability or
retirement benefits payable from the Retirement
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Income Trust Fund pursuant to this Agreement, then the trustee shall have
discretion to determine the portion of the cash value of such policy
available for purposes of annuitizing the Retirement Income Trust Fund
(it being understood that for purposes of this Section 2.3, "annuitizing"
does not mean surrender of such policy and annuitizing of the cash value
received upon such surrender) to provide the disability or retirement
benefits payable under this Agreement, after taking into consideration
the amounts reasonably believed to be required in order to maintain the
cash value of such policy to continue such policy in effect until the
death of the Executive and payment of death benefits thereunder.
SECTION III
RETIREMENT BENEFIT
3.1 (a) Normal form of payment.
If (i) the Executive is employed with the Bank until reaching his
Retirement Age, and (ii) the Executive has not made a Timely Election to
receive a lump sum benefit, this Subsection 3.1(a) shall be controlling
with respect to retirement benefits.
The Retirement Income Trust Fund, measured as of the Executive's Benefit
Age, shall be annuitized (using the Interest Factor) into monthly
installments and shall be payable for the Payout Period. Such benefit
payments shall commence on the Executive's Benefit Eligibility Date.
Should Retirement Income Trust Fund assets actually earn a rate of
return, following the date such balance is annuitized, which is less than
the rate of return used to annuitize the Retirement Income Trust Fund, no
additional contributions to the Retirement Income Trust Fund shall be
required by the Bank in order to fund the final benefit payment(s) and
make up for any shortage attributable to the less-than-expected rate of
return. Should Retirement Income Trust Fund assets actually earn a rate
of return, following the date such balance is annuitized, which is
greater than the rate of return used to annuitize the Retirement Income
Trust Fund, the final benefit payment to the Executive (or his
Beneficiary) shall distribute the excess amounts attributable to the
greater-than-expected rate of return. The Executive may at anytime during
the Payout Period request to receive the unpaid balance of his Retirement
Income Trust Fund in a lump sum payment. If such a lump sum payment is
requested by the Executive, payment of the balance of the Retirement
Income Trust Fund in such lump sum form shall be made only if the
Executive gives notice to both the Administrator and trustee
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in writing. Such lump sum payment shall be payable within thirty (30)
days of such notice. In the event the Executive dies at any time after
attaining his Benefit Age, but prior to commencement or completion of all
monthly payments due and owing hereunder, (i) the trustee of the
Retirement Income Trust Fund shall pay to the Executive's Beneficiary the
monthly installments (or a continuation of such monthly installments if
they have already commenced) for the balance of months remaining in the
Payout Period, or (ii) the Executive's Beneficiary may request to receive
the unpaid balance of the Executive's Retirement Income Trust Fund in a
lump sum payment. If a lump sum payment is requested by the Beneficiary,
payment of the balance of the Retirement Income Trust Fund in such lump
sum form shall be made only if the Executive's Beneficiary notifies both
the Administrator and trustee in writing of such election within ninety
(90) days of the Executive's death. Such lump sum payment shall be
payable within thirty (30) days of such notice.
The Executive's Accrued Benefit Account (if applicable), measured as of
the Executive's Benefit Age, shall be annuitized (using the Interest
Factor) into monthly installments and shall be payable for the Payout
Period. Such benefit payments shall commence on the Executive's Benefit
Eligibility Date. In the event the Executive dies at any time after
attaining his Benefit Age, but prior to commencement or completion of all
the payments due and owing hereunder, (i) the Bank shall pay to the
Executive's Beneficiary the same monthly installments (or a continuation
of such monthly installments if they have already commenced) for the
balance of months remaining in the Payout Period, or (ii) the Executive's
Beneficiary may request to receive the remainder of any unpaid benefit
payments in a lump sum payment. If a lump sum payment is requested by the
Beneficiary, the amount of such lump sum payment shall be equal to the
unpaid balance of the Executive's Accrued Benefit Account. Payment in
such lump sum form shall be made only if the Executive's Beneficiary (i)
obtains Board of Director approval, and (ii) notifies the Administrator
in writing of such election within ninety (90) days of the Executive's
death. Such lump sum payment, if approved by the Board of Directors,
shall be made within thirty (30) days of such Board of Director approval.
(b) Alternative payout option.
If (i) the Executive is employed with the Bank until reaching his
Retirement Age, and (ii) the Executive has made a Timely Election to
receive a lump sum benefit, this Subsection 3.1(b) shall be controlling
with respect to retirement benefits.
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The balance of the Retirement Income Trust Fund, measured as of the
Executive's Benefit Age, shall be paid to the Executive in a lump sum on
his Benefit Eligibility Date. In the event the Executive dies after
becoming eligible for such payment (upon attainment of his Benefit Age),
but before the actual payment is made, his Beneficiary shall be entitled
to receive the lump sum benefit in accordance with this Subsection 3.1(b)
within thirty (30) days of the date the Administrator receives notice of
the Executive's death.
The balance of the Executive's Accrued Benefit Account (if applicable),
measured as of the Executive's Benefit Age, shall be paid to the
Executive in a lump sum on his Benefit Eligibility Date. In the event the
Executive dies after becoming eligible for such payment (upon attainment
of his Benefit Age), but before the actual payment is made, his
Beneficiary shall be entitled to receive the lump sum benefit in
accordance with this Subsection 3.1(b) within thirty (30) days of the
date the Administrator receives notice of the Executive's death.
SECTION IV
PRE-RETIREMENT DEATH BENEFIT
4.1 (a) Normal form of payment.
If (i) the Executive dies while employed by the Bank, and (ii) the
Executive has not made a Timely Election to receive a lump sum benefit,
this Subsection 4.1(a) shall be controlling with respect to
pre-retirement death benefits.
The balance of the Executive's Retirement Income Trust Fund, measured as
of the later of (i) the Executive's death, or (ii) the date any final
lump sum Contribution is made pursuant to Subsection 2.1(b), shall be
annuitized (using the Interest Factor) into monthly installments and
shall be payable for the Payout Period. Such benefits shall commence
within thirty (30) days of the date the Administrator receives notice of
the Executive's death. Should Retirement Income Trust Fund assets
actually earn a rate of return, following the date such balance is
annuitized, which is less than the rate of return used to annuitize the
Retirement Income Trust Fund, no additional contributions to the
Retirement Income Trust Fund shall be required by the Bank in order to
fund the final benefit payment(s) and make up for any shortage
attributable to the less-than-expected rate of return. Should Retirement
Income Trust Fund assets actually earn a rate of return, following the
date such
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balance is annuitized, which is greater than the rate of return used to
annuitize the Retirement Income Trust Fund, the final benefit payment to
the Executive's Beneficiary shall distribute the excess amounts
attributable to the greater-than-expected rate of return. The Executive's
Beneficiary may request to receive the unpaid balance of the Executive's
Retirement Income Trust Fund in a lump sum payment. If a lump sum payment
is requested by the Beneficiary, payment of the balance of the Retirement
Income Trust Fund in such lump sum form shall be made only if the
Executive's Beneficiary notifies both the Administrator and trustee in
writing of such election within ninety (90) days of the Executive's
death. Such lump sum payment shall be made within thirty (30) days of
such notice.
The Executive's Accrued Benefit Account (if applicable), measured as of
the later of (i) the Executive's death or (ii) the date any final lump
sum Phantom Contribution is recorded in the Accrued Benefit Account
pursuant to Subsection 2.1(c), shall be annuitized (using the Interest
Factor) into monthly installments and shall be payable to the Executive's
Beneficiary for the Payout Period. Such benefit payments shall commence
within thirty (30) days of the date the Administrator receives notice of
the Executive's death, or if later, within thirty (30) days after any
final lump sum Phantom Contribution is recorded in the Accrued Benefit
Account in accordance with Subsection 2.1(c). The Executive's Beneficiary
may request to receive the remainder of any unpaid monthly benefit
payments due from the Accrued Benefit Account in a lump sum payment. If a
lump sum payment is requested by the Beneficiary, the amount of such lump
sum payment shall be equal to the balance of the Executive's Accrued
Benefit Account. Payment in such lump sum form shall be made only if the
Executive's Beneficiary (i) obtains Board of Director approval, and (ii)
notifies the Administrator in writing of such election within ninety (90)
days of the Executive's death. Such lump sum payment, if approved by the
Board of Directors, shall be payable within thirty (30) days of such
Board of Director approval.
(b) Alternative payout option.
If (i) the Executive dies while employed by the Bank, and (ii) the
Executive has made a Timely Election to receive a lump sum benefit, this
Subsection 4.1(b) shall be controlling with respect to pre-retirement
death benefits.
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The balance of the Executive's Retirement Income Trust Fund, measured as
of the later of (i) the Executive's death, or (ii) the date any final
lump sum Contribution is made pursuant to Subsection 2.1(b), shall be
paid to the Executive's Beneficiary in a lump sum within thirty (30) days
of the date the Administrator receives notice of the Executive's death.
The balance of the Executive's Accrued Benefit Account (if applicable),
measured as of the later of (i) the Executive's death, or (ii) the date
any final Phantom Contribution is recorded pursuant to Subsection 2.1(c),
shall be paid to the Executive's Beneficiary in a lump sum within thirty
(30) days of the date the Administrator receives notice of the
Executive's death.
SECTION V
BENEFIT(S) IN THE EVENT OF TERMINATION OF SERVICE
PRIOR TO RETIREMENT AGE
5.1 Voluntary or Involuntary Termination of Service Other Than for Cause. In
the event the Executive's service with the Bank is voluntarily or
involuntarily terminated prior to Retirement Age, for any reason
including a Change in Control, but excluding (i) any disability related
termination for which the Board of Directors has approved early payment
of benefits pursuant to Subsection 6.1, (ii) the Executive's
pre-retirement death, which shall be covered in Section IV, or (iii)
termination for Cause, which shall be covered in Subsection 5.2, the
Executive (or his Beneficiary) shall be entitled to receive benefits in
accordance with this Subsection 5.1. Payments of benefits pursuant to
this Subsection 5.1 shall be made in accordance with Subsection 5.1 (a)
or 5.1 (b) below, as applicable.
(a) Normal form of payment.
(1) Executive Lives Until Benefit Age
If (i) after such termination, the Executive lives until attaining his
Benefit Age, and (ii) the Executive has not made a Timely Election to
receive a lump sum benefit, this Subsection 5.1(a)(1) shall be
controlling with respect to retirement benefits.
The Retirement Income Trust Fund, measured as of the Executive's Benefit
Age, shall be annuitized (using the Interest Factor) into monthly
installments and shall be payable for the Payout Period. Such payments
shall commence on the Executive's Benefit Eligibility Date. Should
Retirement
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Income Trust Fund assets actually earn a rate of return, following the
date such balance is annuitized, which is less than the rate of return
used to annuitize the Retirement Income Trust Fund, no additional
contributions to the Retirement Income Trust Fund shall be required by
the Bank in order to fund the final benefit payment(s) and make up for
any shortage attributable to the less-than-expected rate of return.
Should Retirement Income Trust Fund assets actually earn a rate of
return, following the date such balance is annuitized, which is greater
than the rate of return used to annuitize the Retirement Income Trust
Fund, the final benefit payment to the Executive (or his Beneficiary)
shall distribute the excess amounts attributable to the
greater-than-expected rate of return. The Executive may at anytime during
the Payout Period request to receive the unpaid balance of his Retirement
Income Trust Fund in a lump sum payment. If such a lump sum payment is
requested by the Executive, payment of the balance of the Retirement
Income Trust Fund in such lump sum form shall be made only if the
Executive gives notice to both the Administrator and trustee in writing.
Such lump sum payment shall be payable within thirty (30) days of such
notice. In the event the Executive dies at any time after attaining his
Benefit Age, but prior to commencement or completion of all monthly
payments due and owing hereunder, (i) the trustee of the Retirement
Income Trust Fund shall pay to the Executive's Beneficiary the monthly
installments (or a continuation of the monthly installments if they have
already commenced) for the balance of months remaining in the Payout
Period, or (ii) the Executive's Beneficiary may request to receive the
unpaid balance of the Executive's Retirement Income Trust Fund in a lump
sum payment. If a lump sum payment is requested by the Beneficiary,
payment of the balance of the Retirement Income Trust Fund in such lump
sum form shall be made only if the Executive's Beneficiary notifies both
the Administrator and trustee in writing of such election within ninety
(90) days of the Executive's death. Such lump sum payment shall be made
within thirty (30) days of such notice.
The Executive's Accrued Benefit Account (if applicable), measured as of
the Executive's Benefit Age, shall be annuitized (using the Interest
Factor) into monthly installments and shall be payable for the Payout
Period. Such benefit payments shall commence on the Executive's Benefit
Eligibility Date. In the event the Executive dies at any time after
attaining his Benefit Age, but prior to commencement or completion of all
the payments due and owing hereunder, (i) the Bank shall pay to the
Executive's Beneficiary the same monthly installments (or a continuation
of such monthly installments if they have already commenced) for the
balance of months remaining in the Payout Period, or (ii) the Executive's
Beneficiary may request to receive the remainder of any unpaid
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benefit payments in a lump sum payment. If a lump sum payment is
requested by the Beneficiary, the amount of such lump sum payment shall
be equal to the unpaid balance of the Executive's Accrued Benefit
Account. Payment in such lump sum form shall be made only if the
Executive's Beneficiary (i) obtains Board of Director approval, and (ii)
notifies the Administrator in writing of such election within ninety (90)
days of the Executive's death. Such lump sum payment, if approved by the
Board of Directors, shall be made within thirty (30) days of such Board
of Director approval.
(2) Executive Dies Prior to Benefit Age
If (i) after such termination, the Executive dies prior to attaining his
Benefit Age, and (ii) the Executive has not made a Timely Election to
receive a lump sum benefit, this Subsection 5.1(a)(2) shall be
controlling with respect to retirement benefits.
The Retirement Income Trust Fund, measured as of the date of the
Executive's death, shall be annuitized (using the Interest Factor) into
monthly installments and shall be payable for the Payout Period. Such
payments shall commence within thirty (30) days of the date the
Administrator receives notice of the Executive's death. Should Retirement
Income Trust Fund assets actually earn a rate of return, following the
date such balance is annuitized, which is less than the rate of return
used to annuitize the Retirement Income Trust Fund, no additional
contributions to the Retirement Income Trust Fund shall be required by
the Bank in order to fund the final benefit payment(s) and make up for
any shortage attributable to the less-than-expected rate of return.
Should Retirement Income Trust Fund assets actually earn a rate of
return, following the date such balance is annuitized, which is greater
than the rate of return used to annuitize the Retirement Income Trust
Fund, the final benefit payment to the Executive's Beneficiary shall
distribute the excess amounts attributable to the greater-than-expected
rate of return. The Executive's Beneficiary may request to receive the
unpaid balance of the Executive's Retirement Income Trust Fund in the
form of a lump sum payment. If a lump sum payment is requested by the
Beneficiary, payment of the balance of the Retirement Income Trust Fund
in such lump sum form shall be made only if the Executive's Beneficiary
notifies both the Administrator and trustee in writing of such election
within ninety (90) days of the Executive's death. Such lump sum payment
shall be made within thirty (30) days of such notice.
The Executive's Accrued Benefit Account (if applicable), measured as of
the date of the Executive's death, shall be annuitized (using the
Interest Factor) into monthly installments and shall be payable
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for the Payout Period. Such payments shall commence within thirty (30)
days of the date the Administrator receives notice of the Executive's
death. The Executive's Beneficiary may request to receive the unpaid
balance of the Executive's Accrued Benefit Account in the form of a lump
sum payment. If a lump sum payment is requested by the Beneficiary,
payment of the balance of the Accrued Benefit Account in such lump sum
form shall be made only if the Executive's Beneficiary (i) obtains Board
of Director approval, and (ii) notifies the Administrator in writing of
such election within ninety (90) days of the Executive's death. Such lump
sum payment, if approved by the Board of Directors, shall be made within
thirty (30) days of such Board of Director approval.
(b) Alternative Payout Option.
(1) Executive Lives Until Benefit Age
If (i) after such termination, the Executive lives until attaining his
Benefit Age, and (ii) the Executive has made a Timely Election to receive
a lump sum benefit, this Subsection 5.1(b)(1) shall be controlling with
respect to retirement benefits.
The balance of the Retirement Income Trust Fund, measured as of the
Executive's Benefit Age, shall be paid to the Executive in a lump sum on
his Benefit Eligibility Date. In the event the Executive dies after
becoming eligible for such payment (upon attainment of his Benefit Age),
but before the actual payment is made, his Beneficiary shall be entitled
to receive the lump sum benefit in accordance with this Subsection
5.1(b)(1) within thirty (30) days of the date the Administrator receives
notice of the Executive's death.
The balance of the Executive's Accrued Benefit Account (if applicable),
measured as of the Executive's Benefit Age, shall be paid to the
Executive in a lump sum on his Benefit Eligibility Date. In the event the
Executive dies after becoming eligible for such payment (upon attainment
of his Benefit Age), but before the actual payment is made, his
Beneficiary shall be entitled to receive the lump sum benefit in
accordance with this Subsection 5.1(b)(1) within thirty (30) days of the
date the Administrator receives notice of the Executive's death.
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(2) Executive Dies Prior to Benefit Age
If (i) after such termination, the Executive dies prior to attaining his
Benefit Age, and (ii) the Executive has made a Timely Election to receive
a lump sum benefit, this Subsection 5.1(b)(2) shall be controlling with
respect to pre-retirement death benefits.
The balance of the Retirement Income Trust Fund, measured as of the date
of the Executive's death, shall be paid to the Executive's Beneficiary
within thirty (30) days of the date the Administrator receives notice of
the Executive's death.
The balance of the Executive's Accrued Benefit Account (if applicable),
measured as of the date of the Executive's death, shall be paid to the
Executive's Beneficiary within thirty (30) days of the date the
Administrator receives notice of the Executive's death.
5.2 Termination For Cause.
If the Executive is terminated for Cause, all benefits under this
Agreement, other than those which can be paid from previous Contributions
to the Retirement Income Trust Fund (and earnings on such Contributions),
shall be forfeited. Furthermore, no further Contributions (or Phantom
Contributions, as applicable) shall be required of the Bank for the year
in which such termination for Cause occurs (if not yet made). The
Executive shall be entitled to receive a benefit in accordance with this
Subsection 5.2.
The balance of the Executive's Retirement Income Trust Fund shall be paid
to the Executive in a lump sum on his Benefit Eligibility Date. In the
event the Executive dies prior to his Benefit Eligibility Date, his
Beneficiary shall be entitled to receive the balance of the Executive's
Retirement Income Trust Fund in a lump sum within thirty (30) days of the
date the Administrator receives notice of the Executive's death.
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SECTION VI
OTHER BENEFITS
6.1 (a) Disability Benefit.
If the Executive's service is terminated prior to Retirement Age due to a
disability which meets the criteria set forth below, the Executive may
request to receive the Disability Benefit in lieu of the retirement
benefit(s) available pursuant to Section 5.1 (which is (are) not
available prior to the Executive's Benefit Eligibility Date).
In any instance in which: (i) it is determined by a duly licensed,
independent physician selected by the Bank, that the Executive is no
longer able, properly and satisfactorily, to perform his regular duties
as an officer, because of ill health, accident, disability or general
inability due to age, (ii) the Executive requests payment under this
Subsection in lieu of Subsection 5.1, and (iii) Board of Director
approval is obtained to allow payment under this Subsection, in lieu of
Subsection 5.1, the Executive shall be entitled to the following lump sum
benefit(s). The lump sum benefit(s) to which the Executive is entitled
shall include: (i) the balance of the Retirement Income Trust Fund, plus
(ii) the balance of the Accrued Benefit Account (if applicable). The
benefit(s) shall be paid within thirty (30) days following the date of
the Executive's request for such benefit is approved by the Board of
Directors. In the event the Executive dies after becoming eligible for
such payment(s) but before the actual payment(s) is (are) made, his
Beneficiary shall be entitled to receive the benefit(s) provided for in
this Subsection 6.1(a) within thirty (30) days of the date the
Administrator receives notice of the Executive's death.
(b) Disability Benefit - Supplemental.
Furthermore, if Board of Director approval is obtained within thirty (30)
days of the Executive's death, the Bank shall make a direct, lump sum
payment to the Executive's Beneficiary in an amount equal to the sum of
all remaining Contributions (or Phantom Contributions) set forth in
Exhibit A, but not required pursuant to Subsection 2.1(b) (or 2.1(c)) due
to the Executive's disability-related termination. Such lump sum payment,
if approved by the Board of Directors, shall be payable to the
Executive's Beneficiary within thirty (30) days of such Board of Director
approval.
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SECTION VII
BENEFICIARY DESIGNATION
The Executive shall make an initial designation of primary and secondary
Beneficiaries upon execution of this Agreement and shall have the right
to change such designation, at any subsequent time, by submitting to (i)
the Administrator, and (ii) the trustee of the Retirement Income Trust
Fund, in substantially the form attached as Exhibit B to this Agreement,
a written designation of primary and secondary Beneficiaries. Any
Beneficiary designation made subsequent to execution of this Agreement
shall become effective only when receipt thereof is acknowledged in
writing by the Administrator.
SECTION VIII
NON-COMPETITION
8.1 Non-Competition During Employment.
In consideration of the agreements of the Bank contained herein and of
the payments to be made by the Bank pursuant hereto, the Executive hereby
agrees that, for as long as he remains employed by the Bank, he will
devote substantially all of his time, skill, diligence and attention to
the business of the Bank, and will not actively engage, either directly
or indirectly, in any business or other activity which is, or may be
deemed to be, in any way competitive with or adverse to the best
interests of the business of the Bank, unless the Executive has the prior
express written consent of the Bank.
8.2 Breach of Non-Competition Clause.
(a) Continued Employment Following Breach.
In the event (i) any breach by the Executive of the agreements and
covenants described in Subsection 8.1 occurs, and (ii) the Executive
continues employment at the Bank following such breach, all further
Contributions to the Retirement Income Trust Fund (or Phantom
Contributions recorded in the Accrued Benefit Account) shall immediately
cease, and all benefits under this Agreement, other than those which can
be paid from previous Contributions to the Retirement Income Trust Fund
(and earnings on such Contributions), shall be forfeited. The Executive
(or his Beneficiary) shall be
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entitled to receive a benefit from the Retirement Income Trust Fund in
accordance with Subpart (1) or (2) below, as applicable.
(1) Executive Lives Until Benefit Age
If, following such breach, the Executive lives until attaining his
Benefit Age, he shall be entitled to receive a benefit from the
Retirement Income Trust Fund in accordance with this Subsection
8.2(a)(1). The balance of the Retirement Income Trust Fund, measured as
of the Executive's Benefit Age, shall be paid to the Executive in a lump
sum on his Benefit Eligibility Date. In the event the Executive dies
after attaining his Benefit Age but before actual payment is made, his
Beneficiary shall be entitled to receive the lump sum benefit in
accordance with this Subsection 8.2(a)(1) within thirty (30) days of the
date of the Administrator receives notice of the Executive's death.
(2) Executive Dies Prior to Benefit Age
If, following such breach, the Executive dies prior to attaining his
Benefit Age, his Beneficiary shall be entitled to receive a benefit from
the Retirement Income Trust Fund in accordance with this Subsection 8.2
(a)(2). The balance of the Retirement Income Trust Fund, measured as of
the date of the Executive's death, shall be paid to the Executive's
Beneficiary in a lump sum within thirty (30) days of the date the
Administrator receives notice of the Executive's death.
(b) Termination of Employment Following Breach.
In the event (i) any breach by the Executive of the agreements and
covenants described in Subsection 8.1 occurs, and (ii) the Executive's
employment with the Bank is terminated due to such breach, such
termination shall be deemed to be for Cause and the benefits payable to
the Executive shall be paid in accordance with Subsection 5.2 of this
Agreement.
8.3 Non-Competition Following Employment.
Executive further understands and agrees that, following Executive's
termination of employment, the Bank's obligation, if any, to make
payments to the Executive from the Accrued Benefit Account shall be
conditioned on the Executive's forbearance from actively engaging, either
directly or indirectly in any business or other activity which is, or may
be deemed to be, in any way competitive with or adverse to the best
interests of the Bank, unless the Executive has the prior written consent
of the Bank. In the event of the Executive's breach of the covenants and
agreements contained
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herein, further payments to the Executive from the Accrued Benefit
Account, if any, shall cease and Executive's rights to amounts credited
to the Accrued Benefit Account shall be forfeited.
SECTION IX
EXECUTIVE'S RIGHT TO ASSETS
The rights of the Executive, any Beneficiary, or any other person
claiming through the Executive under this Agreement, shall be solely
those of an unsecured general creditor of the Bank. The Executive, the
Beneficiary, or any other person claiming through the Executive, shall
only have the right to receive from the Bank those payments or amounts so
specified under this Agreement. The Executive agrees that he, his
Beneficiary, or any other person claiming through him shall have no
rights or interests whatsoever in any asset of the Bank, including any
insurance policies or contracts which the Bank may possess or obtain to
informally fund this Agreement. Any asset used or acquired by the Bank in
connection with the liabilities it has assumed under this Agreement shall
not be deemed to be held under any trust for the benefit of the Executive
or his Beneficiaries, unless such asset is contained in the rabbi trust
described in Section XII of this Agreement. Any such asset shall be and
remain, a general, unpledged asset of the Bank in the event of the Bank's
insolvency.
SECTION X
RESTRICTIONS UPON FUNDING
The Bank shall have no obligation to set aside, earmark or entrust any
fund or money with which to pay its obligations under this Agreement,
other than those Contributions required to be made to the Retirement
Income Trust Fund. The Executive, his Beneficiaries or any successor in
interest to him shall be and remain simply a general unsecured creditor
of the Bank in the same manner as any other creditor having a general
claim for matured and unpaid compensation. The Bank reserves the absolute
right in its sole discretion to either purchase assets to meet its
obligations undertaken by this Agreement or to refrain from the same and
to determine the extent, nature, and method of such asset purchases.
Should the Bank decide to purchase assets such as life insurance, mutual
funds, disability policies or annuities, the Bank reserves the absolute
right, in its sole discretion, to replace such assets from time to time
or to terminate its investment in such assets at any time, in whole or in
part. At no time shall the Executive be deemed to have any lien, right,
title or interest in or to any
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specific investment or to any assets of the Bank. If the Bank elects to
invest in a life insurance, disability or annuity policy upon the life of
the Executive, then the Executive shall assist the Bank by freely
submitting to a physical examination and by supplying such additional
information necessary to obtain such insurance or annuities.
SECTION XI
ACT PROVISIONS
11.1 Named Fiduciary and Administrator. The Bank, as Administrator, shall be
the Named Fiduciary of this Agreement. As Administrator, the Bank shall
be responsible for the management, control and administration of the
Agreement as established herein. The Administrator may delegate to others
certain aspects of the management and operational responsibilities of the
Agreement, including the employment of advisors and the delegation of
ministerial duties to qualified individuals.
11.2 Claims Procedure and Arbitration. In the event that benefits under this
Agreement are not paid to the Executive (or to his Beneficiary in the
case of the Executive's death) and such claimants feel they are entitled
to receive such benefits, then a written claim must be made to the
Administrator within sixty (60) days from the date payments are refused.
The Administrator shall review the written claim and, if the claim is
denied, in whole or in part, it shall provide in writing, within ninety
(90) days of receipt of such claim, its specific reasons for such denial,
reference to the provisions of this Agreement upon which the denial is
based, and any additional material or information necessary to perfect
the claim. Such writing by the Administrator shall further indicate the
additional steps which must be undertaken by claimants if an additional
review of the claim denial is desired.
If claimants desire a second review, they shall notify the Administrator
in writing within sixty (60) days of the first claim denial. Claimants
may review this Agreement or any documents relating thereto and submit
any issues and comments, in writing, they may feel appropriate. In its
sole discretion, the Administrator shall then review the second claim and
provide a written decision within sixty (60) days of receipt of such
claim. This decision shall state the specific reasons for the decision
and shall include reference to specific provisions of this Agreement upon
which the decision is based.
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If claimants continue to dispute the benefit denial based upon completed
performance of this Plan and the Joinder Agreement or the meaning and
effect of the terms and conditions thereof, then claimants may submit the
dispute to mediation, administered by the American Arbitration
Association ("AAA") (or a mediator selected by the parties) in accordance
with the AAA's Commercial Mediation Rules. If mediation is not successful
in resolving the dispute, it shall be settled by arbitration administered
by the AAA under its Commercial Arbitration Rules, and judgment on the
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof.
SECTION XII
MISCELLANEOUS
12.1 No Effect on Employment Rights. Nothing contained herein will confer upon
the Executive the right to be retained in the service of the Bank nor
limit the right of the Bank to discharge or otherwise deal with the
Executive without regard to the existence of the Agreement.
12.2 State Law. The Agreement is established under, and will be construed
according to, the laws of the state of New Jersey, to the extent such
laws are not preempted by the Act and valid regulations published
thereunder.
12.3 Severability. In the event that any of the provisions of this Agreement
or portion thereof, are held to be inoperative or invalid by any court of
competent jurisdiction, then: (1) insofar as is reasonable, effect will
be given to the intent manifested in the provisions held invalid or
inoperative, and (2) the validity and enforceability of the remaining
provisions will not be affected thereby.
12.4 Incapacity of Recipient. In the event the Executive is declared
incompetent and a conservator or other person legally charged with the
care of his person or Estate is appointed, any benefits under the
Agreement to which such Executive is entitled shall be paid to such
conservator or other person legally charged with the care of his person
or Estate.
12.5 Unclaimed Benefit. The Executive shall keep the Bank informed of his
current address and the current address of his Beneficiaries. The Bank
shall not be obligated to search for the whereabouts
28
<PAGE>
of any person. If the location of the Executive is not made known to the
Bank as of the date upon which any payment of any benefits from the
Accrued Benefit Account may first be made, the Bank shall delay payment
of the Executive's benefit payment(s) until the location of the Executive
is made known to the Bank; however, the Bank shall only be obligated to
hold such benefit payment(s) for the Executive until the expiration of
thirty-six (36) months. Upon expiration of the thirty-six (36) month
period, the Bank may discharge its obligation by payment to the
Executive's Beneficiary. If the location of the Executive's Beneficiary
is not made known to the Bank by the end of an additional two (2) month
period following expiration of the thirty-six (36) month period, the Bank
may discharge its obligation by payment to the Executive's Estate. If
there is no Estate in existence at such time or if such fact cannot be
determined by the Bank, the Executive and his Beneficiary(ies) shall
thereupon forfeit any rights to the balance, if any, of the Executive's
Accrued Benefit Account provided for such Executive and/or Beneficiary
under this Agreement.
12.6 Limitations on Liability. Notwithstanding any of the preceding provisions
of the Agreement, no individual acting as an employee or agent of the
Bank, or as a member of the Board of Directors shall be personally liable
to the Executive or any other person for any claim, loss, liability or
expense incurred in connection with the Agreement.
12.7 Gender. Whenever in this Agreement words are used in the masculine or
neuter gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.
12.8 Effect on Other Corporate Benefit Agreements. Nothing contained in this
Agreement shall affect the right of the Executive to participate in or be
covered by any qualified or non-qualified pension, profit sharing, group,
bonus or other supplemental compensation or fringe benefit agreement
constituting a part of the Bank's existing or future compensation
structure.
29
<PAGE>
12.9 Suicide. Notwithstanding anything to the contrary in this Agreement, if
the Executive's death results from suicide, whether sane or insane,
within twenty-six (26) months after execution of this Agreement, all
further Contributions to the Retirement Income Trust Fund (or Phantom
Contributions recorded in the Accrued Benefit Account) shall thereupon
cease, and no Contribution (or Phantom Contribution) shall be made by the
Bank to the Retirement Income Trust Fund (or recorded in the Accrued
Benefit Account) in the year such death resulting from suicide occurs (if
not yet made). All benefits other than those available from previous
Contributions to the Retirement Income Trust Fund under this Agreement
shall be forfeited, and this Agreement shall become null and void. The
balance of the Retirement Income Trust Fund, measured as of the
Executive's date of death, shall be paid to the Beneficiary within thirty
(30) days of the date the Administrator receives notice of the
Executive's death.
12.10 Inurement. This Agreement shall be binding upon and shall inure to the
benefit of the Bank, its successors and assigns, and the Executive, his
successors, heirs, executors, administrators, and Beneficiaries.
12.11 Headings. Headings and sub-headings in this Agreement are inserted for
reference and convenience only and shall not be deemed a part of this
Agreement.
12.12 Establishment of a Rabbi Trust. The Bank shall establish a rabbi trust
into which the Bank shall contribute assets which shall be held therein,
subject to the claims of the Bank's creditors in the event of the Bank's
"Insolvency" (as defined in such rabbi trust agreement), until the
contributed assets are paid to the Executive and/or his Beneficiary in
such manner and at such times as specified in this Agreement. It is the
intention of the Bank that the contribution or contributions to the rabbi
trust shall provide the Bank with a source of funds to assist it in
meeting the liabilities of this Agreement.
12.13 Source of Payments. All payments provided in this Agreement shall be
timely paid in cash or check from the general funds of the Bank or the
assets of the rabbi trust, to the extent made from the Accrued Benefit
Account. The Holding Company, however guarantees payment and provision of
all amounts and benefits due to the Executive from the Accrued Benefit
Account or Contribution to the Retirement Income Trust Fund and, if such
Contributions, amounts and benefits due from the
30
<PAGE>
Bank are not timely paid or provided by the Bank, such amounts and
benefits shall be paid or provided by the Holding Company.
SECTION XIII
AMENDMENT/PLAN TERMINATION
13.1 Amendment or Plan Termination. The Bank intends this Agreement to be
permanent, but reserves the right to amend or terminate the Agreement
when, in the sole opinion of the Bank, such amendment or termination is
advisable. However, any termination of the Agreement which is done in
anticipation of or pursuant to a "Change in Control", as defined in
Subsection 1.9, shall be deemed to trigger Subsection 2.1(b)(2) (or
2.1(c)(2), as applicable) of the Agreement notwithstanding the
Executive's continued employment, and benefit(s) shall be paid from the
Retirement Income Trust Fund (and Accrued Benefit Account, if applicable)
in accordance with Subsection 13.2 below and with Subsections 2.1(b)(2)
(or 2.1(c)(2), as applicable). Any amendment or termination of the
Agreement by the Bank shall be made pursuant to a resolution of the Board
of Directors of the Bank and shall be effective as of the date of such
resolution. No amendment or termination of the Agreement by the Bank
shall directly or indirectly deprive the Executive of all or any portion
of the Executive's Retirement Income Trust Fund (and Accrued Benefit
Account, if applicable) as of the effective date of the resolution
amending or terminating the Agreement.
Notwithstanding the above, if the Executive does not exercise any
withdrawal rights pursuant to Subsection 2.2, and if at any time after
the final Contribution is made to the Retirement Income Trust Fund the
Executive elects to terminate the Retirement Income Trust Fund and
receive a distribution of the assets of the Retirement Income Trust Fund,
then upon such distribution this Agreement shall terminate.
13.2 Executive's Right to Payment Following Plan Termination. In the event of
a termination of the Agreement, the Executive shall be entitled to the
balance, if any, of his Retirement Income Trust Fund (and Accrued Benefit
Account, if applicable). However, if such termination is done in
anticipation of or pursuant to a "Change in Control," such balance(s)
shall include the final Contribution (or final Phantom Contribution) made
(or recorded) pursuant to Subsection 2.1(b)(2) (or 2.1(c)(2)). Payment of
the balance(s) of the Executive's Retirement Income Trust Fund (and
31
<PAGE>
Accrued Benefit Account, if applicable) shall not be dependent upon his
continuation of employment with the Bank following the termination date
of the Agreement. Payment of the balance(s) of the Executive's Retirement
Income Trust Fund (and Accrued Benefit Account, if applicable) shall be
made in a lump sum within thirty (30) days of the date of termination of
the Agreement.
SECTION XIV
EXECUTION
14.1 This Agreement and the _________________ Grantor Trust Agreement set
forth the entire understanding of the parties hereto with respect to the
transactions contemplated hereby, and any previous agreements or
understandings between the parties hereto regarding the subject matter
hereof are merged into and superseded by this Agreement and the
_________________ Grantor Trust Agreement.
14.2 This Agreement shall be executed in triplicate, each copy of which, when
so executed and delivered, shall be an original, but all three copies
shall together constitute one and the same instrument.
[Remainder of this Page Intentionally Left Blank]
32
<PAGE>
IN WITNESS WHEREOF, the Bank and the Executive have caused this Agreement
to be executed on the day and date first above written.
ATTEST: THE RARITAN SAVINGS BANK:
By:
- ----------------------------- --------------------------------
Secretary
Title:
ATTEST: RARITAN BANCORP INC.:
By:
- ----------------------------- --------------------------------
Secretary
Title:
WITNESS EXECUTIVE:
- ----------------------------- -----------------------------------
33
<PAGE>
CONDITIONS, ASSUMPTIONS,
AND
SCHEDULE OF CONTRIBUTIONS AND PHANTOM CONTRIBUTIONS
1. Interest Factor - for purposes of:
a. the Accrued Benefit Account - shall be six percent (6%) per annum,
compounded monthly.
b. the Retirement Income Trust Fund - for purposes of annuitizing the
balance of the Retirement Income Trust Fund over the Payout Period,
the trustee of the _________________ Grantor Trust shall exercise
discretion in selecting the appropriate rate given the nature of the
investments contained in the Retirement Income Trust Fund and the
expected return associated with the investments. For these purposes,
if the trustee of the Retirement Income Trust Fund has purchased a
life insurance policy, the trustee shall have the discretion to
determine the portion of the cash value of such policy available for
purposes of annuitizing the Retirement Income Trust Fund, in
accordance with Section 2.3 of the Agreement.
2. The amount of the annual Contributions (or Phantom Contributions) to the
Retirement Income Trust Fund (or Accrued Benefit Account) has been based on
the annual incremental accounting accruals which would be required of the
Bank through the earlier of the Executive's death or Retirement Age, (i)
pursuant to APB Opinion No. 12, as amended by FAS 106 and (ii) assuming a
discount rate equal to Six percent (6%) per annum, in order to provide the
unfunded, non-qualified Supplemental Retirement Income Benefit.
3. Supplemental Retirement Income Benefit means an actuarially determined
annual amount equal to Ninety-Five Thousand Three Hundred Seventy-Four
Dollars ($____________) at age 65 if paid entirely from the Accrued Benefit
Account or Fifty-Seven Thousand Two Hundred Twenty-Four Dollars
($_________) at age 65 if paid from the Retirement Income Trust Fund.
The Supplemental Retirement Income Benefit:
o the definition of Supplemental Retirement Income Benefit has been
incorporated into the Agreement for the sole purpose of actuarially
establishing the amount of annual Contributions (or Phantom
Contributions) to the Retirement Income Trust Fund (or Accrued Benefit
Account). The amount of any actual retirement, pre-retirement or
disability benefit payable pursuant to the Agreement will be a
function of (i) the amount and timing of Contributions (or Phantom
Contributions) to the Retirement Income Trust Fund (or Accrued Benefit
Account) and (ii) the actual investment experience of such
Contributions (or the monthly compounding rate of Phantom
Contributions).
Exhibit A
34
<PAGE>
4. Schedule of Annual Gross Contributions/Phantom Contributions
<TABLE>
<CAPTION>
Plan Year Amount
--------- ------
<S> <C>
1997 $
1998
1999
2000
2001
2002
2003
2004
2005
</TABLE>
Exhibit A - Cont'd.
35
<PAGE>
RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT
INCOME AGREEMENT
BENEFICIARY DESIGNATION
The Executive, under the terms of the Restated Executive Supplemental
Retirement Income Agreement executed by the Bank, dated the 1st day of June,
1997, hereby designates the following Beneficiary(ies) to receive any guaranteed
payments or death benefits under such Agreement, following his death:
PRIMARY BENEFICIARY:
SECONDARY BENEFICIARY:
This Beneficiary Designation hereby revokes any prior Beneficiary
Designation which may have been in effect.
Such Beneficiary Designation is revocable.
DATE: , 19
--------------- ---
- ----------------------------------- ------------------------------
(WITNESS) EXECUTIVE
- -----------------------------------
(WITNESS)
Exhibit B
36
<PAGE>
RESTATED EXECUTIVE SUPPLEMENTAL RETIREMENT INCOME AGREEMENT
NOTICE OF ELECTION TO CHANGE FORM OF PAYMENT
TO: Bank
Attention:
I hereby give notice of my election to change the form of payment of my
Supplemental Retirement Income Benefit, as specified below. I understand that
such notice, in order to be effective, must be submitted in accordance with the
time requirements described in my Restated Executive Supplemental Retirement
Income Agreement.
|_| I hereby elect to change the form of payment of my benefits from
monthly installments throughout my Payout Period to a lump sum benefit
payment.
|_| I hereby elect to change the form of payment of my benefits from a
lump sum benefit payment to monthly installments throughout my Payout
Period. Such election hereby revokes my previous notice of election to
receive a lump sum form of benefit payments.
----------------------------------------
Executive
----------------------------------------
Date
Acknowledged
By:
-------------------------------------
Title:
----------------------------------------
----------------------------------------
Date
Exhibit C
37
<PAGE>
Exhibit 13
[LOGO OF RARITAN BANCORP INC. APPEARS HERE]
ANNUAL REPORT 1997
[ARTWORK APPEARS HERE]
Growing
to meet the
needs of our
customers,
our communities
and our
shareholders.
<PAGE>
- ----------------------
financial highlights
- ---------------------- Raritan Bancorp Inc. and Subsidiary
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
- -------------------------------------------------------------------------------------
At or for the years ended December 31, 1997 1996 Change
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets $408,308 $375,393 8.8%
Total net loans 264,395 232,105 13.9
Securities
available-for-sale 48,951 47,253 3.6
Investment securities, net 41,307 51,919 -20.4
Deposits 337,084 331,178 1.8
Shareholders' equity 30,874 28,268 9.2
Leverage ratio capital 7.33% 7.44% -1.5
Net income $ 3,908 $ 3,108 25.7
Return on average assets 1.02% 0.89% 14.6
Return on average equity 13.13 11.71 12.1
Allowance for
losses/non-performing
assets 349.74 209.58 66.9
Net income per share
(diluted) $ 1.54 $ 1.27 21.3
Cash dividends per share 0.47 0.40 17.5
Book value per share 13.01 12.45 4.5
Common stock closing price
(NASDAQ) 28.00 15.50 80.6
</TABLE>
<TABLE>
<CAPTION>
Net Income
Net Income Per Share
Shareholders' (For the year (Diluted)
Total Assets Equity ended (For the
(At December 31, (At December 31, December 31, year ended
in thousands) in thousands) in thousands) December 31,)
<S> <C> <C> <C>
1993 $307,332 $22,391 $2,416 $1.02
1994 333,546 23,440 2,854 1.19
1995 354,810 26,348 2,672 1.09
1996 375,393 28,268 3,108 1.27
1997 408,308 30,874 3,908 1.54
</TABLE>
[BAR GRAPH APPEARS HERE]
Note: The above figures reflect the effects of the three-for-two stock splits
paid in the form of stock dividends on July 1, 1997 and December 1, 1993.
<PAGE>
[ARTWORK APPEARS HERE]
It was a very good year for Raritan Bancorp Inc., reflecting the effects of the
initiatives and marketing strategies that have marked our efforts over the last
few years.
To Our Shareholders:
It was an exceptional year for Raritan Bancorp Inc., and our subsidiary, Raritan
Savings Bank. The strong performance turned in by all areas of the Bank is a
reflection of the initiatives and business strategies that have marked our
efforts over the last few years and is further indication that the redirection
of the business that we set for ourselves is working to the benefit of our
shareholders.
Our 1997 earnings were at a record high of $3,908,000 or $1.54 per diluted
share. This compares to $3,108,000 or $1.27 per diluted share a year ago and is
an increase of 25.7 percent. The primary contributors to these results were
record loan disbursements, improved asset quality and continuing operating
efficiency. Because of our strong earnings, the Board of Directors increased the
quarterly cash dividend beginning in 1998 from 12 to 15 cents per common share,
a 25 percent increase, and the ninth consecutive year that the dividend has
increased.
The year saw several significant developments. In the fall of 1997, we opened
our new corporate offices on
The Bank's vision of being a vitally important member of the community is as
clear to us today as it was to our founders.
[ARTWORK APPEARS HERE]
1
<PAGE>
Our objective as always is to protect and enhance your interests as
shareholders.
Route 28 in Bridgewater. As reported in previous annual reports, our operations
had been handicapped by a lack of suitable office space. This new facility,
which is at the center of a fast-growing area with strong potential for business
development, will house all operating divisions of the Bank as well as executive
offices. The official headquarters and main banking office will remain in
Raritan Borough.
With the move to the Bridgewater office complex, we were able to open, in the
same building, our seventh branch office. In addition to making Raritan Savings
Bank even more visible in Somerset County, we expect the new Bridgewater branch
to be a strong contributor to our bottom line as it attracts new depositors and
borrowers.
While these changes improve our operating effectiveness and help position the
Bank for future growth, I also regard them as performance challenges that will
require our best efforts to continue to achieve quality earnings, manage expense
levels, and improve deposit and loan growth. Our objective, as always, is to
protect and enhance your interests as shareholders.
To that end, we are committed to expanding our marketing efforts and to
strengthening our presence in Somerset and Hunterdon Counties where we have
earned a reputation for highly personalized service and competitive products.
Raritan Savings Bank is poised to share in our region's growth!
[ARTWORK APPEARS HERE]
From 1990 to the year 2000, Somerset county population figures grow from 240,000
to an estimated 260,000. Raritan Savings Bank has kept pace with this growth,
nearly doubling our assets in the last ten years!
"Record consumer and commercial loan volume in '97 has necessitated the Loan
Division's expansion..."
John Lukens,
Senior Lending Officer
2
<PAGE>
- ----------------------------
building a strong foundation
- ----------------------------
[ARTWORK APPEARS HERE]
"Though our retail delivery system boasts finely appointed banking environments,
the number one priority is superb customer service..."
Dawn Forehand, Manager
Connie DeStefano, Assistant Manager
Bridgewater Branch
"We're proud to be an integral part of the communities served by our
strategically located network of branches..."
Tom Tansey, Chief Operating Officer
3
<PAGE>
We are cognizant of the need for name recognition and product branding.
To stay competitive, we know we must continually modernize our line of products
and services not only to serve our existing customer base but to attract the
younger families who are buying homes in our market area.
The redesign of our product lines will include the introduction of a
relationship banking program linked to checking accounts which offer value-added
services that will help build core deposits. We are also adopting a new
approach to marketing Individual Retirement Accounts that should grow our IRA
portfolio.
We are also focusing on loan growth, and to accomplish that we are repricing and
promoting more heavily our equity lines and loans. We are set to launch credit-
related overdraft protection for our customers in early 1998. Finally, we are
reviewing our commercial lending business to develop new cash management and
commercial equity products to meet our business customers' growing and ever
changing needs.
As we continue to redirect our business and planning focus, we are cognizant of
the need for name recognition and product branding. If you haven't already
noticed changes in the "look" of Raritan Savings Bank, you can expect to see a
great deal more as we redesign our merchandising program.
[ARTWORK APPEARS HERE]
The Loan Division Management & Sales Team
Customers enjoy banking the way it ought to be--local, service-oriented and
always professional!
"Our competitive consumer loan products and rates keep Raritan Savings in
demand..."
Jim Robinson, Business Development
4
<PAGE>
[ARTWORK APPEARS HERE]
Eric Kesselman, Marketing
"The marketing effort is realized on the branch level through a host of new
products, services and campaigns..."
Kathy Viola,
Banking Operations
A.D.R. welcomes comments from customers and shareholders alike!
Identification with the community helps build public confidence in the Bank.
We are also stepping up our involvement in the communities we serve. Officers,
managers and employees alike are encouraged to participate in community affairs
and to join civic organizations. Such identification with the community helps
build public confidence in the Bank and enhances our reputation for being a
caring, concerned institution. Our goal, of course, is to attract additional
customers who will join the ranks of those who are already enjoying the quality
service and friendliness that are hallmarks of this Bank.
You will find a more complete summary of our 1997 operating results in the
management discussion and analysis that follow this letter. Not only will it
afford you a better understanding of our performance in 1997, it should also
give you a greater appreciation of why we are optimistic about the future of
Raritan Bancorp.
As we look back on a year of growth and progress, I join with the directors,
officers and employees of Raritan Bancorp Inc. and Raritan Savings Bank in
wishing you a healthy, happy and prosperous 1998. Your continued support and
confidence are greatly appreciated.
Cordially,
/s/ Arlyn D. Rus
Arlyn D. Rus
Chairman, President and
Chief Executive Officer
Raritan Bancorp Inc.
5
<PAGE>
- --------------------
board of directors
- --------------------
[ARTWORK APPEARS HERE]
Thomas F. Tansey
Executive Vice President,
Chief Operating Officer and Treasurer
Raritan Bancorp, Inc.
Peter S. Johnson
Partner, Gillen & Johnson, PA
William T. Kelleher, Jr.
Sr. Partner, Kelleher and Moore
Attorneys-at-law
Arlyn D. Rus
Chairman, President and
Chief Executive Officer
Raritan Bancorp, Inc.
William T. Anderson, M.D.
Physician
William W. Crouse
Vice Chairman and General Partner
HealthCare Investment Corporation
(pictured left to right)
6
<PAGE>
directors and officers
Board of Directors
William T. Anderson, M.D.
PHYSICIAN
William W. Crouse
VICE CHAIRMAN AND GENERAL PARTNER
HEALTHCARE INVESTMENT CORPORATION
Peter S. Johnson
PARTNER, GILLEN & JOHNSON, PA
William T. Kelleher, Jr.
SR. PARTNER, KELLEHER AND MOORE
ATTORNEYS-AT-LAW
Arlyn D. Rus
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
RARITAN BANCORP INC.
Thomas F. Tansey
EXECUTIVE VICE PRESIDENT,
CHIEF OPERATING OFFICER AND TREASURER
RARITAN BANCORP INC.
- -----------------------
Richard E. Fischer
DIRECTOR EMERITUS
William T. Kelleher
DIRECTOR EMERITUS
Anthony J. Santora
DIRECTOR EMERITUS
Officers of the Holding Company
Arlyn D. Rus
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Thomas F. Tansey
EXECUTIVE VICE PRESIDENT, CHIEF OPERATING
OFFICER AND TREASURER
John J. Lukens
SENIOR VICE PRESIDENT
Helen J. Frangelli
VICE PRESIDENT AND SECRETARY
Manville Advisory Board
Louis Fries
RETIRED
Peter S. Johnson
PARTNER, GILLEN & JOHNSON, PA
Ned Licitra
BUILDING CONTRACTOR
Lowell E. Reinhardt
VICE PRESIDENT, COMPLIANCE
AND SECURITY OFFICER
THE RARITAN SAVINGS BANK
Leonard Scharffenberger
PRESIDENT, ALLOY WELDING, INC.
Officers of the Bank
Arlyn D. Rus
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Thomas F. Tansey
EXECUTIVE VICE PRESIDENT, CHIEF OPERATING
OFFICER AND TREASURER
John J. Lukens
SENIOR VICE PRESIDENT AND SENIOR LENDING
OFFICER
Huell E. Alberty
VICE PRESIDENT -- Business Development
James T. Condo
VICE PRESIDENT -- Lending
Judith A. Flanagan
VICE PRESIDENT AND
BANK SECRECY ACT OFFICER
Helen J. Frangelli
VICE PRESIDENT AND SECRETARY
Eric L. Kesselman
VICE PRESIDENT -- MARKETING
Duane W. Mittan
AUDITOR
Barbara A. Perry
VICE PRESIDENT -- HUMAN RESOURCES
Bruce H. Poniatowski
VICE PRESIDENT AND CONTROLLER
Lowell E. Reinhardt
VICE PRESIDENT, COMPLIANCE
AND SECURITY OFFICER
James J. Robinson
VICE PRESIDENT -- BUSINESS
DEVELOPMENT/CONSUMER LENDING
Kathleen M. Viola
VICE PRESIDENT -- BANKING OPERATIONS
Jay R. Yarnell
VICE PRESIDENT -- Business Development
Richard Leu
ASSISTANT VICE PRESIDENT --
BUSINESS DEVELOPMENT
Kathleen A. Long
ASSISTANT VICE PRESIDENT --
DATA PROCESSING
Concetta Staropoli
ASSISTANT VICE PRESIDENT AND
ASSISTANT SECRETARY
Cathy L. Studer
ASSISTANT VICE PRESIDENT AND
ASSISTANT CONTROLLER
Edward J. Sweeney
ASSISTANT VICE PRESIDENT
Helen Dagiantis
ASSISTANT SECRETARY --
BRANCH MANAGER, RARITAN
Dawn M. Forehand
ASSISTANT SECRETARY --
BRANCH MANAGER, BRIDGEWATER
Johanna J. Grasing
ASSISTANT SECRETARY --
BRANCH MANAGER, WHITEHOUSE STATION
Phyllis K. Miller
ASSISTANT SECRETARY --
BRANCH MANAGER, MARTINSVILLE
Cynthia A. O'Keefe
ASSISTANT SECRETARY --
BRANCH MANAGER, WARREN
Robert M. Redmond
ASSISTANT SECRETARY --
BRANCH MANAGER, SOMERVILLE
7
<PAGE>
Management's discussion and analysis
GENERAL
Raritan Bancorp Inc. (the "Corporation") is a bank holding company for
The Raritan Savings Bank (the "Bank"). The principal business of the Corporation
consists of the business of the Bank. The Bank is a New Jersey-chartered stock
savings bank with offices in Raritan, Bridgewater, Manville, Martinsville,
Somerville, Warren and Whitehouse Station, New Jersey.
Effective August 1, 1996, the Manville Savings Bank, SLA ("Manville") was
merged with, and into, the Bank pursuant to a merger agreement. As part of the
merger, 186,894 common shares of the Corporation were issued. Proceeds from the
issuance of these shares totaled $2.0 million. The transaction was accounted for
using the purchase method of accounting. Negative goodwill totaling $746,000 was
recorded and is being accreted to income over a period of five years using the
straight-line method. Net loans and deposits acquired totaled $11.9 million and
$12.5 million, respectively.
At December 31, 1997, the Corporation had total assets of $408.3 million
compared to $375.4 million at December 31, 1996, an increase of 8.8%.
Securities available-for-sale plus investment securities, net (comprised
of United States Treasury securities, obligations of U.S. government agencies,
obligations of states and political subdivisions, and mortgage-backed securities
issued by Federal agencies) decreased $8.9 million, or 9.0%, to $90.3 million at
December 31, 1997. Net loans increased $32.3 million, or 13.9%, to
$264.4 million at December 31, 1997. Of $62.1 million of mortgage disbursements,
$2.8 million was of a fixed-rate nature, while the balance of $59.3 million was
adjustable rate or of short-term nature. Consumer and commercial lending
disbursements totaled $35.5 million for 1997 and consisted primarily of loans
which are tied to the prime lending rate and are of a short-term nature.
Non-performing loans (over 90 days delinquent) and real estate acquired
by foreclosure totaled $945,000, or 0.4% of total net loans and real estate
acquired by foreclosure at December 31, 1997, compared to $1,420,000, or 0.6% of
total net loans and real estate acquired by foreclosure at December 31, 1996.
During the year ended December 31, 1997, the Bank provided $600,000 to
the allowance for loan losses, compared to $450,000 a year earlier. The
increased provision was in response to a growing diversified loan portfolio.
The following table provides a summary of the Corporation's
non-performing loans and real estate acquired by foreclosure at December 31,
1997:
- --------------------------------------------------------------------------------
Number of Loans Amount
- --------------------------------------------------------------------------------
(in thousands)
First mortgage loans 6 $569
Second mortgage loan 1 54
Consumer loan 1 11
Loans with modified terms 2 177
Matured loan 1 94
- --------------------------------------------------------------------------------
Total non-performing loans 11 905
Real estate acquired by foreclosure
(included in Other Assets) 1 40
- --------------------------------------------------------------------------------
12 $945
- --------------------------------------------------------------------------------
Of the eleven non-performing loans, ten ($894,000) are secured by real
estate, and one ($11,000) is unsecured.
Based on a review of all non-performing loans and "watch list" loans
(loans on the "watch list" include performing loans rated substandard and
special mention at December 31, 1997), a specific allowance of $1,150,000 has
been allocated to such loans, together with a general allowance of $2,155,000 on
the remaining loan portfolio taken as a whole. During 1997, the Bank charged off
$410,000 of loans, compared to $380,000 in the previous year. At December 31,
1997, the ratio of the allowance for loan losses to non-performing loans was
365.2%.
During the year, management reviews, on a quarterly basis, 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.
The provision for loan losses for the years ended December 31, 1997, 1996
and 1995 was $600,000, $450,000 and $300,000 respectively. The increasing
provisions are the results of responding to a growing diversified loan
portfolio.
In addition, there are no potential problem loans not included in
non-performing assets which causes management to have serious doubts as to the
ability to comply with the present loan repayment terms, and which require
disclosure as non-performing loans, or which management believes will materially
affect future
8
<PAGE>
Raritan Bancorp Inc. and Subsidiary
operating results, liquidity or capital resources.
Deposits grew to $337.1 million at December 31, 1997 from $331.2 million
at December 31, 1996. Deposit outflows, net of interest credited of
$13.6 million, totaled $7.7 million.
Shareholders' equity totaled $30.9 million, or $13.01 per share, at
December 31, 1997, compared to $28.3 million, or $12.45 per share, at
December 31, 1996. The increase is the result of net income totaling $3,908,000
for the year ended December 31, 1997, together with a decrease of $51,000 in the
ESOP debt, a $165,000 increase in the fair value adjustment of securities
available-for-sale, plus $613,000 from the issuance of 132,863 common treasury
shares for stock options, and the $53,000 amortization of a restricted stock
award, net of related taxes, partially offset by dividends paid to shareholders
of $1,123,000 and the repurchase of 49,112 shares of the Corporation's common
stock for $1,061,000.
COMPARISON OF YEARS ENDED
DECEMBER 31, 1997 AND 1996
INTEREST INCOME: Total interest income increased in 1997, on a fully-taxable
basis, to $27.7 million, an increase of $2.7 million, or 10.8%, from $25.0
million in 1996. The increase is primarily the result of an increase in average
interest-earning assets to $364.1 million from $335.7 million for the prior
year, together with an increase in the average yield to 7.60% from 7.43% a year
earlier. The increase in loan disbursement volume was responsible for the
increase in net interest income. Funding for earning assets came from loan and
securities repayments and borrowings.
Interest income for 1997 was also affected by the loss of interest income
on non-performing loans and real estate acquired by foreclosure. When a loan
becomes more than ninety days delinquent, the Corporation discontinues the
accrual of interest 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 and real estate acquired
by foreclosure was approximately $94,000, for 1997. In addition, during April,
1997, $6.9 million of mortgage-backed securities (classified as
available-for-sale) with a weighted average yield of 7.08% were sold with the
proceeds invested in a $7,200,000 corporate-owned life insurance policy whose
increase in cash surrender value is being reflected in service charges and other
income in the accompanying Consolidated Statements of Income.
INTEREST EXPENSE: Interest expense increased $1.7 million, or 13.0% to $14.5
million in 1997, from $12.9 million in 1996 primarily as the result of an
increase in average borrowings (FHLB advances and agreements to repurchase the
same securities) to $16.1 million from $305,000 a year earlier, in addition to
an overall 16 basis point increase in the cost of interest-bearing liabilities.
NET INTEREST INCOME: The net interest income results of the Corporation depend
upon the interest rate spread between the average yield earned on its loan and
investment portfolios and the average rate paid on its deposit accounts and
borrowings.
Net interest income on a fully-taxable equivalent basis of $13.2 million
for the year ended December 31, 1997 increased $1.1 million from $12.1 million
for 1996. As shown by the tables on pages 14 and 15, net interest income
increased primarily as a result of a 4.6% increase in average net earning assets
(primarily the net increase in the loan portfolio) to $38.6 million from
$36.9 million a year earlier. The increased volume in average net earning assets
together with a one basis point increase in the net yield on average interest-
earning assets resulted in the 8.7% increase in net interest income (on a fully-
taxable equivalent basis).
Net interest for 1997 was also affected by the aforementioned sale of
$6.9 million of mortgage-backed securities which reduced net interest income by
approximately $300,000.
Changes in net interest income generally occur because of fluctuations in
the balances and/or composition of interest-earning assets and interest-bearing
liabilities and changes in their corresponding interest yields and costs. In
periods of rising rate environments, short-term interest-bearing deposits
reprice more rapidly than interest-earning assets (particularly loans) of a
variable rate nature whose rates are tied to indices. These earning assets
generally lag increases in market interest rates. The converse is generally true
in periods of falling interest rates as shorter-term interest-bearing deposits
reprice downward more rapidly than variable rate loans tied to indices.
The provision for loan losses for 1997 was $600,000 compared to $450,000
for 1996. As described above, the increased provision for 1997 was in response
to a growing diversified loan portfolio. The provision was considered sufficient
based upon management's judgment of the amount necessary to maintain the
allowance at a level adequate to absorb any potential losses.
9
<PAGE>
Management's discussion and analysis continued
OTHER INCOME: Service charges and other income increased $236,000 or 32.8%,
primarily as a result of the full effect of the $193,000 increase in the cash
surrender value of the aforementioned corporate-owned life insurance. Gain on
the sale of the aforementioned $6.9 million mortgage-backed securities
(classified as available-for-sale) totaled $78,000. In addition, other
securities classified as available-for-sale totaling $6,013,000 were called at a
gross gain of $16,000.
OPERATING EXPENSES: Operating expenses for the year ended December 31, 1997
increased $41,000 or 0.6%, to $7.5 million from $7.4 million a year earlier.
Salaries and employee benefits increased $487,000 or 13.0%, to $4.2 million from
$3.7 million a year earlier. The full impact of the addition of five employees
as a result of the Manville Savings Bank merger and acquisition in August, 1996,
together with normal cost of living and merit adjustments contributed to the
increase. Occupancy expense increased to $45,000, or 6.0%, to $798,000 from
$753,000 in 1996. Included in 1997 are expenses of approximately $50,000 which
pertain to the Corporation's new corporate headquarters which became operational
in December, 1997. The FDIC insurance premium decreased $491,000 to $80,000 for
1997 compared to $571,000 a year earlier as a result of $436,000 charge during
the third quarter of 1996 which represented a one-time assessment to
recapitalize the Savings Association Insurance Fund. Also as a result, this
recapitalization assessed a lower FDIC premium rate for the Bank beginning in
1997. Other operating expenses increased $25,000 or 1% to $2.34 million for 1997
compared to $2.32 million for 1996. Primary contributors to increasing operating
expenses for 1997 were furniture, fixtures and equipment expenses, consultant
and advertising expenses. Primary contributors to decreasing operating expenses
were a full year's effect of negative goodwill accretion pertaining to the
previously mentioned Manville Savings Bank merger and acquisition, and a
decrease in legal expenses and supervisory exam fees. In addition during the
second quarter of 1996 there was a $200,000 reversal of an expense accrual.
INCOME TAX EXPENSE: Income taxes increased $386,000 to $2.2 million in 1997 from
$1.8 million for the prior year. Increases and decreases are basically direct
functions of the Corporation's pretax income.
COMPARISON OF YEARS ENDED
DECEMBER 31, 1996 AND 1995
INTEREST INCOME: Total interest income increased in 1996, on a fully-taxable
basis, to $25.0 million, an increase of $1.5 million, or 6.4%, from $23.5
million in 1995. The increase is primarily the result of an increase in average
interest-earning assets to $335.7 million from $318.0 million for the prior
year, together with an increase in the average yield to 7.43% from 7.39% a year
earlier. The increase in loan disbursement volume was responsible for the
increase in net interest income. Funding for earning assets came primarily from
loan and securities repayments.
Interest income for 1996 was also affected by the loss of interest income
on non-performing loans and real estate acquired by foreclosure. The loss of
interest on loans charged-off, non-performing loans and real estate acquired by
foreclosure was approximately $142,000, for 1996.
INTEREST EXPENSE: Interest expense decreased $150,000, or 1.2% to $12.9 million
in 1996, from $13.0 million in 1995 primarily as the result the decrease in
average borrowings (primarily agreements to repurchase the same securities) to
$305,000 from $4,655,000 a year earlier, in addition to a 25 basis point
decrease in the cost of interest-bearing liabilities, partially offset by an
overall increase of $17.5 million in the average balances due to depositors.
NET INTEREST INCOME: Net interest income on a fully-taxable equivalent basis of
$12.1 million for the year ended December 31, 1996 increased $1.6 million from
$10.5 million for 1995. As shown by the tables on pages 14 and 15, net interest
income decreased primarily as a result of a 14.4% increase in the average net
earning assets (primarily the net increase in the loan portfolio) to
$36.9 million from $32.2 million a year earlier. The increased volume in average
net earning assets together with the thirty basis point increase in the net
yield on average interest-earning assets resulted in the 15.5% increase in net
interest income (on a fully-taxable equivalent basis).
The provision for loan losses for 1996 was $450,000 compared to $300,000
for 1995. The increase was in response to a growing and diversified loan
portfolio.
OTHER INCOME: Serving charges and other income increased 19.4% primarily as a
result from the upward repricing of certain services relating to deposit
products which was effective in mid-1995. During 1996, an obligation of a state
and political subdivision which was classified as available-for-sale in the
amount of $50,000 was called at a gross gain of $1,000.
10
<PAGE>
Raritan Bancorp Inc. and Subsidiary
OPERATING EXPENSES: Other expenses for the year ended December 31, 1996
increased $830,000, or 12.6%, to $7.4 million from $6.6 million a year earlier.
Salaries and employee benefits increased to $326,000, or 9.6%, to $3.7 million
from $3.4 million a year earlier. The addition of five employees from the
Manville merger and acquisition together with normal merit and cost of living
increases contributed to the increase, together with a $175,000 ESOP
contribution, partially offset by a reduction in health insurance premiums.
Occupancy expenses increased $104,000, or 16.0%, to $753,000 from $649,000 in
1995. The increase results primarily from the rent expense associated with the
new Manville branch office. Unanticipated snow removal expenses during the first
quarter of 1996 also contributed to the increase. The Federal Deposit Insurance
Corporation ("FDIC") insurance premium increased $145,000, or 34.0%, to $571,000
in 1996 from $426,000 a year earlier. On September 30, 1996, Federal legislation
was enacted which imposed a special one-time assessment on Savings Association
Insurance Fund ("SAIF") insured deposits, including approximately $83.0 million
in "Oakar" and "Sasser" deposits held by the Bank, to recapitalize the SAIF and
spread the obligations for payment of the Financing Corporation ("FICO") bonds
across all SAIF and Bank Insurance Fund ("BIF") members. The Bank took a pre-tax
charge of $436,000 as a result of this special assessment. Net cost of operation
of other real estate increased $191,000 to $51,000 in 1996 from a credit
balance of $140,000 in 1995. The 1995 balance included a $218,000 balance in the
allowance for losses on real estate acquired by foreclosure which was eliminated
and credited to the net cost of operation of real estate. Other operating
expenses increased $64,000 to $2.3 million in 1996 as a result of increases in
outside services, legal fees, consulting fees, supervisory examination and
outside audit fees, marketing fees and office supplies.
INCOME TAX EXPENSE: Income taxes increased $271,000 to $1.8 million in 1996 from
$1.5 million for the prior year. Increases and decreases are basically direct
functions of the Corporation's pretax income.
MARKET RISK-ASSET/LIABILITY MANAGEMENT
When used or incorporated by reference in disclosure documents, the words
"anticipate," "expect," "project," "target," "goal" and similar expressions are
intended to identify forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933. Such forward-looking statements are
subject to certain risks, uncertainties and assumptions, including those set
forth below. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated, expected or projected. These
forward-looking statements speak only as of the date of the document. The
Corporation expressly disclaims any obligation or undertaking to publicly
release any updates or revisions to any forward-looking statement contained
herein to reflect any change in the Corporation's expectation with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based.
The primary market risk faced by the Corporation is interest rate risk.
The Corporation's senior management monitors and considers methods of managing
the rate and sensitivity repricing characteristics of the balance sheet
components consistent with maintaining acceptable levels of changes in net
portfolio value ("NPV") and net interest income. A primary purpose of the
Corporation's asset and liability management is to manage interest rate risk to
effectively invest the Corporation's capital and to preserve the value created
by its core business operations. As such, certain management monitoring
processes are designed to minimize the impact of sudden and sustained changes in
interest rates on NPV and net interest income.
The Corporation's exposure to interest rate risk is reviewed on at least
a quarterly basis by the Board of Directors. Interest rate risk exposure is
measured using interest rate sensitivity analysis to determine the Corporation's
change in NPV in the event of hypothetical changes in interest rates and
interest rate sensitivity gap analysis is used to determine the repricing
characteristics of the Bank's assets and liabilities. If estimated changes to
NPV and net interest income are not within the limits established by the Board,
the Board may direct management to adjust its asset and liability mix to bring
interest rate risk within Board approved limits.
In order to reduce the exposure to interest rate fluctuations, the
Corporation has developed strategies to manage its liquidity, shorten its
effective maturities of certain interest-earning assets, and increase the
interest rate sensitivity of its asset base. Management has sought to decrease
the average maturity of its assets by emphasizing the origination of mortgage
loans, consumer loans and commercial loans which are of an adjustable-rate
nature, or tied to the prime lending rate. These loans are retained by the Bank
for its portfolio.
11
<PAGE>
Management's discussion and analysis continued
Interest rate sensitivity analysis is used to measure the Corporation's
interest rate risk by computing estimated changes in NPV of its cash flows from
assets, liabilities and off-balance sheet items in the event of a range of
assumed changes in market interest rates. NPV represents the market value of
portfolio equity and is equal to the market value of assets minus the market
value of liabilities, with adjustments made for off-balance sheet items. This
analysis assesses the risk of loss in market risk sensitive instruments in the
event of a sudden and sustained one hundred to two hundred basis points increase
or decrease in the market interest rates. The following table presents the
Corporation's projected change in NPV for the various rate shock levels of
December 31, 1997. All market risk sensitive instruments presented in this table
are held to maturity or available for sale. The Corporation has no trading
securities.
- --------------------------------------------------------------------------------
Change in Actual
Interest Market Value of Actual Percent
Rates Portfolio Equity Change Change
- --------------------------------------------------------------------------------
(in thousands)
200 basis
point rise $24,650 $(11,918) (33)%
100 basis
point rise 30,781 (5,787) (16)
Base Scenario 36,568 --
100 basis point
decline 40,849 4,281 12
200 basis point
decline 44,391 7,823 21
- --------------------------------------------------------------------------------
The preceding table indicates that at December 31, 1997, in the event of a
sudden and sustained increase in prevailing market interest rates, the
Corporation's NPV would be expected to decrease, and that in the event of a
sudden and sustained decrease in prevailing market interest rates, the
Corporation's NPV would be expected to increase.
The NPV is based on the net present value of estimated discounted cash
flows utilizing market prepayment assumptions and market rates of interest
provided by independent broker quotations and other public sources as of
December 31, 1997, with adjustments made to reflect the shift in the Treasury
yield curve as appropriate.
Computation of prospective effects of hypothetical interest rate changes
are based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposits decay, and should not be relied upon as
indicative of actual results. Further, the computations do not contemplate any
actions the ALCO could undertake in response to changes in interest rates.
Certain shortcomings are inherent in the method of analysis presented in
the computation of NPV. Actual values may differ from those projections
presented, should market conditions vary from assumptions used in the
calculation of the NPV. Certain assets, such as adjustable-rate loans, which
represent one of the Corporation's primary loan products, have features which
restrict changes in interest rates on a short-term basis and over the life of
the assets. In addition, the proportion of adjustable-rate loans in the
Corporation's portfolio could decrease in future periods if market interest
rates remain at or decrease below current levels due to refinance activity.
Further, in the event of a change in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those assumed in the
NPV. Finally, the ability of many borrowers to repay their adjustable-rate
mortgage loans may decrease in the event of interest rate increases.
In addition, the Corporation uses interest rate sensitivity gap analysis
to monitor the relationship between the maturity and repricing of its
interest-earning assets and interest-bearing liabilities, while maintaining an
acceptable interest rate spread. Interest rate sensitivity gap is defined as the
difference between the amount of interest-earning assets maturing or repricing
within a specific time period and the amount of interest-bearing liabilities
maturing or repricing within that same time period. A gap is considered positive
when the amount of interest-rate-sensitive assets exceeds the amount of
interest-rate-sensitive liabilities, and is considered negative when the amount
of interest-rate-sensitive liabilities exceeds the amount of
interest-rate-sensitive assets. Generally, during a period of rising interest
rates, a negative gap would adversely affect net interest income, while a
positive gap would result in an increase in net interest income. Conversely,
during a period of falling interest rates, a negative gap would result in an
increase in net interest income, while a positive gap would negatively affect
net interest income. Management's goal is to maintain a reasonable balance
between exposure to interest rate fluctuations and earnings. The Corporation's
one-year cumulative gap is a negative $35.6 million or 8.7% of the Corporation's
total assets of $408.3 million at December 31, 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, scheduled amortization
12
<PAGE>
Raritan Bancorp Inc. and Subsidiary
and prepayment of loan principal, maturities and principal repayments of
securities and funds provided by operations. At December 31, 1997, the
Corporation's liquid assets (cash and investment securities maturing in one year
or less) totaled $38.2 million which represents 9.4% of total assets.
The Corporation's main liquidity demands come from loan disbursements
which totaled $97.6 million. At December 31, 1997 outstanding commitments to
extend credit totaled $46.6 million. Management believes that the Corporation
has adequate sources of liquidity to fund these commitments.
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 (Tier 1 and Total and leverage capital ratio).
The following chart presents the minimum capital requirement ratios and
actual ratios for both the Corporation and the Bank:
December 31, 1997 Required Actual Excess
- --------------------------------------------------------------------------------
The Corporation:
Risk-based capital:
Tier 1 4.00% 12.255% 8.255%
Total 8.00 13.507 5.507
Leverage capital ratio 4.00 7.330 3.330
The Bank:
Risk-based capital:
Tier 1 4.00% 12.235% 8.235%
Total 8.00 13.486 5.486
Leverage capital ratio 4.00 7.319 3.319
Management is not aware of any known trends, events or uncertainties that
will have, or that are reasonably likely to have a material effect on the
Corporation's liquidity, capital resources or operations. The Corporation is not
aware of any current recommendations by any regulatory authorities, which, if
they were to be implemented, would have a material effect on the Corporation's
liquidity, capital resources or operations.
IMPACT OF THE YEAR 2000
The Corporation is conducting a comprehensive review of its computer
systems and third party vendors to identity the systems that could be affected
by the "Year 2000" issue. The Year 2000 problem is the result of computer
programs being written using two digits rather than four to define the
applicable year. Any of the Corporation's programs that have time-sensitive
software may recognize a date using "00" as the Year 1900 rather than the Year
2000. This could result in system failure or miscalculations. The Corporation is
devoting the necessary internal and external resources in the development of an
implementation plan to address Year 2000. Management anticipates that all Year
2000 initiatives and testing will be completed in a timely manner and will meet
all regulatory milestones. Expenditures in future years are not expected to have
a material impact on the Corporation.
13
<PAGE>
Management's discussion and analysis continued
The following table presents for the periods indicated the total dollar
amount of interest income from interest-earning assets and the yields as well as
the interest paid on interest-bearing liabilities, expressed in both dollars and
rates:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest/2/ Cost Balance Interest/1/ Cost Balance Interest/l/ Cost
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets:
Loans/2/ $249,769 $20,852 8.35% $208,367 $17,317 8.31% $188,116 $15,631 8.31%
Taxable investments 92,483 5,597 6.05 111,760 6,798 6.08 120,203 7,270 6.05
Tax-exempt investments 743 77 10.36 767 80 10.43 793 84 10.59
Deposits with banks 21,103 1,149 5.44 14,842 765 5.15 8,878 501 5.64
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning
assets 364,098 27,675 7.60 335,736 24,960 7.43 317,990 23,486 7.39
Non-interest-earning
assets/3/ 18,597 13,238 14,075
- -----------------------------------------------------------------------------------------------------------------------------------
Total $382,695 $348,974 $332,065
===================================================================================================================================
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-Bearing Liabilities:
Transaction accounts/4/ $ 24,148 $ 498 2.06% $ 22,150 $ 468 2.11% $ 19,312 $ 437 2.26%
Savings accounts/5/ 119,450 4,299 3.60 114,789 3,921 3.42 119,038 4,718 3.96
Market-rate certificates 165,774 8,786 5.30 161,620 8,442 5.22 142,744 7,548 5.29
Borrowings 16,082 942 5.86 305 26 8.52 4,655 304 6.53
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 325,454 14,525 4.46 298,864 12,857 4.30 285,749 13,007 4.55
Non-interest-bearing liabilities 23,664 22,423 19,812
Other liabilities 3,819 1,153 1,134
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 352,937 322,440 306,695
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 29,758 26,534 25,370
- -----------------------------------------------------------------------------------------------------------------------------------
Total $382,695 $348,974 $332,065
===================================================================================================================================
Net interest income/
interest rate spread/6/ $13,150 3.14% $12,103 3.13% $10,479 2.84%
===================================================================================================================================
Net earning assets/net
yield on average
interest-earning assets/7/ $ 38,644 3.61% $ 36,872 3.60% $ 32,241 3.30%
===================================================================================================================================
Ratio of interest-earning
assets to interest-
bearing liabilities 1.12x 1.12x 1.11x
===================================================================================================================================
</TABLE>
1. On a fully-taxable equivalent basis. Effective tax rate used was
approximately 36%.
2. Loans include non-accruing (i.e. non-performing) loans. Loan fees included
in interest income were $234,000, $324,000 and $275,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
3. Included in non-interest-earning assets are corporate-owned life insurance
and real estate acquired by foreclosure.
4. Includes NOW and SWEEP accounts.
5. Include money market deposit accounts, regular savings and club accounts,
and Prime Performance accounts.
6. Interest rate spread represents the difference between average yield earned
on interest-earning assets and average cost of interest-bearing liabilities.
7. Net yield on average interest-earning assets represents net interest income
as a percentage of average interest-earning assets.
14
<PAGE>
Raritan Bancorp Inc. and Subsidiary
The following table presents the dollar amount of changes in interest
income on a fully taxable basis and interest expense for each major component of
interest-earning assets and interest-bearing liabilities, and the amount of
change attributable to average balances and average rates for the periods
indicated. The variances attributable to simultaneous balance and rate changes
have been allocated in proportion to the relationship of the dollar amount
change in each category.
<TABLE>
<CAPTION>
Year 1997 compared to 1996 Year 1996 compared to 1995
Increase/(Decrease) Increase/(Decrease)
(In thousands) Volume Rate Net Volume Rate Net
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans $3,451 $ 84 $3,535 $1,686 $ -- $1,686
Taxable investments (1,168) (33) (1,201) (508) 36 (472)
Tax-exempt investments (2) (1) (3) (3) (1) (4)
Deposits with banks 339 45 384 303 (39) 264
- ---------------------------------------------------------------------------------------------------------------------------
Total income on interest-earning assets 2,620 95 2,715 1,478 (4) 1,474
- ---------------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities:
Transaction accounts 41 (11) 30 57 (26) 31
Savings accounts 165 213 378 (165) (632) (797)
Market-rate certificates 215 129 344 993 (99) 894
Borrowings 922 (6) 916 (413) 135 (278)
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses on
interest-bearing liabilities 1,343 325 1,668 472 (622) (150)
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income $1,277 $ (230) $1,047 $1,006 $618 $1,624
===========================================================================================================================
</TABLE>
The following table presents the average yield on interest-earning assets and
average cost of interest-bearing liabilities, the interest rate spread, and the
net yield on average interest-earnings assets for the years indicated.
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Yield on loans 8.35% 8.31% 8.31%
Yield on taxable investments 6.05 6.08 6.05
Yield on tax-exempt investments 10.36 10.43 10.59
Yield on deposits with banks 5.44 5.15 5.64
Combined yield on
interest-earning assets 7.60 7.43 7.39
Cost of transaction accounts 2.06 2.11 2.26
Cost of savings accounts 3.60 3.42 3.96
Cost of market-rate certificates 5.30 5.22 5.29
Cost of borrowings 5.86 8.52 6.53
Combined cost of
interest-bearing liabilities 4.46 4.30 4.55
Interest rate spread 3.14 3.13 2.84
Net yield on average
interest-earning assets 3.61 3.60 3.30
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: All yields are on a fully-taxable basis assuming an effective income tax
rate of approximately 36%
15
<PAGE>
Selected consolidated financial data Raritan Bancorp Inc. and Subsidiary
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
At or for the year ended December 31, 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $408,308 $375,393 $354,810 $333,546 $307,332
Total net loans 264,395 232,105 192,590 180,594 162,701
Securities available-for-sale, at fair value 48,951 47,253 50,547 40,456 --
Investment securities, net 41,307 51,919 61,406 86,224 121,074
Deposits 337,084 331,178 315,038 296,166 281,333
Shareholders' equity 30,874 28,268 26,348 23,440 22,391
Operating Data:
Interest and fee income $27,647 $24,931 $23,456 $20,892 $20,049
Interest expense 14,525 12,857 13,007 9,992 9,230
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 13,122 12,074 10,449 10,900 10,819
Provision for loan losses 600 450 300 450 2,290
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 12,522 11,624 10,149 10,450 8,529
- ---------------------------------------------------------------------------------------------------------------------------
Other income 1,049 720 658 702 2,658
Operating expenses 7,464 7,423 6,593 6,721 7,432
- ---------------------------------------------------------------------------------------------------------------------------
Income before income tax expense and
cumulative effect of accounting changes 6,107 4,921 4,214 4,431 3,755
Income tax expense 2,199 1,813 1,542 1,577 1,352
Cumulative effect of accounting changes -- -- -- -- 13
- ---------------------------------------------------------------------------------------------------------------------------
Net income $3,908 $3,108 $2,672 $2,854 $2,416
- ---------------------------------------------------------------------------------------------------------------------------
Net income per share (basic) $1.66 $1.39 $1.17 $1.26 $1.07
- ---------------------------------------------------------------------------------------------------------------------------
Net income per share (diluted) 1.54 1.27 1.09 1.19 1.02
- ---------------------------------------------------------------------------------------------------------------------------
Cash dividends per common share 0.47 0.40 0.35 0.31 0.25
- ---------------------------------------------------------------------------------------------------------------------------
Selected Financial Ratios:
Return on average assets 1.02% 0.89% 0.80% 0.88% 0.81%
Return on average equity 13.13 11.71 10.53 12.33 11.22
Dividend payout ratio 30.52 31.50 32.11 26.05 24.51
Average equity to average assets 7.78 7.60 7.64 7.14 7.20
Interest rate spread/1/ 3.14 3.13 2.84 3.19 3.51
Net yield on average interest-earning assets/1/ 3.61 3.60 3.30 3.52 3.79
Average interest-earning assets to
average interest-bearing liabilities 1.12x 1.12x 1.11x 1.10x 1.09x
Non-performing assets to total assets 0.23% 0.38% 0.35% 0.63% 1.17%
</TABLE>
/1/ Calculated on a fully-taxable basis.
NOTE: The above figures reflect the effects of the three-for-two stock splits
paid in the form of stock dividends on July 1, 1997 and December 1, 1993
16
<PAGE>
Consolidated balance sheets Raritan Bancorp Inc. and Subsidiary
<TABLE>
<CAPTION>
(Dollars in thousands, except share data)
December 31, 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 7,316 $ 5,453
Federal funds sold 26,700 27,300
- ---------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 34,016 32,753
- ---------------------------------------------------------------------------------------------------------------------------
Securities available-for-sale, at fair value 48,951 47,253
Investment securities held-to-maturity, net
(fair value $40,919 in 1997 and $51,202 in 1996) 41,307 51,919
Loans 267,764 235,474
Less:
Unearned income 64 404
Allowance for loan losses 3,305 2,965
- ---------------------------------------------------------------------------------------------------------------------------
Total net loans 264,395 232,105
- ---------------------------------------------------------------------------------------------------------------------------
Banking premises and equipment, net 5,861 3,689
Federal Home Loan Bank of New York stock, at cost 2,672 2,672
Accrued interest receivable 2,070 1,947
Other assets 9,036 3,055
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $408,308 $375,393
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Due to depositors:
Interest-bearing $312,719 $309,569
Non-interest-bearing 24,365 21,609
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits 337,084 331,178
- ---------------------------------------------------------------------------------------------------------------------------
Borrowings 35,103 10,154
Accrued interest payable 155 59
Accrued expenses and other liabilities 5,092 5,734
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 377,434 347,125
- ---------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares authorized; none issued -- --
Common Stock, $.01 par value, 3,500,000 shares authorized;
2,587,412 shares issued at December 31, 1997 and 1996,
2,372,226 shares outstanding at December 31, 1997 and
2,270,475* shares outstanding at December 31, 1996 26 26
Additional paid-in capital 11,275 11,165
Retained earnings 22,133 20,007
Fair value adjustment of securities available-for-sale, net of tax 369 204
Less: Unallocated common stock acquired by the ESOP 103 154
Unearned resticted stock 230 --
Cost of common stock in treasury, 215,186 shares at December 31, 1997
and 316,937* shares at December 31, 1996 2,596 2,980
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 30,874 28,268
- ---------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 14, 15, 16, 17 and 18)
Total liabilities and shareholders' equity $408,308 $375,393
- ---------------------------------------------------------------------------------------------------------------------------
</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.
17
<PAGE>
Consolidated statements of income Raritan Bancorp Inc. and Subsidiary
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Year ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Interest and fees on real estate loans $16,652 $13,475 $12,011
Interest and fees on other loans 4,200 3,842 3,620
Interest and dividends on securities:
Taxable 5,597 6,798 7,270
Tax-exempt 49 51 54
Interest on deposits in other banks 1,149 765 501
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 27,647 24,931 23,456
- ---------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on deposit accounts 13,583 12,831 12,703
Interest on borrowings 942 26 304
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 14,525 12,857 13,007
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 13,122 12,074 10,449
Provision for loan losses 600 450 300
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 12,522 11,624 10,149
- ---------------------------------------------------------------------------------------------------------------------------
Other Income:
Service charges and other income 955 719 602
Gain on securities transactions, net 94 1 56
- ---------------------------------------------------------------------------------------------------------------------------
Total other income 1,049 720 658
- ---------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Salaries and employee benefits 4,220 3,733 3,407
Occupancy expense 798 753 649
FDIC insurance premium 80 571 426
Net cost of (income from) operation of other real estate 26 51 (140)
Other operating expenses 2,340 2,315 2,251
- ---------------------------------------------------------------------------------------------------------------------------
Total operating expenses 7,464 7,423 6,593
- ---------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 6,107 4,921 4,214
Income tax expense 2,199 1,813 1,542
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 3,908 $ 3,108 $ 2,672
- ---------------------------------------------------------------------------------------------------------------------------
Average number of shares outstanding:
Basic 2,349,191 2,242,258* 2,277,781*
Diluted 2,531,981 2,437,694* 2,453,221*
Net income per share:
Basic $1.66 $1.39* $1.17*
Diluted $1.54 $1.27* $1.09*
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*These figures reflect the effect of the three-for-two stock split paid in the
form of a stock dividend on July 1, 1997.
See accompanying notes to consolidated financial statements.
18
<PAGE>
Consolidated statements of changes in stockholders' equity
Raritan Bancorp Inc. and Subsidiary
<TABLE>
<CAPTION>
Fair value Unallocated
adjustment common
of securities stock
Additional available- acquired Unearned
(Dollars in thousands, Common paid-in Retained for-sale, by the restricted Treasury
except per share data) stock/(1)/ capital earnings/(1)/ net of tax ESOP stock stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $26 $10,599 $15,910 $(1,236) $(257) $-- $(1,602) $23,440
Cash dividends declared and paid
($0.35 per share)/(1)/ -- -- (790) -- -- -- -- (790)
Reduction of debt relating to the
Employee Stock Ownership Plan -- -- -- -- 51 -- -- 51
Fair value adjustment of securities
available-for-sale, net of tax -- -- -- 1,652 -- -- -- 1,652
Net income -- -- 2,672 -- -- -- -- 2,672
Issuance of 30,450 common treasury
shares for stock options/(1)/ -- (1) -- -- -- -- 151 150
Treasury stock acquired at cost
57,000 shares/(1)/ -- -- -- -- -- -- (827) (827)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 26 10,598 17,792 416 (206) -- (2,278) 26,348
Cash dividends declared and paid
($0.40 per share)/(1)/ -- -- (893) -- -- -- -- (893)
Reduction of debt relating to the
Employee Stock Ownership Plan -- -- -- -- 52 -- -- 52
Fair value adjustment of securities
available-for-sale, net of tax -- -- -- (212) -- -- -- (212)
Net Income -- -- 3,108 -- -- -- -- 3,108
Issuance of 4,500 common treasury
shares for stock options/(1)/ -- (2) -- -- -- -- 30 28
Treasury stock acquired at cost-
159,114 shares/(1)/ -- -- -- -- -- -- (2,300) (2,300)
Issuance of 186,894 common treasury
shares in connection with the Manville
Savings' merger and acquisition/(1)/ -- 569 -- -- -- -- 1,568 2,137
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 26 11,165 20,007 204 (154) -- (2,980) 28,268
Cash dividends declared and paid
($0.47 per share)/(1)/ -- -- (1,123) -- -- -- -- (1,123)
Reduction of debt relating to the
Employee Stock Ownership Plan -- -- -- -- 51 -- -- 51
Fair value adjustment of securities
available-for-sale, net of tax -- -- -- 165 -- -- -- 165
Net income -- -- 3,908 -- -- -- -- 3,908
Issuance of 132,863 common treasury
shares for stock options/(1)/ -- -- (659) -- -- -- 1,272 613
Treasury stock acquired, at cost --
49,112 shares/(1)/ -- -- -- -- -- -- (1,061) (1,061)
Restricted stock award -- 103 -- -- -- (276) 173 --
Restricted stock award amortization -- -- -- -- -- 46 -- 46
Tax benefit for stock
related compensation -- 7 -- -- -- -- -- 7
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $26 $11,275 $22,133 $369 $(103) $(230) $(2,596) $30,874
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ As adjusted to 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.
<PAGE>
Consolidated statements of cash flows
Raritan Bancorp Inc. and Subsidiary
<TABLE>
<CAPTION>
(In thousands)
Year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 3,908 $ 3,108 $ 2,672
Adjustments to reconcile net income to net cash
Provided by operating activities:
Increase in accrued interest receivable (123) (88) (28)
Amortization, net, on securities 154 149 238
Provision for loan losses 600 450 300
Recovery of losses on real estate acquired by foreclosure -- -- (218)
Gain on net securities transactions (94) (1) (56)
Increase (decrease) in accrued interest payable 96 (2) (13)
Increase (decrease) in accrued expenses 45 55 (476)
Decrease (increase) in prepaid expenses 259 (170) 104
Depreciation 372 378 354
Deferred income taxes 124 (102) 76
(Decrease) increase in income taxes payable (47) 440 196
Net (decrease) increase, other (14) 1,516 (632)
- ------------------------------------------------------------------------------------------------------------------------------------
Total cash provided by operating activities 5,280 5,733 2,517
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from call and repayments of securities available-for-sale 13,959 21,796 6,727
Proceeds from sale of securities available-for-sale 6,948 -- 56
Proceeds from repayments of investment securities, net 10,522 9,394 11,676
Purchase of investment securities, net -- -- (1,442)
Purchase of securities available-for-sale (22,322) (17,922) --
Purchase of corporate-owned life insurance (7,200) -- --
Redemption (purchase) of Federal Home Loan Bank of New York stock -- 99 (2,006)
Net disbursements for loans (32,681) (27,959) (11,908)
Proceeds from disposal of other real estate 17 171 626
Capital expenditures (2,544) (840) (265)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (33,301) (15,261) 3,464
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increase(decrease) in demand deposits,
money market accounts, NOW accounts, Prime
Performance Accounts and savings accounts 10,688 (4,672) (7,717)
Net (decrease) increase in market-rate certificates (4,782) 8,285 26,589
Proceeds from issuance of common stock 613 2,027 150
Treasury stock acquired, at cost (1,061) (2,300) (827)
Proceeds from (repayments on) borrowings 24,949 (52) 157
Dividends paid (1,123) (893) (790)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 29,284 2,395 17,562
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,263 (7,133) 23,543
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 32,753 39,886 16,343
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 34,016 $ 32,753 $ 39,886
- ------------------------------------------------------------------------------------------------------------------------------------
Supplemental schedule of cash flow information:
Interest paid $ 14,429 $ 12,859 $ 13,020
- ------------------------------------------------------------------------------------------------------------------------------------
Income taxes paid $ 2,122 $ 1,547 $ 1,270
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage loans originated to finance
the disposal of real estate acquired by foreclosure $ 75 $ -- $ 535
- ------------------------------------------------------------------------------------------------------------------------------------
Investment securities, net, transferred to securities available-for-sale $ -- $ -- $ 14,467
- ------------------------------------------------------------------------------------------------------------------------------------
Net loans acquired from Manville Savings' Merger and Acquisition $ -- $ 11,911 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
Net deposits acquired from Manville Savings' Merger and Acquisition $ -- $ 12,532 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
Notes to consolidated financial statements
Raritan Bancorp Inc. and Subsidiary
December 31, 1997, 1996 and 1995
NOTE 1 -- Summary Of Significant Accounting Policies
BUSINESS: The Bank is in the business of providing financial services to
individuals and small businesses with specific emphasis on depository services,
residential mortgage lending, consumer loans, construction loans and commercial
loans through seven branch offices in Somerset and Hunterdon counties in New
Jersey. The Bank is subject to competition from other financial institutions and
to the regulations of certain Federal and New Jersey state agencies and
undergoes periodic examinations by those regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION: The accompanying consolidated
financial statements of Raritan Bancorp Inc. ("Corporation") are prepared in
conformity with generally accepted accounting principles and include the
accounts of the Corporation and its wholly-owned subsidiary, The Raritan Savings
Bank ("Bank"). All significant intercompany accounts and transactions have been
eliminated from the accompanying consolidated financial statements. In preparing
the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the balance
sheets and results of operations for the periods indicated. Actual results could
differ significantly from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses and the valuation of real estate
acquired by foreclosure or in satisfaction of loans. In connection with the
determination of these allowances, management generally obtains independent
appraisals.
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, cash and cash
equivalents include cash and amounts due from banks and federal funds sold.
Generally, federal funds sold are sold for one-day periods.
SECURITIES AVAILABLE-FOR-SALE AND INVESTMENT SECURITIES HELD-TO-MATURITY, NET:
The Corporation's securities, including mortgage-backed securities issued by
Federal agencies are classified as either held-to-maturity, available-for-sale
or trading. The Corporation currently has no securities classified as trading.
If management has the intent and the Corporation has the ability at the time of
purchase to hold securities until maturity, they are classified as investment
securities held-to-maturity and carried at amortized historical cost adjusted
for amortization of premiums and accretion of discounts, utilizing the
level-yield method. Unrealized losses due to fluctuations in market value are
recognized as investment security losses when a decline in value is assessed as
being other than temporary. Securities to be held for indefinite periods of time
and not intended to be held to maturity are classified as available-for-sale and
carried at fair value. Unrealized holding gains and losses are excluded from
earnings and reported net of related taxes as a separate component of
shareholders' equity until realized. Securities available-for-sale are those
which management intends to use as part of its asset/liability management
strategy and which may be sold in response to changes in interest rates,
resultant prepayment risk and other factors related to interest rate and
resultant prepayment risk. Gains and losses are recognized on a trade date basis
using the specific identification method.
LOANS AND ALLOWANCE FOR LOAN LOSSES: Real estate related loans and other loans
are stated at their principal amounts outstanding. Loan origination fees and
certain related direct loan origination costs are deferred and amortized to
interest income using the related loan's effective yield.
A loan is considered impaired when, based upon current information and
events, it is probable that the Bank will be unable to collect all amounts due
according to the contractual terms of the loan
21
<PAGE>
Notes continued Raritan Bancorp Inc. and Subsidiary
agreement. Impaired loans are measured based on the present value of expected
future cash flows, or, as a practical expedient, at the loan's observable market
price, or the fair value of the underlying collateral, if the loan is collateral
dependent. The Bank classifies all non-performing loans as impaired loans.
The accrual of income on loans, including impaired loans is generally
discontinued and all interest income previously accrued and unpaid is deducted
from income when a loan becomes more than ninety days delinquent, or when
certain factors indicate reasonable doubt as to the timely collectibility of all
amounts due. Generally, loans on which the accrual of income has been
discontinued are designated as non-performing loans, and include all loans
classified as "impaired" loans. Generally, non-performing and impaired loans are
returned to an accrual status only when none of the principal or interest is due
and unpaid and the full collectibility of the outstanding loan balance is
reasonably assured. Cash receipts on non-performing and impaired loans are
generally applied to interest income when the loan balance is considered fully
collectible.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes the collectibility of the principal is unlikely.
The allowance is an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible. The
determination of the balance of the allowance for loan losses is based on an
analysis of the loan portfolio, economic conditions, historical loan loss
experience, the borrower's ability to repay, collateral value and other factors
that warrant recognition in providing an adequate allowance. While management
uses available information to recognize losses on loans, future additions may be
necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Corporation's allowance for loan losses. Such agencies
may require the Corporation to recognize additions to the allowance based on
their judgments of information available to them at the time of their
examination.
BANKING PREMISES AND EQUIPMENT: Land is carried at cost, buildings and
improvements, leasehold improvements and furniture, fixtures and equipment are
carried at cost, net of accumulated depreciation and amortization. Depreciation
on buildings and improvements is provided for using the straight-line method
over estimated useful lives of 5 to 50 years. The Bank depreciates furniture,
fixtures and equipment using the straight-line method over the estimated lives
of 3 to 25 years. Leasehold improvements are amortized over the term of the
lease or useful life, whichever is less.
FEDERAL HOME LOAN BANK OF NEW YORK STOCK: This stock is carried at cost. The
Bank is required to maintain such investment as part of its membership in the
Federal Home Loan Bank of New York.
INCOME TAXES: The Corporation files a consolidated Federal income tax return.
Certain items of income and expenses are recognized in a different period for
financial reporting purposes than for income tax purposes. Separate state income
tax returns are filed by the Corporation and the Bank.
Deferred tax assets and liabilities are recognized for the future
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, as well as operating loss and tax credit carry forwards. Deferred tax
assets are recognized for future deductible temporary differences and tax loss
and credit carryforwards if their realization is "more likely than not."
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rate is recognized in income in the
period that includes the enactment date.
The Parent Company's income taxes, as reflected in the Parent Company's
Statements of Income, represent the taxes allocated to the Parent Company on the
basis of its contribution to consolidated income.
RETIREMENT BENEFITS: The Bank maintains a noncontributory defined benefit
pension plan which covers all employees who have met eligibility requirements of
the Plan. It is the Bank's policy to fund the plan sufficient to meet the
minimum funding requirements set forth in the Employee Retirement Income
Security Act of 1974. In addition, the Bank provides health care and life
insurance benefits for qualifying employees.
22
<PAGE>
Notes continued Raritan Bancorp Inc. and Subsidiary
FAIR VALUE OF FINANCIAL INSTRUMENTS: SFAS No. 107, "Disclosures About Fair Value
of Financial Instruments," requires entities to disclose fair value information
on financial instruments. The disclosure includes both on and off balance sheet
financial instruments. Fair value estimates are based on quoted market prices,
discounting scheduled cash flows through the estimated maturity using estimated
market discount rates, or other methods as appropriate. These estimates are
subjective in nature and involve uncertainties and matters of judgment and as a
result cannot be considered as the actual value of the Corporation. Changes in
assumptions used in determining fair value of the financial instruments could
significantly alter the estimates.
The following assumptions were used by the Corporation in estimating the
fair value of financial instruments.
CASH AND DUE FROM BANKS, AND FEDERAL FUNDS SOLD: The carrying amount
approximates fair value.
INVESTMENT SECURITIES, NET AND SECURITIES AVAILABLE-FOR- SALE: For these
securities, fair values are based on quoted market prices or dealer quotes.
LOANS: Fair value is estimated for portfolios of loans with similar loan
characteristics. The fair value for certain residential mortgage loans and
consumer loans are based on quoted market prices for securities backed by
similar loans adjusted for differences in loan characteristics. The fair value
for commercial mortgage and construction type loans is estimated by
discounting cash flows using current interest rates for loans with similar
characteristics.
DEPOSIT LIABILITIES: The fair value of regular checking, NOW accounts, money
market deposit accounts, Prime Performance Accounts and regular savings and
club accounts is the same as the carrying amount reported. The fair value of
market-rate certificates is calculated using the discounted cash flow method.
The discount rate used was the current rate offered by the Bank for deposits
with similar remaining maturities.
BORROWINGS: Borrowings consist of debt relating to the Employee Stock
Ownership Plan ("ESOP"), advances from the Federal Home Loan Bank of New York
and borrowings under repurchase agreements. The fair value of borrowings is
calculated using the discounted cash flow method. The discount rate used was
the current rate paid by the Bank for borrowings with similar remaining
maturities.
COMMITMENTS TO EXTEND CREDIT AND PERFORMANCE STANDBY LETTERS OF CREDIT: The
fair value of commitments is estimated using fees currently charged for
similar agreements, based on the remaining term of the commitment and the
present credit quality rating of the counterparty. The fair value of the
performance standby letters of credit is based on fees currently charged for
similar agreements or on estimated costs to terminate them or to settle the
obligations with the counterparties at the reporting date. The fair value of
commitments to extend credit and performance standby letters of credit are
immaterial at December 31, 1997 and 1996.
NET INCOME PER SHARE: Effective December 31, 1997, the Corporation adopted the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." All prior period share amounts have been restated to conform with the
provisions of this statement. In addition, all share amounts have been
retroactively adjusted for the impact of subsequent stock splits paid in the
form of stock dividends. 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 in the amount of
182,790, 195,436 and 175,440, for 1997, 1996 and 1995, respectively, are
included in the diluted weighted-average shares outstanding.
23
<PAGE>
Notes continued Raritan Bancorp Inc. and Subsidiary
RECLASSIFICATION: Certain amounts in the financial statements presented for
prior periods have been reclassified to conform with the 1997 presentation.
NOTE 2 -- CASH AND DUE FROM BANK
The Bank is required to maintain a cash reserve balance based upon its
deposits in accordance with banking regulations. The average amount of the
reserve for the years ended December 31, 1997 and 1996 were approximately
$1,527,000 and $1,458,000, respectively.
NOTE 3 -- SECURITIES AVAILABLE-FOR-SALE AND INVESTMENT SECURITIES, NET
The amortized cost of securities and their estimated fair value at
December 31, 1997, were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
(In thousands) Cost Gains Losses Fair Value
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available-for-sale:
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 securities 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>
In December 1995, the Corporation adopted Special Report No. 155-B, "A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities - Questions and Answers," (Special Report) issued
by the Financial Accounting Standards Board staff.
In accordance with the Special Report, the Corporation made a one-time
transfer of investment securities, net, with an amortized cost and unrealized
gain of $14.5 million and $268,000, respectively, to securities
available-for-sale.
The amortized cost of securities and their estimated fair value at
December 31, 1996, were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
(In thousands) Cost Gains Losses Fair Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Treasury securities and obligations
of U.S. government agencies $17,130 $ 48 $ (35) $17,143
Obligations of states and political subdivisions 710 38 -- 748
Equity securities 129 41 -- 170
Mortgage-backed securities issued by Federal agencies 28,959 396 (163) 29,192
- --------------------------------------------------------------------------------------------------------------
$46,928 $ 523 $(198) $47,253
==============================================================================================================
Investment securities held-to-maturity, net:
Mortgage-backed securities issued by Federal agencies $51,919 $ 22 $(739) $51,202
==============================================================================================================
</TABLE>
The carrying value of investment securities pledged as required security
for public funds and deposits amounted to $1,003,000 and $1,002,000 at December
31, 1997 and 1996, respectively.
During 1997, the Corporation sold securities which were classified as
available-for-sale in the amount of $6,948,000 at a gross gain of $78,000. In
addition, securities classified as available-for-sale in the amount of
$6,013,000 were called at a gross gain of $16,000.
During 1996, a security classified as available-for-sale was called at a
gross gain of $1,000.
During 1995, an equity security previously written-off was redeemed at a
gain of $56,000.
24
<PAGE>
Notes continued Raritan Bancorp Inc. and Subsidiary
The scheduled maturities of debt securities available-for-sale and
investment securities held-to-maturity net, at December 31, 1997, were as
follows:
<TABLE>
<CAPTION>
Securities Investment Securities
Available-for-Sale Held-to-Maturity Net
- --------------------------------------------------------------------------------------------------------------
Amortized Estimated Amortized Estimated
(In thousands) Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 5,196 $ 5,200 $ -- $ --
Due after one year through five years 4,961 4,997 -- --
Due after ten years 695 747 -- --
Mortgage-backed securities issued by federal agencies 37,390 37,749 41,307 40,919
- --------------------------------------------------------------------------------------------------------------
$48,242 $48,693 $41,307 $40,919
==============================================================================================================
</TABLE>
The scheduled maturities of debt securities available-for-sale and
investment securities held-to-maturity net, at December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Securities Investment Securities
Available-for-Sale Held-to-Maturity Net
- --------------------------------------------------------------------------------------------------------------
Amortized Estimated Amortized Estimated
(In thousands) Cost Fair Value Cost Fair Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 3,008 $ 2,996 $ -- $ --
Due after one year through five years 12,138 12,151 -- --
Due after five years through ten years 1,984 1,996 -- --
Due after ten years 710 748 -- --
Mortgage-backed securities issued by federal agencies 28,959 29,192 51,919 51,202
- --------------------------------------------------------------------------------------------------------------
$46,799 $47,083 $51,919 $51,202
==============================================================================================================
</TABLE>
NOTE 4 -- LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
(In thousands) 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Real estate:
Mortgage $246,438 $216,946
Construction 8,695 11,019
- --------------------------------------------------------------------------------------------------------------
255,133 227,965
Consumer and other loans 7,235 3,532
Commercial loans 5,396 3,977
- --------------------------------------------------------------------------------------------------------------
$267,764 $235,474
==============================================================================================================
</TABLE>
Loans to directors and principal officers and their affiliates which are
made in the ordinary course of business, and on substantially the same terms and
rates as loans to other persons, aggregated $5,958,000 and $4,339,000 at
December 31, 1997 and 1996, respectively. Activity during 1997 included
principal repayments of $605,000 and new disbursements of $2,224,000.
25
<PAGE>
Notes continued Raritan Bancorp Inc. and Subsidiary
The activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $2,965 $2,582 $2,729
Provision charged to operations 600 450 300
Manville Savings' acquisition -- 303 --
Charge-offs (410) (380) (465)
Recoveries 150 10 18
- --------------------------------------------------------------------------------------------------------------
Balance at end of year $3,305 $2,965 $2,582
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Non-performing loans (over 90 days delinquent), and real estate acquired
by foreclosure (included in Other Assets) totaled $945,000 and $1,420,000 at
December 31, 1997 and 1996, respectively, as follows:
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------
Number Amount
Of Loans (In thousands)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First mortgage loans 6 $569
Second mortgage loan 1 54
Consumer loan 1 11
Loans with modified terms 2 177
Matured loan 1 94
- --------------------------------------------------------------------------------------------------------------
Total non-performing loans 11 905
Real Estate Acquired by Foreclosure
(included in Other Assets) 1 40
- --------------------------------------------------------------------------------------------------------------
12 $945
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------
Number Amount
Of Loans (In thousands)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First mortgage loans 4 $ 576
Home equity loans 2 115
Second mortgage loan 1 47
Commercial loans 2 326
Loans with modified terms 3 253
- --------------------------------------------------------------------------------------------------------------
Total non-performing loans 12 1,317
Real Estate Acquired by Foreclosure
(included in Other Assets) 1 103
- --------------------------------------------------------------------------------------------------------------
13 $1,420
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The loss of interest on loans charged-off, non-performing loans, real
estate acquired by foreclosure, non-accrual loans and impaired loans totaled
approximately $94,000, $142,000 and $224,000 for the years ended December 31,
1997, 1996 and 1995, respectively.
The Corporation had impaired loans of $905,000 and $1,317,000 at December
31, 1997 and 1996, respectively. The Corporation calculated a total allowance
for impaired loans of $157,000 and $112,000 at December 31, 1997 and 1996,
respectively. Impaired loans averaged $1,344,000, $1,681,000, and $1,382,000 for
the years ended December 31, 1997, 1996 and 1995, respectively. Interest income
of $75,000, $29,000 and $17,000 was recognized, all on a cash basis, on impaired
loans for the years ended December 31, 1997, 1996 and 1995, respectively.
The Bank is not committed to lend additional funds on loans with modified
terms or non-performing loans.
26
<PAGE>
Notes continued Raritan Bancorp Inc. and Subsidiary
NOTE 5 -- BANKING PREMISES AND EQUIPMENT, NET
A summary of the net carrying value of banking premises and equipment
follows:
December 31,
------------------------------
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
Land $ 776 $ 764
Buildings and improvements 2,429 2,404
Furniture, fixtures and equipment 3,050 2,226
Leasehold improvements 2,363 996
- --------------------------------------------------------------------------------
8,618 6,390
Less accumulated depreciation and amortization 2,757 2,701
- --------------------------------------------------------------------------------
$5,861 $3,689
- --------------------------------------------------------------------------------
Depreciation and amortization expense charged to operations totaled
$372,000, $378,000 and $354,000 in 1997, 1996 and 1995, respectively.
NOTE 6 -- Other Assets
Other assets are summarized as follows:
December 31,
-------------------------------
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
Real estate acquired by foreclosure $ 40 $ 103
Deferred tax assets, net 538 750
Unamortized premium paid-RTC 431 547
Corporate-owned life insurance 7,393 --
Prepaid expenses 339 479
All other 295 1,176
- --------------------------------------------------------------------------------
$9,036 $3,055
- --------------------------------------------------------------------------------
NOTE 7 -- DUE TO DEPOSITORS
The details of deposit balances are as follows:
December 31,
-------------------------------
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
Regular and business checking $ 24,365 $ 21,609
NOW accounts 22,948 22,374
Money market deposit accounts 11,972 16,958
Prime Performance accounts 70,289 51,541
Regular savings and club accounts 43,214 49,618
- --------------------------------------------------------------------------------
172,788 162,100
- --------------------------------------------------------------------------------
Market-rate certificates:
7-31 day 4,105 6,078
6 month 33,868 36,439
9 month 27,492 26,775
12 month 31,960 33,395
24 month 8,381 8,722
Other certificates 15,303 15,719
IRA and KEOGH accounts 43,187 41,950
- --------------------------------------------------------------------------------
164,296 169,078
- --------------------------------------------------------------------------------
$337,084 $331,178
================================================================================
27
<PAGE>
notes continued Raritan Bancorp Inc. and Subsidiary
Market-rate certificates $100,000 and over totaled $18,355,000 and $16,499,000
at December 31, 1997 and 1996, respectively. Interest expense on market-rate
certificates $100,000 and over totaled $861,000, $700,000 and $589,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
At December 31, 1997, the scheduled maturities of market-rate certificates are
as follows:
- --------------------------------------------------------------------------------
(In thousands) 1998 $125,327
1999 20,548
2000 10,338
2001 4,485
2002 and thereafter 3,598
- --------------------------------------------------------------------------------
$164,296
================================================================================
NOTE 8 -- INCOME TAXES
The following is a summary of income tax expense, for the years ended
December 31:
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Taxes estimated to be payable currently:
Federal $1,905 $1,759 $1,343
State 170 156 123
- --------------------------------------------------------------------------------
Subtotal 2,075 1,915 1,466
- --------------------------------------------------------------------------------
Deferred taxes (benefit):
Federal 117 (94) 68
State 7 (8) 8
- --------------------------------------------------------------------------------
Subtotal 124 (102) 76
- --------------------------------------------------------------------------------
Total income tax expense $2,199 $1,813 $1,542
================================================================================
Total income tax expense for the years ended December 31, 1997, 1996 and
1995, differed from the amounts calculated by applying the expected U.S. Federal
Income tax rate of 34% to pre-tax income as a result of the following:
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Income before income tax expense $6,107 $4,921 $4,214
Statutory income tax rate 34% 34% 34%
- --------------------------------------------------------------------------------
2,076 1,673 1,433
Tax-exempt interest income (16) (17) (18)
State income taxes, net of Federal income
tax benefit 117 98 86
Change in the beginning-of-the-year balance
of the valuation allowance allocated to
income tax expense -- 55 36
Other 22 4 5
- --------------------------------------------------------------------------------
Income tax expense $2,199 $1,813 $1,542
================================================================================
28
<PAGE>
Notes continued Raritan Bancorp Inc. and Subsidiary
The significant components of the deferred income taxes for the years
ended December 31, 1997, 1996 and 1995 were the result of changes in temporary
differences between tax and financial reporting purposes and the changes in the
beginning-of-the-year balance of the valuation allowance for deferred tax assets
as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax expense (benefit) (exclusive of the effect
of the other component listed below) $124 $(157) $40
Increase in the beginning-of-the-year balance of the
valuation allowance for deferred tax assets -- 55 36
- ----------------------------------------------------------------------------------------------
$124 $(102) $76
- ----------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1996 follow:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
(In thousands) 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Unearned income $ -- $ 84
Nonaccrual interest 12 9
Allowance for losses 1,189 1,070
Accrued expenses 537 557
Other 34 47
- ----------------------------------------------------------------------------------------------
Total gross deferred tax assets 1,772 1,767
Less valuation allowance (584) (584)
- ----------------------------------------------------------------------------------------------
Deferred tax assets,
net of valuation allowance 1,188 1,183
- ----------------------------------------------------------------------------------------------
Deferred tax liabilities:
Unamortized core deposit premium paid 116 152
Unearned Income 107 --
Depreciation 28 28
Fair value adjustment of securities
available-for-sale 208 120
Other 191 133
- ----------------------------------------------------------------------------------------------
Total other gross deferred tax liabilities 650 433
- ----------------------------------------------------------------------------------------------
Net deferred tax assets $538 $750
- ----------------------------------------------------------------------------------------------
</TABLE>
Included in the above table is the recognition of temporary differences
relating to the unrealized gains and losses on certain debt securities accounted
for under SFAS No.115 for which no deferred tax was recognized through the
Consolidated Statements of Income.
29
<PAGE>
Notes continued Raritan Bancorp Inc. and Subsidiary
Except for the effects of the reversal of net deductible temporary
differences, the Corporation is not currently aware of any factors which would
cause any significant differences between taxable income and pretax book income
in future years. However, there can be no assurances that there will be no
significant differences in the future between taxable income and pretax book
income if circumstances change (such as, for example, changes in tax laws or the
Corporation's financial condition or performance). Management believes it is
more likely than not that the Corporation will realize the benefit of net
deferred tax assets based upon recoverable taxes in the carryback period and
projected levels of pretax income, and that such net deductible temporary
differences will reverse during periods in which the Corporation generates net
taxable income.
Based upon 1996 Federal tax law changes, thrift institutions are
generally required to recapture into income the portion of its bad debt reserve
(other than supplemental reserve) that exceeds its base year (December 31, 1987)
reserves. The recapture amount generally will be taken into income ratably (on a
straight-line basis) over a six-year period. Under a small thrift exception, the
Corporation's tax reserves for bad debts equaled its allowable experience
reserve method and therefore, the Corporation will have no recapture.
The Corporation has not recognized a deferred tax liability of
approximately $746,000 for bad debt reserves for tax purposes which arose in tax
years beginning before December 31, 1987 (i.e., base year). A deferred tax
liability will be recognized if the Corporation expects that charges to the bad
debt reserves, other than the losses on loans or recomputations of bad debt
deductions resulting from operating loss carrybacks to prior years, would result
in taxable income. The Corporation does not anticipate any such recognition in
the foreseeable future.
NOTE 9 -- BENEFIT PLANS
The Bank has a noncontributory defined benefit pension plan covering all
eligible full-time employees. Benefits are based upon years of service and
compensation. It is the Bank's policy to fund the plan sufficient to meet the
minimum funding requirements set forth in the Employee Retirement Income
Security Act of 1974.
The following table sets forth the plan's funded status and amounts
recognized in the consolidated financial statements:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $1,933 in 1997 and $1,561 in 1996 $(1,958) $(1,656)
- -------------------------------------------------------------------------------------------------
Projected benefit obligation for service
rendered to date $(2,494) $(2,198)
Plan assets at fair value, primarily debt and
equity securities 3,100 2,549
- -------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 606 351
Transition amount from initial application (3) (5)
Unrecognized loss (687) (363)
Unrecognized past service benefit (77) (87)
- -------------------------------------------------------------------------------------------------
Acrrued pension expense included
in other liabilities $(161) $(104)
- -------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
Notes continued Raritan Bancorp Inc. and Subsidiary
The following table sets forth the components of net pension expense for
the years ended shown:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net pension expense includes the following components:
Service cost-benefits earned during the period $ 126 $ 93 $ 95
Interest cost on projected benefit obligation 163 153 139
Deferred investment gain/loss 373 -- --
Return on plan assets (577) (331) (429)
Net amortization and deferral (28) 142 274
- ----------------------------------------------------------------------------------------------------
Net pension expense included in
salaries and employee benefits $ 57 $ 57 $ 79
- ----------------------------------------------------------------------------------------------------
</TABLE>
The primary assumptions used for calculating year-end actuarial present
value of benefit obligations were:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rates used to determine the
projected benefit obligation 7.25% 7.75% 7.50%
Rates of increase in future salary levels 5.00 5.50 5.50
In addition, the assumptions used for calculating net pension expense for
the years ended shown were:
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31,
-----------------------------------------------
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rates used to determine the
projected benefit obligation 7.75% 7.50% 8.25%
Rates of increase in future salary levels 5.50 5.50 6.00
Expected long-term rates of return on plan assets 8.00 8.00 8.00
</TABLE>
Under an employer sponsored plan, the Corporation provides certain health
care and life insurance benefits for retired employees and certain dependents.
All of the Corporation's employees are eligible for such benefits at age sixty
with fifteen years service or rule of 75 with twenty years of service. The
participant, in most cases, will be required to contribute a portion of the cost
of the premium for the benefits. The medical plans pay a stated percentage of
most medical expenses reduced for any deductibles and payments made by
government programs, based on years of service.
The following table sets forth the components of postretirement costs
for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
For the year ended December 31,
------------------------------------------
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $13 $13 $16
Interest cost 16 14 15
Amortization of unrecognized gain (7) (9) (7)
Amortization of unrecognized prior
service costs 1 1 --
- -------------------------------------------------------------------------------------------------
Net periodic postretirement
benefit cost $23 $19 $24
- -------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
Notes continued Raritan Bancorp Inc. and Subsidiary
The status of the post-retirement plan at December 31, 1997 and 1996
follows:
December 31,
--------------------------
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
Accumulated post-retirement benefit obligation:
Retirees $(46) $(25)
Active plan participants and certain dependents (206) (172)
Fair value of assets -- --
- --------------------------------------------------------------------------------
Fair value of assets in excess (less than) accumulated
post-retirement benefit obligation (252) (197)
Unrecognized gain (118) (154)
Service cost 10 10
Interest cost -- --
- --------------------------------------------------------------------------------
Accrued post-retirement benefit cost $(360) $(341)
- --------------------------------------------------------------------------------
For measuring the expected post-retirement benefit obligation, the
Corporation assumed a 7.5% rate of increase in the per capita claims cost in
1998 and assumed that rate would decrease linearly over a ten-year period to
5.0% and remain at that level thereafter. The weighted-average discount rate
used in determining the accumulated post-retirement benefit obligation was 7.25%
in 1997 and 7.75% in 1996.
If the health care cost trend were increased one percent, the accumulated
post-retirement benefit obligation as of December 31, l997 would have increased
by approximately $49,800. The effect of the change on the aggregate of service
and interest cost for 1997 would be an increase of approximately $6,500.
As further discussed in Note 12, the Bank sponsors an ESOP covering
employees with a minimum of 1,000 hours of service per year. The ESOP, which is
a tax qualified employee benefit plan, became effective upon conversion of the
Bank in May 1987, and provides retirement benefits for the employees of the
Bank.
Activity in the ESOP follows:
Number of shares held by the ESOP at December 31, 1994 204,477
Distributions to former employees (7,626)
Purchase of shares funded by excess liquidity in the ESOP 4,924
Purchase of shares funded by a $100,000 contribution
from the Bank 6,746
Number of shares held by the ESOP at December 31, 1995 208,521
- --------------------------------------------------------------------------------
Distributions to former employees (810)
Purchase of shares funded by excess liquidity in the ESOP 5,124
Purchase of shares funded by a $175,000 contribution
from the Bank 12,843
- --------------------------------------------------------------------------------
Number of shares held by the ESOP at December 31, 1996 225,678
Distribution to former employees (14,057)
Purchase of shares funded by excess liquidity in the ESOP 5,542
Purchase of shares funded by a $100,000 contribution
from the Bank 3,814
- --------------------------------------------------------------------------------
Number of shares held by the ESOP at December 31, 1997 220,977
- --------------------------------------------------------------------------------
The above shares reflect the three-for-two stock split paid in the form of a
stock dividend on July 1, 1997.
At December 31, 1997, approximately 188,500 shares were allocated to
participants, approximately 16,200 were committed to be released during 1998 and
approximately 16,300 shares were unallocated and secured the ESOP borrowing.
32
<PAGE>
Notes continued Raritan Bancorp Inc. and Subsidiary
The Bank maintains a 401(k) Savings Plan which is available to all
full-time employees who have completed one year of service and have attained the
age of 21.
Under the plan, eligible employees may elect to have the Bank withhold
between one percent and ten percent of their base salary through payroll
deductions and contribute that amount to the plan as a savings contribution.
Participants will receive an employer matching contribution of fifty percent.
The money contributed is invested at the employees' direction by the plan's
trustees. Employees are fully vested in this plan on their third employment date
anniversary with the Bank.
401(k) expenses totaled $103,000, $91,000 and $79,000 for the years ended
December 31, 1997, 1996 and 1995, respectively, and are included in Salaries and
Employee Benefits in the accompanying Consolidated Statements of Income.
NOTE 10 -- STOCK OPTION PLANS
At December 31, 1997, the Corporation had four option plans which are
described below. All amounts presented below reflect the three-for-two stock
split paid in the form of a stock dividend on July 1, 1997. Under the 1992
Directors' Plan, the Corporation may grant options to its Directors for up to
67,500 shares of common stock. Under the 1987 and 1992 Officers' Incentive
Plans, the Corporation may grant options to purchase 177,750 and 157,500 shares
of common stock, respectively. Under the 1997 Long-Term Incentive Stock Benefit
Plan, the Corporation may grant options and awards to its Directors and
Officers, for up to 27,000 and 225,000 shares of common stock, respectively.
Under the plans, the exercise price of each option equals the market price of
the Corporation's stock on the date of grant, and an option's maximum term is
ten years. Options granted to directors vest immediately at date of grant.
Options to officers vest ratably over a three-year period from date of grant.
Stock awards are determined by a Committee of the Board of Directors. The
Corporation has elected to continue to account for stock-based compensation
under APB Opinion No. 25, "Accounting for Stock Issued to Employees" and to
provide pro forma disclosures of net income and earnings per share as if the
Corporation had adopted the fair value based method of accounting in accordance
with SFAS No. 123, "Accounting for Stock-Based Compensation." Had compensation
cost for the Corporation's stock option plans been determined consistent with
SFAS No. 123, the Corporation's net income and net income per share would have
been reduced to the pro forma amounts indicated below.
(In thousands, except per share data) 1997 1996
- --------------------------------------------------------------------------------
Net income As Reported $3,908 $3,108
Pro Forma 3,856 3,060
Net income per share (basic) As Reported 1.66 1.39
Pro Forma 1.64 1.37
Net income per share (diluted) As Reported 1.54 1.27
Pro Forma 1.52 1.26
- --------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997 and 1996: dividend yield of 3%; expected
volatility of 20%; risk-free interest rates equal to the five-year CMT on the
date of each option grant; and expected lives of five years.
33
<PAGE>
Notes continued Raritan Bancorp Inc. and Subsidiary
A summary of the status of the Corporation's four fixed stock option
plans as of December 31, 1997, 1996 and 1995 and changes during the years ended
on those dates are presented below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Fixed Options Options Price Options Price Options Price
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 351,787 $ 6.27 345,037 $ 6.01 379,237 $5.93
Granted 63,150 19.41 11,250 14.08 -- --
Exercised (132,863) 4.60 (4,500) 6.22 (30,450) 4.95
Forfeited -- -- -- -- (3,750) 6.22
- ------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 282,074 $10.00 351,787 $ 6.27 345,037 $6.01
- ------------------------------------------------------------------------------------------------------------------
Options exercisable at year-end 239,174 351,787
Weighted-average fair value of
options granted during the year $ 4.14 $4.23
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------------------------
Number Weighted-average Number
Range of Outstanding Remaining Weighted-average Exercisable at Weighted-average
Exercise Prices at December 31, 1997 Contractual Life Exercise Price December 31, 1997 Exercise Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$4.67 to $5.00 27,674 1.3 years $4.88 27,674 $4.68
6.22 to 10.33 180,000 5.2 7.18 180,000 7.18
14.08 to 15.33 52,800 8.9 15.06 27,500 14.82
27.25 21,600 10.0 27.25 4,000 27.25
----------------------- -----------------
282,074 239,174
----------------------- -----------------
</TABLE>
In 1997, 18,000 shares of restricted stock were awarded under the 1997
Long-Term Incentive Stock Benefit Plan with a grant date fair value of $15.33
per share. At December 31, 1997 restricted stock awards totaled 18,000 shares,
of which 3,000 shares were vested. These shares vest ratably over a period of
six years. Total expense applicable to the stock award was $46,000 in 1997.
NOTE 11 -- SHAREHOLDERS' EQUITY
In connection with the conversion of the Bank from a mutual savings bank
to a capital stock savings bank, the Bank established a liquidation account.
This liquidation account will be maintained for the benefit of eligible account
holders who continue to maintain their accounts in the Bank after the
conversion. The liquidation account will be reduced annually to the extent that
the eligible account holders have reduced their eligible deposits. Subsequent
increases will not restore an eligible account holder's interest in the
liquidation account. In the event of a complete liquidation, each eligible
account holder will be entitled to receive a distribution from the liquidation
account in a proportionate amount to the current adjusted eligible account
balances they held. At December 31, 1997, the balance in this liquidation
account was approximately $558,000.
In conjunction with the merger and acquisition of Manville Savings with,
and into the Bank, a separate liquidation account was also established. At
December 31, 1997, the balance in this liquidation account was approximately
$154,000.
34
<PAGE>
Notes continued Raritan Bancorp Inc. and Subsidiary
NOTE 12 -- BORROWINGS
Borrowings are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
(In thousands) 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Bank of New York Advances:
Interest rate based on LIBOR:5.656%;
matures on March 6, 1998 $10,000 $ --
Fixed interest rate:
5.86%; matures on August 21, 1998 10,000 --
6.875%; matured on January 2, 1997 -- 10,000
Securities sold under agreements to repurchase: Collateralized by
mortgage-backed securities issued by Federal agencies with a carrying
value, including accrued interest receivable of $16,908; fixed interest
rate: 5.84%; matures on September 25, 2002; callable on September 25, 2000,
or on its quarterly anniversary thereafter. 15,000 --
ESOP debt 103 154
- --------------------------------------------------------------------------------------------------------------------
$35,103 $10,154
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1997, the Bank had an available line of credit totaling
$35.4 million at the Federal Home Loan Bank of New York.
The Corporation may enter into sales of securities under repurchase
agreements. Such agreements are treated as financings and the obligations to
repurchase the same securities sold are reflected as a liability in the
Consolidated Balance Sheet. The dollar amount of securities underlying the
agreements are book entry securities.
At December 31, 1997, agreements outstanding to repurchase the same
securities totaled $15,000,000. There were no such agreements outstanding at
December 31, 1996.
Agreements to repurchase the same securities averaged $4,027,000 during
the year ended December 31, 1997. There were no such agreements outstanding
during the year ended December 31, 1996. The maximum amount outstanding at any
month-end under such agreements during the year ended December 31, 1997 was
$15,000,000. Accrued interest payable totaled $15,000 and $0 at December 31,
1997 and 1996, respectively. The average interest rate on such agreements was
5.84% for the year ended December 31, 1997.
During August 1992, the ESOP borrowed $360,000 from an unrelated
financial institution to purchase 56,841 shares of the Corporation's stock, as
adjusted for the three-for-two stock split paid in the form of a stock dividend
on July 1, 1997.
The ESOP borrowing is summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Original principal: $360,000; matures on
August 25, 1999; interest rate: 10.00% and
9.75% at December 31, 1997 and 1996,
respectively, equals the lending financial
Institution's prime rate plus 1.50% $103,000 $154,000
- --------------------------------------------------------------------------------------------------------------------
$103,000 $154,000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
Notes continued Raritan Bancorp Inc. and Subsidiary
As principal payments are made by the ESOP, the corresponding liability
will be reduced and shareholders' equity will be increased. Principal payments
totaled $51,000 in 1997. Future principal payments are scheduled as follows:
1998 $ 51,000
1999 52,000
- --------------------------------------------------------------------------------
$ 103,000
================================================================================
The ESOP was established effective January 1, 1987 in connection with the
Bank's reorganization to stock form. The ESOP is a leverage plan, meaning that
the ESOP Trust borrowed funds to purchase shares of the Corporation's common
stock for the ESOP. As the ESOP loan is repaid, shares are released from the
unallocated stock fund to be allocated to participants of the ESOP over the term
of the ESOP loan. In addition, the Corporation and the bank can make
discretionary contributions to the ESOP. The ESOP uses the discretionary
contributions to purchase shares of the Corporation's common stock and allocate
the shares to the participants.
The allocation to participant's accounts are based on each participant's
compensation during the calendar year. All employees of the Corporation and its
affiliates who are age 21 and over, and have completed one year of service are
eligible to participate and have at least 1,000 hours of service per year.
Dividends on shares of allocated and unallocated stock are held in a cash
investment fund on behalf of the participants. However, the Corporation has the
discretion to (i) distribute such dividends directly to the participants; or
(ii) to make payments on the ESOP loan and have additional shares allocated to
participants' accounts. Additional shares are allocated to participants'
accounts as a result of the repayment of the ESOP loan.
As the ESOP loan is repaid and shares are released from the unallocated
stock fund, the Corporation records compensation expense equal to the amount of
the principal reduction. In addition, the Corporation also records compensation
expense in the amount of any discretionary contribution made to the ESOP.
Dividends on all ESOP shares are charged to retained earnings.
The Corporation recorded an ESOP compensation expense of $129,000,
$306,000 and $117,000 in 1997, 1996 and 1995 respectively, and are included in
Salaries and Employee Benefits in the accompanying Consolidated Statements of
Income.
NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Corporation's financial instruments at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------- ----------------------------
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 34,016 $ 34,016 $ 32,753 $ 32,753
Securities available-for-sale 48,951 48,951 47,253 47,253
Investment securities, net 41,307 40,919 51,919 51,202
Loans, net of unearned income 267,700 272,041 235,070 236,265
Less: Allowance for loan losses (3,305) -- (2,965) --
Net loans 264,395 272,041 232,105 236,265
Federal Home Loan Bank
of New York Stock 2,672 2,672 2,672 2,672
Financial liabilities:
Deposits 337,084 337,657 331,178 331,777
Borrowings 35,103 36,034 10,154 10,154
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
Notes continued Raritan Bancorp Inc. and Subsidiary
NOTE 14 -- COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These instruments expose the Bank to credit risk in excess of the amount
recognized in the balance sheet.
The Bank's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments. Total credit exposure related to these
items at December 31, 1997 and 1996 is summarized below:
<TABLE>
<CAPTION>
Contractual Amount
December 31,
- -----------------------------------------------------------------------------------------------------------------
(In thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage loan commitments (primarily variable rate) $ 8,910 $ 6,916
Unused portion of commercial lines of credit and
undisbursed portion of construction loans 26,973 23,993
Unused portion of home equity lines of credit 9,042 9,320
Performance standby letters of credit 1,683 2,048
- -----------------------------------------------------------------------------------------------------------------
$46,608 $42,277
=================================================================================================================
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained if deemed
necessary by the Bank upon extension of credit is based on management's credit
evaluation of the counterpart Collateral held is generally real estate.
Performance standby letters of credit are conditional commitments issued
by the Bank to guarantee the performance of an act of a customer to a third
party. The most common purpose is to guarantee completion of sitework within a
housing tract.
Interest rates on the above commitments are primarily of a variable
nature.
In the normal course of business, there are outstanding various legal
proceedings and claims which are not included in the accompanying consolidated
financial statements. In the opinion of management, the financial position,
liquidity and results of operations of the Corporation will not be materially
affected by the outcome of such legal proceedings and claims.
NOTE 15 -- CONCENTRATION OF CREDIT RISK
The Corporation grants residential, consumer, construction and commercial
loans secured generally by real estate to customers located primarily in
Somerset and Hunterdon Counties, New Jersey and nearby communities. In addition,
parcels of real estate acquired by foreclosure and under foreclosure are located
in the same market area. Accordingly, as with most financial institutions in the
market area, the ultimate collectibility of a substantial portion of the loan
portfolio and recoverability of real estate acquired by foreclosure are
susceptible to changes in market conditions in these areas.
37
<PAGE>
Notes continued Raritan Bancorp Inc. and Subsidiary
NOTE 16 -- LONG-TERM LEASES
The future minimum rental commitments required under operating leases
that have initial or remaining non-cancelable lease terms in excess of one year
are as follows:
Minimum
Year ended December 31, Rent Expense
--------------------------------------------------------------
(In thousands)
1998 $ 625
1999 634
2000 642
2001 597
2002 525
Thereafter 2,873
--------------------------------------------------------------
$5,896
==============================================================
Rent expense included in occupancy expense for the years ended December
31, 1997, 1996 and 1995 amounted to $290,000, $226,000 and $177,000,
respectively.
NOTE 17 -- DIVIDENDS AND OTHER RESTRICTIONS
Subject to applicable law, the Board of Directors of the Bank and of the
Corporation may each provide for the payment of dividends.
The Bank will not be permitted to pay dividends on its capital stock if
its retained earnings would thereby be reduced below the amount required for the
liquidation accounts established at the time of its conversion to stock form and
the issuance of stock resulting from the Manville Savings' merger and
acquisition, or applicable regulatory capital requirements. New Jersey law
provides that no dividend may be paid unless, after the payment of such
dividend, the capital stock of the Bank will not be impaired and either the Bank
will have a statutory surplus of not less than 50% of its capital stock or the
payment of such dividend will not reduce the statutory surplus of the Bank. The
Bank has designated a capital surplus of $2.0 million, which is not available
for the payment of dividends.
During the years ended December 31, 1997, 1996 and 1995, the Board of
Directors of the Corporation declared cash dividends totaling $1,123,000,
$893,000 and $790,000, respectively.
NOTE 18 -- CAPITAL REQUIREMENTS
The Federal Reserve Board in the case of bank holding companies such as
the Corporation, and the FDIC in the case of state banks such as the Bank, have
adopted risk-based capital guidelines which require a minimum ratio of 8% of
total risk-based capital to assets, as defined in the guidelines. At least one
half of the total capital, or 4%, is to be comprised of common equity and
qualifying perpetual preferred stock, less deductible intangibles (Tier 1
capital).
In addition, the Federal Reserve Board and the FDIC supplemented the
risk-based capital guidelines with an additional capital ratio referred to as
the leverage ratio or core capital ratio. The regulations require a financial
institution to maintain a minimum leverage ratio of 4% to 5%, depending upon the
condition of the institution.
Under its prompt corrective action regulations, the FDIC is required to
take certain supervisory actions (and may take additional discretionary actions)
with respect to an undercapitalized institution. Such actions could have a
direct material effect on the institution's financial statements. The
regulations establish a framework for the classification of depository
institutions into five categories: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. Generally, an institution is considered well capitalized if it
has a leverage ratio of at least 5.0%; a Tier 1 capital ratio of at least 6.0%;
and a total risk-based capital ratio of at least 10.00%.
38
<PAGE>
Notes continued Raritan Bancorp Inc. and Subsidiary
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are subject to qualitative judgments by the regulatory
authorities about capital components, risk weightings and other factors.
Management believes that, as of December 31, 1997, the Corporation and
the Bank meet all capital adequacy requirements to which they are subject.
Further, the most recent FDIC notification characterized the Bank as a
well-capitalized institution under the prompt corrective action regulations.
There have been no conditions or events since that notification that management
believes have changed the Corporation's or Bank's capital classification.
The following is a summary of the Corporation's and the Bank's actual capital
amounts and ratios as of December 31, 1997 and 1996 compared to the regulatory
authorities' minimum capital adequacy requirements and requirements for
classification as a well capitalized institution:
<TABLE>
<CAPTION>
Regulatory Requirements
----------------------------------------------------------------------------------
Minimum For Classification
Actual Capital Adequacy As Well Capitalized
----------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Corporation:
December 31, 1997
Leverage (Tier 1) capital $29,657 7.330% $16,184 4.00% $20,230 5.00%
Risk-based capital:
Tier 1 29,657 12.255 9,680 4.00 14,520 6.00
Total 32,685 13.507 19,359 8.00 24,199 10.00
December 31, 1996
Leverage (Tier 1) capital 26,767 7.440 14,391 4.00 17,989 5.00
Risk-based capital:
Tier 1 26,767 12.834 8,343 4.00 12,514 6.00
Total 29,378 14.086 16,685 8.00 20,856 10.00
The Bank:
December 31, 1997
Leverage (Tier 1) capital 29,605 7.319 16,180 4.00 20,225 5.00
Risk-based capital:
Tier 1 29,605 12.235 9,679 4.00 14,519 6.00
Total 32,633 13.486 19,358 8.00 24,198 10.00
December 31, 1996
Leverage (Tier 1) capital 26,764 7.440 14,389 4.00 17,987 5.00
Risk-based capital:
Tier 1 26,764 12.833 8,342 4.00 12,513 6.00
Total 29,375 14.085 16,684 8.00 20,855 10.00
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
Notes continued Raritan Bancorp Inc. and Subsidiary
NOTE 19 -- RECAPITALIZATION OF SAVINGS ASSOCIATION INSURANCE FUND ("SAIF")
On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on SAIF insured deposits, including
approximately $83.0 million in "Oakar" and "Sasser" deposits held by the Bank,
to recapitalize the SAIF and spread the obligations for payment of Financing
Corporation ("FICO") bonds across all SAIF and Bank Insurance Fund ("BIF")
members. The FDIC special assessment being levied amount to 65.7 basis points on
SAIF assessable deposits held as of March 31, 1995. The Bank recorded a charge
of $436,000 before tax-effect, as a result of the special assessment. This
legislation eliminated the substantial disparity between the amount that BIF and
SAIF member institutions had been paying for deposit insurance premiums.
NOTE 20 -- ACQUISITION AND MERGER OF MANVILLE SAVINGS BANK, SLA
Effective August 1, 1996, the Manville Savings Bank, SLA was merged with,
and into, the Bank pursuant to a merger agreement. As part of the merger,
186,894 (as adjusted for the three-for-two stock split paid in the form of a
stock dividend on July 1, 1997), common shares of the Corporation were issued.
Proceeds from the issuance of these shares totaled $2.0 million. The transaction
was accounted for using the purchase method of accounting. Negative goodwill
totaling $746,000 was recorded and is being accreted to income over a period of
five years using the straight-line method. Net loans and deposits acquired
totaled $11.9 million and $12.5 million; respectively. The acquisition had an
immaterial impact on the Corporation's results of operations.
NOTE 21 -- RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130. "Reporting
Comprehensive Income" ("Statement 130") was issued in June, 1997. Statement 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. Under
Statement 130, comprehensive income is divided into net income and other
comprehensive income. Other comprehensive income includes items previously
recorded directly in equity, such as unrealized gains or losses on securities
available-for-sale. Statement 130 is effective for interim and annual periods
beginning after December 15, 1997. Comparative financial statements provided for
earlier periods are required to be reclassified to reflect application of the
provisions of the Statement.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("Statement 131") was issued
June, 1997. Statement 131 establishes standards for the way public business
enterprises are to report information about operating segments in annual
financial statements and requires those enterprises to report selected financial
information about operating segments in interim financial reports to
shareholders. Statement 131 is effective for financial statements for periods
beginning after December 15, 1997.
NOTE 22 -- RARITAN BANCORP INC. (PARENT COMPANY ONLY)
Raritan Bancorp Inc. operates a wholly-owned subsidiary, The Raritan
Savings Bank. The earnings of the Bank are recognized by the Corporation using
the equity method of accounting. Accordingly, earnings of the Bank are recorded
as increases in the Corporation's investment and any dividends are recorded as
dividend income from the Bank. For purposes of reporting cash flows, cash
includes cash due from bank. Condensed financial statements of the Parent
Company only follow:
40
<PAGE>
Raritan Bancorp Inc.
Parent Company Only
CONDENSED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS December 31,
---------------------------
(In thousands) 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash $ 38 $ 14
Investment in subsidiary Bank 30,823 28,265
Other assets 23 1
- ---------------------------------------------------------------------------------------------------------------------------
$30,884 $28,280
===========================================================================================================================
Liabilities and Shareholders' Equity:
Accrued expenses $ 10 $ 12
Shareholders' equity 30,874 28,268
- ---------------------------------------------------------------------------------------------------------------------------
$30,884 $ 28,280
===========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
Year ended December 31,
----------------------------------------------
(In thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Income:
Dividend income $1,610 $2,485 $1,480
Expenses 65 16 16
- ---------------------------------------------------------------------------------------------------------------------------
1,545 2,469 1,464
Income tax benefit (22) (5) (5)
- ---------------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed
earnings of subsidiary 1,567 2,474 1,469
Equity in undistributed earnings of subsidiary 2,341 634 1,203
- ---------------------------------------------------------------------------------------------------------------------------
Net income $3,908 $3,108 $2,672
===========================================================================================================================
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
Year ended December 31,
---------------------------------------------
(In thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Dividends received from the Bank $ 1,610 $ 2,485 $ 1,480
Expenses paid by cash (22) (16) (15)
Income taxes reimbursed by Bank 7 6 4
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,595 2,475 1,469
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Additional investment in subsidiary -- (1,339) --
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities -- (1,339) --
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Issuance of common stock 613 2,027 150
Treasury stock acquired at cost (1,061) (2,300) (827)
Dividends paid (1,123) (893) (790)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (1,571) (1,166) (1,467)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in cash 24 (30) 2
Cash at beginning of year 14 44 42
- ---------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 38 $ 14 $ 44
===========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
A reconciliation of net income to net cash provided by operating activities
follows:
Year ended December 31,
--------------------------------------------
(In thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 3,908 $3,108 $ 2,672
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease in accrued expenses (2) (1) (1)
Decrease in income taxes receivable 30 2 1
Equity in undistributed earnings of subsidiary (2,341) (634) (1,203)
- ---------------------------------------------------------------------------------------------------------------------------
Total adjustments (2,313) (633) (1,203)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 1,595 $2,475 $ 1,469
===========================================================================================================================
</TABLE>
<PAGE>
Independent auditors' report
To the Board of Directors and Shareholders
Raritan Bancorp Inc.
We have audited the consolidated balance sheets of Raritan Bancorp Inc. and
subsidiary as of December 31, 1997 and 1996 and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Raritan
Bancorp Inc. and subsidiary at December 31, 1997 and 1996 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Short Hills, New Jersey
January 16, 1998
<TABLE>
<CAPTION>
SUPPLEMENTAL FINANCIAL INFORMATION
Selected quarterly financial data for 1997 and 1996 follow:
(in thousands, except per share data) 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Total interest income $6,662 $6,802 $6,872 $7,311
Net interest income 3,351 3,282 3,195 3,294
Provision for loan losses 150 150 150 150
Income before income tax expense 1,547 1,581 1,497 1,482
Net income 970 982 967 989
Net income per share (basic) 0.42 0.41 0.41 0.42
Net income per share (diluted) 0.39 0.39 0.38 0.39
1996
Total interest income $6,019 $6,062 $6,306 $6,544
Net interest income 2,799 2,899 3,122 3,254
Provision for loan losses 75 75 150 150
Income before income tax expense 1,181 1,270 962 1,508
Net income 743 804 613 948
Net income per share (basic) 0.27 0.38 0.34 0.42
Net income per share (diluted) 0.25 0.35 0.31 0.38
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: The above per share figures reflect the effect of the three-for-two stock
split paid in the form of a stock dividend on July 1, 1997.
42
<PAGE>
Shareholder information
Raritan Bancorp Inc. and Subsidiary
ANNUAL MEETING
The annual meeting is scheduled for 10:00 a.m., Wednesday, April 22, 1998 at the
Raritan Valley Country Club, Route 28, Somerville, New Jersey
STOCK LISTING
The common stock is traded over-the-counter on the NASDAQ National market system
under the ticker symbol RARB. Stock price quotations can be found in the Wall
Street Journal and local daily newspapers. At March 9, 1998, the closing price
of the common stock was $26.50 bid and $28.00 asked.
INQUIRIES
Thomas F. Tansey, Executive Vice President
Raritan Bancorp Inc.
454 Route 28, P.O. Box 6909
Bridgewater, NJ 08807
(908) 231-8100
- --------------------------------------------------------------------------------
The Annual Report on Form 10-K, filed with the Securities and Exchange
Commission, is available to shareholders without charge upon written request.
- --------------------------------------------------------------------------------
AUDITORS
KPMG Peat Marwick LLP
150 John F. Kennedy Parkway
Short Hills, New Jersey 07078
GENERAL COUNSEL
Kelleher and Moore
SPECIAL COUNSEL
Luse Lehman Gorman Pomerenk and Schick, P.C.
TRANSFER AGENT AND REGISTRAR
First City Transfer Company
505 Thornall Street, Suite 303
Edison, NJ 08837
NUMBER OF SHARES OUTSTANDING AND SHAREHOLDERS
At March 9, 1998, Raritan Bancorp Inc. had 2,388,289 shares of $.01 par value
common stock outstanding, owned by approximately 550 shareholders of record,
including brokerage firms, banks and registered clearing agents acting as
nominees for an indeterminate number of beneficial owners.
PRICE RANGE OF COMMON STOCK
Dividend
Quarter Ending High Low Paid
- --------------------------------------------------------------------------------
December 31, 1997 $29.50 $25.50 $0.12
September 30, 1997 25.75 19.50 0.12
June 30, 1997 20.50 16.33 0.117
March 31, 1997 17.00 15.50 0.117
December 31, 1996 15.67 14.17 0.10
September 30, 1996 14.67 13.50 0.10
June 30, 1996 14.67 13.83 0.10
March 31, 1996 14.83 14.00 0.10
- --------------------------------------------------------------------------------
NOTE: The above prices and dividend paid reflect the three-for-two stock split
paid in the form of a stock dividend on July 1, 1997.
CORPORATE AND LENDING OFFICES:
Raritan Plaza
454 Route 28
P.O. Box 6909
Bridgewater, NJ 08807
(908) 231-8100
BANKING OFFICES:
Raritan Plaza
454 Route 28
P.O. Box 6909
Bridgewater, NJ 08807
(908) 231-8100
339 South Main Street
Manville, New Jersey 08835
(908) 722-2776
1921 Washington Valley Road
Martinsville, New Jersey 08836
(732) 469-5300
9 West Somerset Street
Raritan, New Jersey 08869
(908) 725-0080
151 Adamsville Road
Somerville, New Jersey 08876
(908) 231-0766
51 Mountain Boulevard
Warren, New Jersey 07059
(908) 769-1880
Whitehouse Mall
Routes 22 East and 523
Whitehouse Station, New Jersey 08889
(908) 534-5664
Raritan Bancorp Inc.
(Holding company for The Raritan Savings Bank)
The Raritan Savings Bank is a state-chartered savings bank organized in 1869
with its main office in Raritan, New Jersey and branch offices in Bridgewater,
Manville, Martinsville, Somerville, Warren and Whitehouse Station, New Jersey.
The Bank's deposits are insured by the FDIC. The Bank is in the business of
providing high-quality financial services to businesses and individuals within
our marketing area.
<PAGE>
[LOGO OF RARITAN BANCORP INC. APPEARS HERE]
RARITAN BANCORP INC.
454 Route 28, P.O. Box 6909, Bridgewater, NJ 08807
<PAGE>
EXHIBIT 23
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
Raritan Bancorp Inc.:
We consent to incorporation by reference in the Registration Statement (No.
33-36441) on Form S-8, and the Registration Statement (No. 33-36440) on Form S-8
of Raritan Bancorp Inc. of our report dated January 16, 1998, relating to the
consolidated balance sheets of Raritan Bancorp Inc. and subsidiary as of
December 31, 1997 and 1996 and the related consolidated statements of income,
changes in shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1997, which report is incorporated by
reference in the 1997 Annual Report on Form 10-K of Raritan Bancorp Inc.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Short Hills, New Jersey
March 24, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,316
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 26,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48,951
<INVESTMENTS-CARRYING> 41,307
<INVESTMENTS-MARKET> 40,919
<LOANS> 267,700
<ALLOWANCE> 3,305
<TOTAL-ASSETS> 408,308
<DEPOSITS> 337,084
<SHORT-TERM> 20,103
<LIABILITIES-OTHER> 5,247
<LONG-TERM> 15,000
0
0
<COMMON> 26
<OTHER-SE> 30,848
<TOTAL-LIABILITIES-AND-EQUITY> 408,308
<INTEREST-LOAN> 20,852
<INTEREST-INVEST> 6,795
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 27,647
<INTEREST-DEPOSIT> 13,583
<INTEREST-EXPENSE> 14,525
<INTEREST-INCOME-NET> 13,122
<LOAN-LOSSES> 600
<SECURITIES-GAINS> 94
<EXPENSE-OTHER> 7,464
<INCOME-PRETAX> 6,107
<INCOME-PRE-EXTRAORDINARY> 6,107
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,908
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.54
<YIELD-ACTUAL> 3.61
<LOANS-NON> 905
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,965
<CHARGE-OFFS> 410
<RECOVERIES> 150
<ALLOWANCE-CLOSE> 3,305
<ALLOWANCE-DOMESTIC> 3,305
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
