<PAGE> 1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1995
---------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________________
Commission file number 0-7806
-----------------------------------------------------
RAMAPO FINANCIAL CORPORATION
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-1946561
- ----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
64 MOUNTAIN VIEW BOULEVARD, WAYNE, NEW JERSEY 07470
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(201) 696-6100
- ----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- ----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report).
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such 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
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $1.00 par value 8,096,449 shares at November 8, 1995.
1
<PAGE> 2
RAMAPO FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at
September 30, 1995 and December 31, 1994
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations
for the Nine Months Ended September 30,
1995 and 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations
for the Three Months Ended September 30,
1995 and 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statement of Changes in
Stockholders' Equity for the Nine
Months Ended September 30, 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30,
1995 and 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial
Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-19
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1 THROUGH ITEM 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RAMAPO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and Due From Banks $ 8,473,000 $ 9,326,000
Federal Funds Sold 9,000,000 33,160,000
------------- ------------
Total Cash and Cash Equivalents 17,473,000 42,486,000
Securities:
Available for Sale, at Fair Value 30,016,000 17,763,000
Held to Maturity, at Cost 39,905,000 3,485,000
Loans 157,118,000 164,345,000
Less: Allowance for Possible Loan Losses 4,827,000 6,501,000
------------- ------------
Net Loans 152,291,000 157,844,000
Premises and Equipment, net 2,472,000 2,584,000
Other Real Estate, net (Note 1) 5,744,000 9,995,000
Other Assets, net 3,963,000 3,286,000
Intangible Assets, net (Note 2) 565,000 773,000
------------- ------------
TOTAL ASSETS $ 252,429,000 $ 238,216,000
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand - Noninterest-Bearing $ 46,003,000 $ 46,074,000
- Interest-Bearing 24,396,000 24,630,000
Savings 77,277,000 81,287,000
Time 75,053,000 56,483,000
Certificates of Deposit over $100,000 4,401,000 3,390,000
------------- ------------
Total Deposits 227,130,000 211,864,000
Other Borrowings (Note 3) - 1,292,000
Accrued Expenses and Other Liabilities 2,402,000 3,305,000
------------- ------------
Total Liabilities 229,532,000 216,461,000
STOCKHOLDERS' EQUITY (Notes 4 and 6)
Class A Preferred Stock 1,250,000 1,750,000
Common Stock 8,160,000 8,160,000
Capital Paid in Excess of Par Value 13,101,000 13,101,000
Retained Earnings (Accumulated Deficit) 668,000 (650,000)
Net Unrealized Holding Gains (Losses)
on Securities Available for Sale 12,000 (312,000)
Treasury Stock at Cost (63,406 shares) (294,000) (294,000)
------------- ------------
Total Stockholders' Equity 22,897,000 21,755,000
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 252,429,000 $ 238,216,000
============= ============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 4
RAMAPO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------------
1995 1994
------------- -------------
<S> <C> <C>
INTEREST INCOME
Loans, including Fees $ 10,523,000 $ 9,774,000
Securities:
Taxable 2,210,000 487,000
Nontaxable 51,000 59,000
Federal Funds Sold 954,000 486,000
------------ -------------
TOTAL INTEREST INCOME 13,738,000 10,806,000
------------ -------------
INTEREST EXPENSE
Savings and Interest-Bearing Demand Deposits 1,739,000 1,981,000
Time Deposits and Certificates of Deposit
over $100,000 2,910,000 1,440,000
Other Borrowings 12,000 320,000
------------ -------------
TOTAL INTEREST EXPENSE 4,661,000 3,741,000
------------ -------------
NET INTEREST INCOME 9,077,000 7,065,000
Provision for Possible Loan Losses 800,000 811,000
------------ -------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 8,277,000 6,254,000
OTHER INCOME
Service Charges on Deposit Accounts 1,124,000 999,000
Mortgage Application and Servicing Fees 107,000 199,000
Loan Fee Income on Loans Sold - 190,000
Gain on Sale of Mortgage Loans 2,000 150,000
Brokerage Commissions 238,000 249,000
Other Income 370,000 416,000
------------ -------------
TOTAL OTHER INCOME 1,841,000 2,203,000
------------ -------------
OTHER EXPENSES
Salaries and Employee Benefits 3,368,000 3,883,000
Net Occupancy Expense 559,000 637,000
Equipment Expense 415,000 466,000
OREO Expense- Cost of Operations, net 654,000 789,000
- Valuation Adjustments 950,000 491,000
Other Operating Expenses (Note 5) 2,668,000 3,407,000
------------ -------------
TOTAL OTHER EXPENSES 8,614,000 9,673,000
------------ -------------
INCOME (LOSS) BEFORE TAXES 1,504,000 (1,216,000)
Provision for Income Taxes 131,000 -
------------ -------------
NET INCOME (LOSS) $ 1,373,000 $ (1,216,000)
============ =============
Average Common Shares Outstanding 8,096,449 1,400,571
Income (Loss) per Common Share $ 0.16 $ (0.93)
============ =============
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
RAMAPO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30
----------------------------------
1995 1994
------------ -------------
<S> <C> <C>
INTEREST INCOME
Loans, including Fees $ 3,484,000 $ 3,269,000
Securities:
Taxable 974,000 260,000
Nontaxable 17,000 18,000
Federal Funds Sold 254,000 212,000
------------ -------------
TOTAL INTEREST INCOME 4,729,000 3,759,000
------------ -------------
INTEREST EXPENSE
Savings and Interest-Bearing Demand Deposits 581,000 652,000
Time Deposits and Certificates of Deposit
over $100,000 1,111,000 515,000
Other Borrowings - 36,000
------------ -------------
TOTAL INTEREST EXPENSE 1,692,000 1,203,000
------------ -------------
NET INTEREST INCOME 3,037,000 2,556,000
Provision for Possible Loan Losses 125,000 183,000
------------ -------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 2,912,000 2,373,000
OTHER INCOME
Service Charges on Deposit Accounts 382,000 416,000
Mortgage Application and Servicing Fees 43,000 36,000
Loan Fee Income on Loans Sold - 1,000
Gain (Loss) on Sale of Mortgage Loans - 1,000
Brokerage Commissions 72,000 65,000
Other Income 48,000 121,000
------------ -------------
TOTAL OTHER INCOME 545,000 640,000
------------ -------------
OTHER EXPENSES
Salaries and Employee Benefits 1,124,000 1,187,000
Net Occupancy Expense 193,000 184,000
Equipment Expense 137,000 137,000
OREO Expense- Cost of Operations, net 433,000 212,000
- Valuation Adjustments 275,000 292,000
Other Operating Expenses (Note 5) 744,000 1,035,000
------------ -------------
TOTAL OTHER EXPENSES 2,906,000 3,047,000
------------ -------------
INCOME (LOSS) BEFORE TAXES 551,000 (34,000)
Provision for Income Taxes 49,000 -
------------ -------------
NET INCOME (LOSS) $ 502,000 $ (34,000)
============ =============
Average Common Shares Outstanding 8,096,449 1,596,449
Income (Loss) per Common Share $ 0.06 $ (0.04)
============ =============
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE> 6
RAMAPO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Net Unrealized
Holding
Gains (Losses)
Class A Capital Retained on Securities
Preferred Common in Excess of Earnings Available Treasury
Stock Stock Par Value (Deficit for Sale Stock
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $1,750,000 $8,160,000 $13,101,000 ($650,000) ($312,000) ($294,000)
Net Income for the Period - - - 1,373,000 - -
Cash Dividends on Class A
Preferred Stock Redeemed - - - (44,000) - -
Cash Dividends on Redeemable
Preferred Stock Redeemed in
1994 - - - (11,000) - -
Redemption of Class A Preferred
Stock (500,000) - - - - -
Change in Net Unrealized
Holding Gains (Losses) on
Securities Available for Sale - - - - 324,000 -
---------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1995 $1,250,000 $8,160,000 $13,101,000 $668,000 $12,000 ($294,000)
=============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE> 7
RAMAPO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 1,373,000 (1,216,000)
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by Operating Activities:
Depreciation and Amortization of Premises and Equipment 334,000 346,000
Amortization of Intangible Assets 208,000 228,000
Accretion of Securities Discount, net (363,000) (1,000)
Provision for Possible Loan Losses 800,000 811,000
Net Provision for Possible Losses on Other Real Estate 950,000 528,000
Loss on Sale of Other Real Estate - 9,000
Loans Made or Acquired and Held For Sale (153,000) (1,189,000)
Proceeds from Loans Held for Sale 126,000 20,839,000
Gain on Sales of Loans Held for Sale (2,000) (209,000)
Increase in Interest Receivable (709,000) (73,000)
Decrease in Accrued Expenses and Other Liabilities (734,000) (803,000)
Other (137,000) 277,000
-------------- --------------
Net Cash Provided by Operating Activities 1,693,000 19,547,000
-------------- --------------
Cash Flows from Investing Activities:
Proceeds from Sales of Securities Available for Sale - 1,026,000
Proceeds from Maturity of Securities:
Available for Sale 2,040,000 5,683,000
Held to Maturity 2,000,000 -
Purchase of Securities:
Available for Sale 13,584,000) (16,942,000)
Held to Maturity (38,442,000) -
Net Decrease in Loans Outstanding 4,717,000 14,987,000
Capital Expenditures (223,000) (80,000)
Payments Received on Other Real Estate 2,673,000 2,281,000
Advances Made on Other Real Estate (480,000) (466,000)
Proceeds from Sale of Other Real Estate 1,174,000 4,628,000
Sale of Mortgage Operations - 2,067,000
-------------- --------------
Net Cash (Used in) Provided by Investing Activities (40,125,000) 13,184,000
-------------- --------------
Cash Flows from Financing Activities:
Net Increase (Decrease) in Total Deposits 15,266,000 (27,494,000)
Redemption of Subordinated Debentures (Note 3) (1,292,000) -
Redemption of Class A Preferred Stock (Note 4) (500,000) -
Preferred Stock Dividends Paid (Note 4) (55,000) -
Proceeds from Stock Purchase Contracts Exercised - 164,000
-------------- --------------
Net Cash Provided by (Used in) Financing Activities 13,419,000 (27,330,000)
-------------- --------------
Net Decrease in Cash and Cash Equivalents (25,013,000) 5,401,000
Cash and Cash Equivalents, Beginning of Period 42,486,000 26,594,000
-------------- --------------
Cash and Cash Equivalents, End of Period $ 17,473,000 $ 31,995,000
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The condensed consolidated financial statements included herein have
been prepared by the Registrant without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Registrant
believes that the disclosures are adequate to make the information presented
not misleading. These financial statements should be read in conjunction with
the financial statements and the notes thereto included in the Registrant's
latest annual report on Form 10-K. This financial information reflects, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position and results of
operations for the interim periods. The results of operations for such interim
periods are not necessarily indicative of the results for the full year.
Certain reclassifications have been made to the 1994 financial statements to
conform to the 1995 presentation.
NOTE 1: OTHER REAL ESTATE
A summary of activity in other real estate is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1995
------------------
<S> <C>
Balance, beginning of period, net $ 9,995,000
Transfer from accrual loans 66,000
Advances 480,000
Sales of properties (1,174,000)
Payments from borrowers (2,673,000)
Charge-offs or write-downs (10,000)
Increase in valuation allowance (940,000)
-----------
Balance, end of period, net $ 5,744,000
===========
</TABLE>
NOTE 2: INTANGIBLE ASSETS
Categories of net intangible assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1995 1994
------------ -----------
<S> <C> <C>
Purchased Mortgage Servicing Rights $133,000 $163,000
Core Deposit Premiums 177,000 254,000
Premium on Purchased Home Equity
Lines of Credit 255,000 356,000
-------- -------
Net Intangible Assets $565,000 $773,000
======== ========
</TABLE>
8
<PAGE> 9
NOTE 3: OTHER BORROWINGS
On February 1, 1995, the Corporation redeemed, prior to maturity, the
remaining $1,292,000 of 11% subordinated debentures at par, in accordance with
provisions of the original issuance and with regulatory approval.
NOTE 4: PREFERRED STOCK REDEMPTION
On May 31, 1995, the Corporation redeemed $500,000 of Class A
preferred stock and paid cumulative dividends on that stock of approximately
$44,000. Cumulative dividends of $11,000 were also paid on that date with
respect to the $200,000 of redeemable preferred stock that was redeemed on
November 30, 1994. Both actions were taken with regulatory approval and the
latter action was in accordance with the provisions of issuance of the
redeemable preferred stock.
NOTE 5: SUPPLEMENTARY STATEMENTS OF OPERATIONS INFORMATION
Major categories of Other Operating Expense are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------- ----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
FDIC Assessment $ 360,000 $ 523,000 $ 37,000 $ 161,000
Legal 353,000 450,000 148,000 145,000
Bonding and Insurance 171,000 259,000 42,000 52,000
Consulting Fees 266,000 270,000 53,000 74,000
Credit Reports/Filing Fees 109,000 187,000 45,000 48,000
Examinations 196,000 228,000 66,000 96,000
Postage & Freight 134,000 165,000 40,000 45,000
Telephone 126,000 158,000 42,000 65,000
Amortization - Intangibles 188,000 184,000 43,000 62,000
Automated Services 117,000 115,000 28,000 38,000
Stationery & Printing 155,000 104,000 48,000 42,000
Advertising 99,000 108,000 11,000 37,000
Dues and Subscriptions 45,000 47,000 15,000 13,000
Employee/Customer Rel. 44,000 30,000 18,000 5,000
Directors' Fees 80,000 39,000 29,000 14,000
Correspondent Banks' Fees 54,000 53,000 16,000 27,000
All Others 171,000 487,000 63,000 111,000
---------- ---------- ---------- ----------
$2,668,000 $3,407,000 $ 744,000 $1,035,000
========== ========== ========== ==========
</TABLE>
9
<PAGE> 10
NOTE 6: SUBSEQUENT EVENTS
On October 31, 1995, the Corporation redeemed, with regulatory
approval, $533,000 of Class A preferred stock and paid cumulative dividends on
that stock of approximately $63,000.
Subsequent to September 30, 1995, the Corporation accepted an
insurance claim offer of $1,125,000 for loan losses which the Corporation
alleges were the result of improper dealings by a former loan officer in the
mid-1980's. Management expects to treat the entire proceeds when received as a
recovery of loans previously charged-off, thus increasing its allowance for
possible loan losses.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the Corporation's financial
condition as of September 30, 1995 and results of operations for the nine
months ended September 30, 1995 and 1994 should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto, included in the
Registrant's latest Annual Report on Form 10-K, and the other information
herein. The information as of September 30, 1995 and for the three and nine
months ended September 30, 1995 and 1994 is derived from unaudited financial
data but, in the opinion of management of the Corporation, reflects all
adjustments (which comprise only normal recurring accruals) necessary for a
fair presentation of the financial condition and results of operations at that
date and for those periods. The results of operations for the three and nine
months ended September 30, 1995 are not necessarily indicative of the results
which may be expected for any other period.
FINANCIAL CONDITION AND RECENT OPERATING ENVIRONMENT
GENERAL. Economic conditions in the Corporation's market area have
continued to improve during the first nine months of 1995. Residential real
estate values have remained stable, while commercial real estate values have
shown signs of recovery from the historically low values experienced several
years ago. The vacancy rate for commercial office space in northern New Jersey
has declined in 1995, a favorable trend that will stimulate ancillary business
activity as well as bolster property values.
The recently announced acquisitions of two major New Jersey banks by
out-of-state institutions should prove beneficial to community banking
organizations like the Corporation. As ownership and management of competing
organizations become more remote, the Corporation's business development
efforts should generate new loan and deposit business from small businesses and
professionals in our market area. Also, management is changing its lending
activities so that exposure to both commercial real estate lending and large
individual borrower concentrations is expected to be reduced.
The recapitalization in 1994 of the Corporation and its wholly-owned
banking subsidiary, The Ramapo Bank (the Bank), along with the significant
reduction of nonperforming assets and the return to sustained profitability,
have resulted in the Federal Deposit Insurance Corporation (the FDIC) and the
New Jersey State Banking Department (the State) terminating the Cease and
Desist Order (the Order) which had been in place since 1992. The Order has
been replaced by a less burdensome Memorandum of Understanding. (See "Capital
Adequacy and Regulatory Matters" below.) Management believes that this action
will improve the Corporation's competitive position in its market.
11
<PAGE> 12
During the first nine months of 1995, the Corporation's total assets
increased by $14.2 million (6.0%) from $238.2 million at December 31, 1994 to
$252.4 million at September 30, 1995. This increase primarily stemmed from the
$15.3 million (7.2%) increase in the Corporation's deposits during the period.
The deposit increase, plus a $25.0 million (58.8%) decrease in cash and cash
equivalents and a $5.6 million (3.5%) decrease in net loans, were the major
sources of funds for the $48.7 million (229.1%) increase in securities during
the nine months. Net loans declined largely due to paydowns.
The deposit increase during the period was primarily in the time
deposit category, which rose $18.6 million (32.9%) from $56.5 million at
December 31, 1994 to $75.1 million at September 30, 1995. Most of this
increase was due to a one-day promotion of a premium rate, seven-month
certificate of deposit. Approximately 40% of these premium rate deposits were
retained upon maturity in early October. The time deposit increase was
partially offset by a $4.0 million (4.9%) decline in savings deposits.
CAPITAL ADEQUACY AND REGULATORY MATTERS
Both the Corporation and the Bank are operating under agreements with
their regulators.
In November 1992, as a result of a regulatory examination, the Bank
entered into a stipulation and consent to the issuance of an order to cease and
desist (the Order) with the FDIC and the State. The Bank was most recently
examined by its regulators as of November 30, 1994. Based on that examination,
on May 18, 1995 the Order was replaced by a Memorandum of Understanding (the
MOU) among the FDIC, the State and the Bank. The MOU requires the Bank to
maintain its Tier 1 Leverage ratio at not less than 6.0%, to reduce the amount
of classified assets to levels specified in the MOU, and to take various other
actions. In addition, the MOU restricts the Bank from paying dividends on its
common stock without the prior written consent of the FDIC and the State.
In November 1993, the Federal Reserve Bank of New York (the FRB)
entered into a Written Agreement with the Corporation based on its examination
as of June 30, 1993. The Written Agreement required the Corporation to submit
a written plan to achieve and maintain adequate capital levels, prohibited
payment of dividends without prior FRB approval, placed limits on expenditures,
and required additional periodic reports, among other provisions. The
Corporation has since been examined by the FRB as of December 31, 1994.
In October 1994, the Corporation completed a rights/community common
stock offering which raised, after offering expenses, $11.7 million of new
capital. The Corporation contributed $7.5 million of this total to the Bank's
capital. The capital ratios of both the Corporation and the Bank satisfy the
capital stipulations in both the MOU and the Written Agreement.
12
<PAGE> 13
Management believes that the Corporation and the Bank will remain in compliance
with the regulatory capital requirements because of the adequacy of the
allowance for possible loan losses and the return to profitability made
possible by the reduction of nonperforming assets and an improved net interest
spread.
The following table reflects the capital ratios as of the specified dates:
<TABLE>
<CAPTION>
REQUIRED
REGULATORY
SEPT. 30 DECEMBER 31 CAPITAL
1995 1994 RATIOS (%)
-------- ----------- ----------
<S> <C> <C> <C>
CORPORATION
Tier 1 leverage capital . . . . . . . . . . . . . 8.91% 9.16% *
Risk based capital
Tier 1 . . . . . . . . . . . . . . . . . . . . 13.21% 12.18% 4.00%
Total (Tier 1 and Tier 2) . . . . . . . . . . 14.48% 13.46% 8.00%
BANK
Tier 1 leverage capital . . . . . . . . . . . . . 7.22% 7.05% 6.00%
Risk based capital
Tier 1 . . . . . . . . . . . . . . . . . . . . 10.71% 9.42% 4.00%
Total (Tier 1 and Tier 2) . . . . . . . . . . 11.98% 10.70% 8.00%
</TABLE>
* Three percent minimum, with most bank holding companies required to
maintain an additional 1% to 2%. Capital adequacy is determined
through the examination process.
13
<PAGE> 14
ASSET QUALITY
The Corporation's high level of nonperforming assets in recent years
has severely impaired its operating performance. Management has devoted
significant time and resources to reducing levels of problem assets. These
efforts have resulted in nonperforming assets declining from $33.4 million at
December 31, 1993 to $17.8 million and $11.1 million at December 31, 1994 and
September 30, 1995, respectively.
The following table sets forth, as of the dates indicated, the
components of the Corporation's delinquent loans, nonperforming assets and
restructured loans. Each component is discussed in greater detail below.
Nonperforming assets consist of nonaccrual loans, accruing loans 90 days or
more delinquent and ORE. It is the Corporation's policy to place a loan on
nonaccrual status when, in the opinion of management, the ultimate
collectibility of the principal or interest on the loan becomes doubtful. As a
general rule, a commercial or real estate loan more than 90 days past due with
respect to principal or interest is classified as a nonaccrual loan.
Installment loans generally are not placed on nonaccrual status but, instead,
are charged off at 90 days past due, except where the loans are secured and
foreclosure proceedings have commenced. Loans are considered restructured
loans if, for economic or legal reasons, a concesssion has been granted to the
borrower related to the borrower's financial difficulties that the creditor
would not otherwise consider. The Corporation has restructured certain loans
in instances where a determination was made that greater economic value will be
realized under new terms than through foreclosure, liquidation, or other
disposition. ORE includes both loan collateral that has been formally
repossessed and collateral that is in the Bank's possession and under its
control without legal transfer of title. At the time of classification as ORE,
loans are reduced to the fair value of the collateral (if less than the loan
receivable) by charge-offs against the allowance for possible loan losses. ORE
is carried on the books at the lower of cost or fair value, less estimated
costs to sell. Subsequent valuation adjustments to the fair value of the
collateral are charged or credited to current operations.
14
<PAGE> 15
<TABLE>
<CAPTION>
SEPT. 30 DECEMBER 31
1995 1994
-------- -----------
<S> <C> <C>
Loans 30-89 days past due . . . . . . . . . . . . . . . . $ 3,694,000 $ 4,725,000
=========== ===========
Nonaccrual loans:
Commercial and commercial real estate . . . . . . . . . $ 4,247,000 $ 6,617,000
Residential real estate mortgage . . . . . . . . . . . 467,000 509,000
Installment . . . . . . . . . . . . . . . . . . . . . . 373,000 422,000
----------- -----------
Total nonaccrual loans . . . . . . . . . . . . . . . 5,087,000 7,548,000
----------- -----------
Loans past due 90 days or more:
Commercial and commercial real estate . . . . . . . . . 42,000 20,000
Residential real estate mortgage . . . . . . . . . . . 156,000 216,000
Installment . . . . . . . . . . . . . . . . . . . . . . 43,000 4,000
----------- -----------
Total loans past due 90 days or more . . . . . . . . 241,000 240,000
----------- -----------
Total nonperforming loans . . . . . . . . . . . . . . $ 5,328,000 $ 7,788,000
----------- -----------
Other real estate, net . . . . . . . . . . . . . . . . . $ 5,744,000 $ 9,995,000
----------- -----------
Total nonperforming assets . . . . . . . . . . . . . . . $11,072,000 $17,783,000
=========== ===========
Restructured loans . . . . . . . . . . . . . . . . . . . $ 218,000 $ 5,983,000
----------- -----------
Total nonperforming assets and restructured loans . . . . $11,290,000 $23,766,000
=========== ===========
</TABLE>
Loans 30-89 days past due decreased from $4.7 million at December 31, 1994 to
$3.7 million at September 30, 1995. Nonaccrual loans declined $2.5 million
during the nine months, $2.4 of which occurred in the commercial loan category.
Commercial nonaccrual loan activity consisted of $1.1 million of new loans,
$1.9 million in payments, $1.5 million of charge-offs and an $83,000 loan sale.
Loans past due 90 days or more remained virtually unchanged in total for the
nine months while other real estate decreased $4.3 million (31.6%). See Note 1
of Notes to Consolidated Financial Statements for an analysis of this decrease.
15
<PAGE> 16
Management believes that the net carrying value of ORE at September
30, 1995 equaled the lower of such assets' balances when transferred to ORE or
the estimated fair value (after reduction for estimated selling costs) of the
properties acquired. Given current real estate and economic conditions in the
Corporation's market, however, no assurance can be given as to the extent to
which the Corporation will realize its current carrying value, the
Corporation's ability to continue to dispose of any significant amount of ORE
or the period of time it will take for the Corporation to achieve a significant
reduction in the amount of its ORE.
ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible loan
losses is determined by management based upon its evaluation of the known, as
well as the inherent, risks within the Corporation's loan portfolio and is
maintained at a level considered adequate to provide for potential loan losses.
The allowance for possible loan losses is increased by provisions charged to
expense and recoveries of prior charge-offs, and is reduced by charge-offs. In
establishing the allowance for possible loan losses, management considers,
among other factors, previous loss experience, the performance of individual
loans in relation to contract terms, the size of particular loans, the risk
characteristics of the loan portfolio generally, the current status and credit
standing of borrowers, management's judgment as to prevailing and anticipated
real estate values, other economic conditions in the Corporation's market and
other factors affecting credit quality. Effective January 1, 1995, management
also evaluates loan impairment in accordance with SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118 - "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosure". SFAS No. 114
and SFAS No. 118 define an impaired loan as a loan where, according to current
information and events, it is unlikely that the creditor will be able to
collect all amounts due according to the contractual terms of the loan
agreement. Impairment can be measured by the present value of expected cash
flows (net of estimated costs to sell) discounted at the loan's effective
interest rate or the fair value of the collateral (net of estimated costs to
sell) if the loan is collateral dependent. If the value of the impaired loan
is less than the recorded investment in the loan, management is required to
establish a valuation allowance, or adjust existing valuation allowances, with
a corresponding charge or credit to the provision for possible loan losses. At
September 30, 1995, the Corporation evaluated impairment under SFAS No. 114 and
SFAS No. 118 for those loans that cannot be easily grouped into homogeneous
pools of loans and collectively evaluated for impairment. These loans are
primarily commercial and real estate development loans which are collateral
dependent. Management believes the allowance for possible loan losses at
September 30, 1995 of $4.8 million, or 90.6% of nonperforming loans, was
adequate. Management continues to actively monitor the Corporation's asset
quality and to charge off loans against the allowance for possible loan losses
as it deems appropriate.
16
<PAGE> 17
Although management believes it uses the best information available to make
determinations with respect to the allowance for possible loan losses, future
adjustments may be necessary if economic conditions differ substantially from
the assumptions used in making the initial determinations.
LIQUIDITY
At September 30, 1995, the Bank's liquidity consisted of federal funds
sold of $9.0 million and securities available for sale of $30.0 million.
Management deems these amounts to be more than adequate to meet its short-term
cash needs.
The parent company had $3.7 million of cash and cash equivalents at
September 30, 1995. Its cash flows from operations are essentially break-even.
Management has targeted a portion of this cash to redeem the $1.25 million of
Class A preferred stock outstanding. The Federal Reserve Bank has consented to
a program of periodic redemption of this stock, conditioned upon continued
profitability, over the next three quarters.
RESULTS OF OPERATIONS
GENERAL. The Corporation's results of operations are dependent
primarily on its net interest and dividend income, which is the difference
between interest earned on its loans and investments and the interest paid on
interest-bearing liabilities. The Corporation's net income is also affected by
the generation of noninterest income, which primarily consists of service fees
on deposit accounts and other fee income. Net interest income is determined by
(i) the difference between yields earned on interest-earning assets and rates
paid on interest-bearing liabilities ("interest rate spread") and (ii) the
relative amounts of interest-earning assets and interest-bearing liabilities.
The Corporation's interest rate spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit
flows and general levels of nonperforming assets. In addition, net income is
affected by the level of operating expenses and establishment of loan loss
reserves and ORE reserves.
The operations of the Corporation and the entire banking industry are
significantly affected by prevailing economic conditions, competition and the
monetary and fiscal policies of governmental agencies. Lending activities are
influenced by the demand for and supply of real estate, competition among
lenders, the level of interest rates and the availability of funds. Deposit
flows and costs of funds are influenced by prevailing market rates of interest,
primarily on competing investments, account maturities and the levels of
personal income and savings in the market area.
In recent periods, the level of the Corporation's nonperforming assets
has significantly affected the Corporation's operating results due to the
amounts of the provisions for loan losses, which are charged against income, as
well as the expenses
17
<PAGE> 18
and losses related to ORE. The Corporation's nonperforming assets increased
dramatically beginning in 1990 and reached their highest level of $49.4
million, or 16.0% of total assets, at June 30, 1993. Nonperforming assets were
subsequently reduced to $17.8 million and $11.1 million at December 31, 1994
and September 30, 1995. respectively.
Although the Corporation returned to profitability in the fourth
quarter of 1994 and remained profitable in the first nine months of 1995,
management believes that sustained performance on a level with higher earning
peers is dependent on its ability to further reduce levels of nonperforming
assets, provisions for possible loan losses and additions to the valuation
allowance for losses on ORE. Management anticipates that it can reduce its
provisions for possible loan losses and its provisions to the ORE valuation
allowance because nonperforming assets are properly carried on the
Corporation's books at the lower of cost or fair market value, based on updated
appraisals, and because the economy in the Corporation's market area has
stabilized. ORE expenses are expected to decline to the extent ORE is sold.
Also, converting nonperforming assets to earning assets will have a positive
impact on the Corporation's net interest margin, since more assets will earn
interest without any increase in funding liabilities. Another factor is that
the sale of most mortgage origination and servicing activities in late 1993 and
early 1994 has eliminated the volatility of income and expenses associated with
these operations.
NINE MONTHS ENDED SEPTEMBER 30, 1995. The Corporation recorded net
income of $1,373,000 for the first nine months of 1995, as compared to a net
loss of $1,216,000 for the same period in 1994. The $2.6 million turnaround in
net income is chiefly due to a $2.0 million increase in net interest income and
a $697,000 drop in net noninterest expenses.
The significant rise in net interest income is the result of positive
volume and rate variances. An increase in average interest-earning assets of
$34.8 million in 1995 versus 1994 was responsible for $1.4 million of the $2.0
million increase. Average interest-earning assets increased due to the
conversion of nonperforming assets to earning assets (primarily other real
estate sales) and the raising of $11.7 million of net capital in October, 1994.
When net interest income is expressed as a percentage of average
interest-earning assets, the rate for the first nine months of 1995 is 5.50%
versus 5.08% in the same period in 1994. This rise accounts for the remaining
$616,000 increase in net interest income and was the result of the general rise
in interest rates that occurred in the last half of 1994 and the first quarter
of 1995 and the $308,000 reduction of interest expense due to the redemption of
the 11% subordinated debentures on February 1, 1995.
18
<PAGE> 19
A $362,000 reduction in other income, chiefly from mortgage-related
activities, partially offset a $1.1 million reduction in noninterest expenses.
A significant expense decrease, $515,000, was in salaries and employee
benefits, while another $739,000 reduction was spread among many other
operating expense accounts. See Note 5 of Notes to Consolidated Financial
Statements for an analysis of these changes.
The Corporation is not currently providing for Federal income taxes.
The Corporation had a Federal net operating loss carryforward of $2,500,000 as
of December 31, 1994. The provisions for income taxes for the three and nine
months ended September 30, 1995 are for State of New Jersey corporation taxes
only.
Three Months Ended September 30, 1995. The Corporation had net income
of $502,000 for the quarter ending September 30, 1995 as compared to a net loss
of $334,000 for the same quarter in 1994. An increase of $481,000 in net
interest income in 1995 versus 1994 is the major component of the $536,000
change. Again, the remediation of nonperforming assets was the major reason
why average interest-earning assets increased $39.2 million in the third
quarter of 1995 versus the same quarter in 1994, contributing to a $520,000
rise in net interest income due to volume. A slight decrease in the net
interest margin in these quarters, from 5.31% in 1994 to 5.23% in 1995, had a
negative impact of $39,000 on net interest income. Management expects further
increases in earning assets as the remaining balances of nonaccrual loans and
other real estate are reduced.
19
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Reference is made to Part II, Item 1 of the Corporation's
Form 10-Q for June 30, 1995. In addition to the suit referred to
therein, the Corporation and its subsidiaries are party, in the
ordinary course of business, to litigation involving collection
matters, contract claims and other miscellaneous causes of action
arising from its business. Management does not consider that any such
proceedings depart from usual routine litigation and in its judgment,
neither the Corporation's consolidated financial position nor its
results of operations will be affected materially by any present
proceedings.
ITEM 2 - CHANGES IN THE RIGHTS OF SECURITY HOLDERS
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RAMAPO FINANCIAL CORPORATION
----------------------------
(Registrant)
Date: November 13, 1995 By: /s/ Walter A. Wojcik, Jr.
---------------------- -------------------------------
Treasurer
DATE: November 13, 1995 By: /s/ Mortimer J. O'Shea
---------------------- -------------------------------
President and CEO
21
<PAGE> 22
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 8,473,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,016,000
<INVESTMENTS-CARRYING> 39,905,000
<INVESTMENTS-MARKET> 40,052,000
<LOANS> 157,118,000
<ALLOWANCE> 4,827,000
<TOTAL-ASSETS> 252,429,000
<DEPOSITS> 227,130,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,402,000
<LONG-TERM> 0
<COMMON> 8,160,000
0
1,250,000
<OTHER-SE> 13,487,000
<TOTAL-LIABILITIES-AND-EQUITY> 252,429,000
<INTEREST-LOAN> 10,523,000
<INTEREST-INVEST> 2,261,000
<INTEREST-OTHER> 954,000<F1>
<INTEREST-TOTAL> 13,738,000
<INTEREST-DEPOSIT> 4,649,000
<INTEREST-EXPENSE> 4,661,000
<INTEREST-INCOME-NET> 9,077,000
<LOAN-LOSSES> 800,000
<SECURITIES-GAINS> 4,000
<EXPENSE-OTHER> 8,614,000
<INCOME-PRETAX> 1,504,000
<INCOME-PRE-EXTRAORDINARY> 1,504,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,373,000
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
<YIELD-ACTUAL> 5.36
<LOANS-NON> 5,087,000
<LOANS-PAST> 241,000
<LOANS-TROUBLED> 218,000
<LOANS-PROBLEM> 2,422,000<F2>
<ALLOWANCE-OPEN> 6,501,000
<CHARGE-OFFS> 2,798,000
<RECOVERIES> 324,000
<ALLOWANCE-CLOSE> 4,827,000
<ALLOWANCE-DOMESTIC> 4,827,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>ALL FROM FEDERAL FUNDS SOLD
<F2>ONE LOAN
</FN>
</TABLE>
