<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, 1996
[ ] 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 8,097,199 shares at November 5, 1996.
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, 1996 and December 31, 1995
(Unaudited) ......................................... 3
Consolidated Statements of Income
for the Nine Months Ended September 30,
1996 and 1995 (Unaudited) ........................... 4
Consolidated Statements of Income
for the Three Months Ended September 30,
1996 and 1995 (Unaudited) ........................... 5
Consolidated Statement of Changes in
Stockholders' Equity for the Nine
Months Ended September 30, 1996 (Unaudited) ......... 6
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30,
1996 and 1995 (Unaudited) ........................... 7
Notes to Consolidated Financial
Statements (Unaudited) .............................. 8-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ...................................... 10-18
PART II - OTHER INFORMATION
ITEM 1 THROUGH ITEM 6 ........................................ 19
SIGNATURES ............................................................ 20
</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,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and Due From Banks $ 15,058,000 $ 9,160,000
Federal Funds Sold 3,700,000 5,802,000
------------- -------------
Total Cash and Cash Equivalents 18,758,000 14,962,000
Due from Bank - Interest-Bearing 1,000,000 1,000,000
Securities:
Available for Sale, at Fair Value 42,076,000 39,328,000
Held to Maturity, at Cost 25,530,000 20,030,000
Loans 162,682,000 160,580,000
Less: Allowance for Possible Loan Losses 5,562,000 4,853,000
------------- -------------
Net Loans 157,120,000 155,727,000
Premises and Equipment, net 2,658,000 2,675,000
Other Real Estate, net (Note 1) 3,085,000 4,408,000
Other Assets, net 9,456,000 7,883,000
Intangible Assets, net (Note 2) 315,000 503,000
------------- -------------
TOTAL ASSETS $ 259,998,000 $ 246,516,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand - Noninterest-Bearing $ 54,046,000 $ 49,761,000
- Interest-Bearing 32,769,000 25,740,000
Savings 74,603,000 73,348,000
Time 62,560,000 64,005,000
Certificates of Deposit over $100,000 4,790,000 4,208,000
------------- -------------
Total Deposits 228,768,000 217,062,000
Accrued Expenses and Other Liabilities 3,235,000 2,205,000
------------- -------------
Total Liabilities 232,003,000 219,267,000
STOCKHOLDERS' EQUITY
Class A Preferred Stock (Note 3) -- 717,000
Common Stock 8,161,000 8,160,000
Capital in Excess of Par Value 13,103,000 13,101,000
Retained Earnings 7,073,000 5,479,000
Net Unrealized Holding (Losses) Gains
on Securities Available for Sale (48,000) 86,000
Treasury Stock at Cost (63,406 shares) (294,000) (294,000)
------------- -------------
Total Stockholders' Equity 27,995,000 27,249,000
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 259,998,000 $ 246,516,000
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 4
RAMAPO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1996 1995
---- ----
<S> <C> <C>
INTEREST INCOME
Loans, including Fees $ 10,424,000 $10,523,000
Securities:
Taxable 2,712,000 2,210,000
Nontaxable 53,000 51,000
Federal Funds Sold 286,000 954,000
Time Deposit with Bank 46,000 --
------------ -----------
TOTAL INTEREST INCOME 13,521,000 13,738,000
------------ -----------
INTEREST EXPENSE
Savings and Interest-Bearing Demand Deposits 1,712,000 1,739,000
Time Deposits and Certificates of Deposit
over $100,000 2,594,000 2,910,000
Other Borrowings 1,000 12,000
------------ -----------
TOTAL INTEREST EXPENSE 4,307,000 4,661,000
------------ -----------
NET INTEREST INCOME 9,214,000 9,077,000
Provision for Possible Loan Losses 280,000 800,000
------------ -----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 8,934,000 8,277,000
OTHER INCOME
Service Charges on Deposit Accounts 1,045,000 1,124,000
(Losses) Gains on Securities Transactions (14,000) 4,000
Brokerage Commissions 230,000 238,000
Other Income 577,000 475,000
------------ -----------
TOTAL OTHER INCOME 1,838,000 1,841,000
------------ -----------
OTHER EXPENSES
Salaries and Employee Benefits 3,639,000 3,368,000
Net Occupancy Expense 585,000 559,000
Equipment Expense 422,000 415,000
OREO Expense - Cost of Operations, net 286,000 654,000
- Valuation Adjustments 705,000 950,000
Other Operating Expenses (Note 4) 2,071,000 2,668,000
------------ -----------
TOTAL OTHER EXPENSES 7,708,000 8,614,000
------------ -----------
INCOME BEFORE TAXES 3,064,000 1,504,000
Provision for Income Taxes 1,202,000 131,000
------------ -----------
NET INCOME $ 1,862,000 $ 1,373,000
============ ===========
Average Common Shares Outstanding (Note 5) 8,189,402 8,096,449
Income per Common Share $ 0.23 $ 0.16
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
RAMAPO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30
-------------------------------
1996 1995
---- ----
<S> <C> <C>
INTEREST INCOME
Loans, including Fees $ 3,481,000 $3,484,000
Securities:
Taxable 984,000 974,000
Nontaxable 19,000 17,000
Federal Funds Sold 100,000 254,000
Time Deposit with Bank 16,000 --
----------- ----------
TOTAL INTEREST INCOME 4,600,000 4,729,000
----------- ----------
INTEREST EXPENSE
Savings and Interest-Bearing Demand Deposits 611,000 581,000
Time Deposits and Certificates of Deposit
over $100,000 866,000 1,111,000
Other Borrowings 1,000 --
----------- ----------
TOTAL INTEREST EXPENSE 1,478,000 1,692,000
----------- ----------
NET INTEREST INCOME 3,122,000 3,037,000
Provision for Possible Loan Losses 120,000 125,000
----------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 3,002,000 2,912,000
OTHER INCOME
Service Charges on Deposit Accounts 346,000 382,000
(Losses) Gains on Securities Transactions (5,000) 4,000
Brokerage Commissions 78,000 72,000
Other Income 170,000 87,000
----------- ----------
TOTAL OTHER INCOME 589,000 545,000
----------- ----------
OTHER EXPENSES
Salaries and Employee Benefits 1,204,000 1,124,000
Net Occupancy Expense 195,000 193,000
Equipment Expense 150,000 137,000
OREO Expense - Cost of Operations, net 71,000 433,000
- Valuation Adjustments 125,000 275,000
Other Operating Expenses (Note 4) 582,000 744,000
----------- ----------
TOTAL OTHER EXPENSES 2,327,000 2,906,000
----------- ----------
INCOME BEFORE TAXES 1,264,000 551,000
Provision for Income Taxes 497,000 49,000
----------- ----------
NET INCOME $ 767,000 $ 502,000
=========== ==========
Average Common Shares Outstanding (Note 5) 8,188,903 8,096,449
Income per Common Share $ 0.09 $ 0.06
=========== ==========
</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 on Securities
Preferred Common in Excess of Retained Available Treasury
Stock Stock Par Value Earnings for Sale Stock
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $ 717,000 $8,160,000 $13,101,000 $5,479,000 $ 86,000 ($ 294,000)
Net Income for the Period -- -- -- 1,862,000 -- --
Redemption of Class A
Preferred Stock (Note 3) (717,000) -- -- (106,000) -- --
Change in Net Unrealized
Holding Gains on
Securities Available for Sale -- -- -- -- (134,000) --
Stock Options Exercised -- 1,000 2,000 -- -- --
Cash Dividends Declared, $.02 per share (162,000)
--------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1996 $ -- $8,161,000 $13,103,000 $7,073,000 ($ 48,000) ($ 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
------------
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 1,862,000 $ 1,373,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization of Premises and Equipment 350,000 334,000
Amortization of Intangible Assets 188,000 208,000
Accretion of Securities Discount, net (63,000) (363,000)
Provision for Possible Loan Losses 280,000 800,000
Net Provision for Possible Losses on Other Real Estate 705,000 950,000
Gain on Sale of Other Real Estate (89,000) --
Loss (Gain) on Securities Transactions, net 14,000 (4,000)
Loans Made or Acquired and Held for Sale (720,000) (153,000)
Proceeds from Loans Held for Sale 721,000 126,000
Gain on Sales of Loans Held for Sale (2,000) (2,000)
Decrease (Increase) in Interest Receivable 421,000 (709,000)
(Increase) Decrease in Other Receivables (1,592,000) 111,000
Increase (Decrease) in Accrued Expenses and Other Liabilities 1,047,000 (734,000)
Other (490,000) (247,000)
------------ ------------
Net Cash Provided by Operating Activities 2,632,000 1,690,000
------------ ------------
Cash Flows from Investing Activities:
Securities Available for Sale:
Proceeds from Maturities 3,522,000 2,040,000
Proceeds from Sales/Calls Prior to Maturity 16,895,000 --
Purchases (23,341,000) (13,584,000)
Securities Held to Maturity:
Proceeds from Maturities 2,500,000 --
Proceeds from Sales/Calls Prior to Maturity 3,002,000 1,996,000
Purchases (10,999,000) (38,442,000)
Net Decrease in Loans Outstanding (1,872,000) 4,717,000
Capital Expenditures (338,000) (223,000)
Advances Made on Other Real Estate (161,000) (480,000)
Payments Received on Other Real Estate -- 2,673,000
Proceeds from Sale of Other Real Estate 1,068,000 1,174,000
Other 3,000 --
------------ ------------
Net Cash Used in Investing Activities (9,721,000) (40,129,000)
------------ ------------
Cash Flows from Financing Activities:
Net Increase in Total Deposits 11,705,000 15,266,000
Redemption of Subordinated Debentures -- (1,292,000)
Redemption of Class A Preferred Stock (Note 3) (717,000) (500,000)
Preferred Stock Dividends Paid (Note 3) (106,000) (56,000)
Stock Options Exercised 3,000 --
------------ ------------
Net Cash Provided by Financing Activities 10,885,000 13,418,000
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents 3,796,000 (25,021,000)
Cash and Cash Equivalents, Beginning of Period 14,962,000 42,486,000
------------ ------------
Cash and Cash Equivalents, End of Period $ 18,758,000 $ 17,465,000
============ ============
</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 1995 financial statements to conform to
the 1996 presentation.
NOTE 1: OTHER REAL ESTATE
A summary of activity in other real estate is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,1996
-----------------
<S> <C>
Balance, beginning of period, net $ 4,408,000
Transfers from loans 200,000
Advances 161,000
Sales of properties (979,000)
Charge-offs or write-downs (8,000)
Increase in valuation allowance, net (697,000)
-----------
Balance, end of period, net $ 3,085,000
===========
</TABLE>
NOTE 2: INTANGIBLE ASSETS
Categories of net intangible assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1996 1995
-------- --------
<S> <C> <C>
Purchased Mortgage Servicing Rights $ 93,000 $123,000
Core Deposit Premiums 74,000 151,000
Premium on Purchased Home Equity
Lines of Credit 148,000 229,000
-------- --------
Net Intangible Assets $315,000 $503,000
======== ========
</TABLE>
8
<PAGE> 9
NOTE 3: PREFERRED STOCK REDEMPTION
During the first quarter of 1996, the Corporation redeemed $717,000 of
Class A preferred stock and paid cumulative dividends on that stock of
approximately $106,000. This action was taken with regulatory approval.
NOTE 4: SUPPLEMENTARY STATEMENTS OF INCOME INFORMATION
Major categories of Other Operating Expenses are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
FDIC Assessment $ 33,000 $ 360,000 $ -- $ 37,000
Legal 264,000 353,000 (8,000) 148,000
Bonding and Insurance 168,000 171,000 56,000 42,000
Consulting Fees 157,000 266,000 50,000 53,000
Credit Reports/Filing Fees 98,000 109,000 26,000 45,000
Examinations 126,000 196,000 42,000 66,000
Postage & Freight 107,000 134,000 27,000 40,000
Telephone 99,000 126,000 20,000 42,000
Amortization - Intangibles 188,000 188,000 63,000 43,000
Automated Services 116,000 117,000 49,000 28,000
Stationery & Printing 178,000 155,000 62,000 48,000
Advertising 168,000 99,000 76,000 11,000
Dues and Subscriptions 44,000 45,000 14,000 15,000
Employee/Customer Rel. 54,000 44,000 18,000 18,000
Directors' Fees 89,000 80,000 28,000 29,000
Correspondent Banks' Fees 25,000 54,000 8,000 16,000
All Others 157,000 171,000 51,000 63,000
---------- ---------- --------- --------
$2,071,000 $2,668,000 $ 582,000 $744,000
========== ========== ========= ========
</TABLE>
NOTE 5: AVERAGE COMMON SHARES
Average common shares outstanding in 1996 include outstanding stock
options which have exercise prices below that of the average price of the
common stock and performance-based stock options which are contingently
issuable.
9
<PAGE> 10
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, 1996 and results of operations for the three and
nine months ended September 30, 1996 and 1995 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, 1996 and for the three and nine
months ended September 30, 1996 and 1995 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, 1996 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 been
slowly improving. Real estate developers continue to report strong sales of new
homes while property values remained stable. The Corporation has experienced
increased demand for commercial loans during the quarter and has been successful
in closing many of them amidst strong competition. Also, fears of a rise in
interest rates were diminished when the Federal Reserve Bank decided not to
raise rates at its August meeting. The current consensus of opinion favors a
stable rate environment for another quarter at least.
The competition for deposits and loans remains heated in the
Corporation's market area. Active "cold calling" by officers at all levels of
the Corporation on businesses in its trade area has attracted new depositors and
borrowers. Many of these customers felt neglected by their former banks which
had recently undergone mergers. The Corporation's banking subsidiary, The Ramapo
Bank, (the "Bank") has taken over the lease of a branch banking site in
Fairfield, New Jersey, a community contiguous to Wayne, and opened the branch
for business in October. Also, in the fourth quarter, the Bank will acquire
approximately $10 million of deposits from another financial institution which
is closing a branch in close proximity to one of the Bank's offices.
The Corporation's total assets increased by $13.5 million (5.5%) during
the first nine months of 1996, with $11.3 million (4.5%) of that growth
occurring in the third quarter. Total deposits rose $11.7 million (5.4%) during
the nine months and $10.0 million (4.6%) for the third quarter.
10
<PAGE> 11
Demand deposits, both noninterest-bearing and interest-bearing, showed
the largest gains in the third quarter. Commercial lenders continued to be
successful in attracting deposits along with loan business during the quarter.
CAPITAL ADEQUACY AND REGULATORY MATTERS
As noted in Form 10-Q for the first quarter of 1996, both the
Corporation and the Bank were released from regulatory orders during the
first quarter of 1996.
The Corporation had been operating under a Written Agreement with the
Federal Reserve Bank of New York (the "FRB") since November, 1993. Based on a
limited-scope inspection by the FRB as of September 30, 1995 which noted the
continued improvement in the Corporation's operations, the Written Agreement was
terminated in March, 1996.
The Bank had been operating under a Memorandum of Understanding (the
"MOU") issued by the Federal Deposit Insurance Corporation (the "FDIC") and the
New Jersey Department of Banking (the "State") in May, 1995. The MOU replaced a
more onerous order to cease and desist which had been jointly issued by the FDIC
and State in November, 1992. The MOU was terminated in March, 1996 as a result
of the FDIC's examination of the Bank as of December 31, 1995.
The Corporation's capital raising efforts in October, 1994, when $11.7
million of new capital was added, and its continued profitability since then,
have resulted in the Corporation's and the Bank's being considered "well
capitalized" by their respective regulators.
11
<PAGE> 12
The following table reflects the capital ratios as of the specified dates:
<TABLE>
<CAPTION>
REQUIRED
REGULATORY
SEPT. 30 DECEMBER 31 CAPITAL
1996 1995 RATIOS (%)
---- ---- ----------
<S> <C> <C> <C>
CORPORATION
Tier 1 leverage capital 10.41% 10.08% *
Risk-based capital
Tier 1 13.88% 13.37% 4.00%
Total (Tier 1 and Tier 2) 15.15% 14.66% 8.00%
BANK
Tier 1 leverage capital 9.45% 8.62% *
Risk-based capital
Tier 1 12.60% 11.45% 4.00%
Total (Tier 1 and Tier 2) 13.87% 12.74% 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.
12
<PAGE> 13
ASSET QUALITY
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 $8.7 million and $4.3
million at December 31, 1995 and September 30, 1996, respectively. The September
30, 1996 total represents 1.6% of total assets.
The following table sets forth, as of the dates indicated, the
components of the Corporation's delinquent loans, nonperforming assets and
restructured loans. Nonperforming assets consist of nonaccrual loans, accruing
loans 90 days or more delinquent and other real estate ("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 concession 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.
13
<PAGE> 14
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1996 1995
---------- -----------
<S> <C> <C>
Loans 30-89 days past due ............... $3,676,000 $ 3,644,000
========== ===========
Nonaccrual loans:
Commercial and commercial real
estate .............................. $ 523,000 $ 3,459,000
Residential real estate
mortgage ............................ 34,000 375,000
Installment ........................... 17,000 356,000
---------- -----------
Total nonaccrual loans .............. 574,000 4,190,000
---------- -----------
Loans past due 90 days or more:
Commercial and commercial real
estate .............................. 57,000 37,000
Residential real estate
mortgage ............................ 281,000 53,000
Installment ........................... 274,000 51,000
---------- -----------
Total loans past due 90 days
or more ........................... 612,000 141,000
---------- -----------
Total nonperforming loans ........... $1,186,000 $ 4,331,000
---------- -----------
Other real estate, net .................. $3,085,000 $ 4,408,000
---------- -----------
Total nonperforming assets .............. $4,271,000 $ 8,739,000
========== ===========
Restructured loans ...................... $1,559,000 $ 1,702,000
---------- -----------
Total nonperforming assets and
restructured loans .................... $5,830,000 $10,441,000
========== ===========
</TABLE>
Of the loans in the 30-89 days past due category, only a $1.1 million
commercial loan secured by real estate is considered a potential problem loan.
14
<PAGE> 15
Management believes that the net carrying value of ORE at September 30,
1996 is equal to 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 further reductions 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. 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 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, 1996, 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, 1996 of $5.6 million, or 469.0% of nonperforming loans and 3.4% of
total 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. For the nine months ended
September 30, 1996, recoveries exceeded charge-offs by $430,000. Although
management believes it uses the best information available to make
15
<PAGE> 16
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, 1996, the Bank's liquidity consisted of cash and due
from banks of $15.1 million, federal funds sold of $3.7 million and securities
available for sale of $42.1 million. Management deems these amounts to be more
than adequate to meet its short-term cash needs.
The parent company held $2.5 million of cash and cash equivalents at
the Bank at September 30, 1996. Its cash flows from operations are essentially
break-even. These funds are available for general corporate purposes.
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 valuation allowances.
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.
The reduction in nonperforming assets has led to a significant
reduction in expenses related to these assets. For the nine months ended
September 30, 1996, loan loss provisions and ORE-related expenses totaled $1.3
million as compared to $2.4 million during the same period in 1995. Management
expects that future ORE-related expenses will be less than that incurred in
1996.
Although the third quarter of 1996 marked the eighth consecutive
16
<PAGE> 17
profitable quarter for the Corporation, management believes that sustained
performance on a level with higher-earning peers is dependent upon its ability
to further reduce levels of nonperforming assets and curtail additions to the
valuation allowance for losses on ORE. Management anticipates that it can
reduce its provisions to the ORE valuation allowance because fewer ORE
properties remain, and because of the adequacy of current valuation allowances.
NINE MONTHS ENDED SEPTEMBER 30, 1996. The Corporation recorded net
income of $1,862,000 or $.23 per common share, for the first nine months of 1996
as compared to net income of $1,373,000, or $.16 per common share for the same
period in 1995, an increase of 35.6%. The Corporation benefited from net
operating loss carryforwards in 1995 and thus recorded no federal income tax
provision; in 1996, the Corporation is fully taxable for financial reporting
purposes. On a pre-tax basis, therefore, income was $3,064,000 for the first
nine months of 1996, an increase of $1,560,000 (103.7%) over the first nine
months of 1995. The most significant reasons for the increase in pre-tax
income are a $520,000 reduction in the provision for possible loan losses and
a $613,000 reduction in ORE-related expenses. These were made possible by the
continued improvement in asset quality.
Net interest income showed a modest increase of $137,000 in 1996 versus
1995, primarily due to a higher net interest margin (5.45% vs 5.37%).
Although total other income in 1996 showed little change from the 1995
amount, service charges on deposit accounts dropped $79,000 (7.0%) in 1996
compared to 1995. This reflects changes in the way customers manage their
deposit accounts, especially in regards to overdrafts. Salaries and employee
benefits increased $271,000 for the nine months in 1996 versus 1995 due to wage
increases and higher benefits costs. ORE-related expenses declined $613,000 in
1996 which reflects the reduction of these properties. Another $597,000 of
other expenses were reduced in 1996, the largest a $327,000 (90.8%) decline in
the FDIC assessment due to a reduction in insurance rates and an improvement
in the Bank's risk rating. Future FDIC fees should remain at statutory minimum
levels as long as the Bank's risk profile does not change. Recent legislation
increased the minimum assessment to 1.29 cents per $100 of deposits for the next
three years. Management considers this increase to be immaterial. See Note 4
of Notes to Consolidated Financial Statements for an analysis of the
remaining changes.
THREE MONTHS ENDED SEPTEMBER 30, 1996. The Corporation had net income
of $767,000, or $.09 per common share in 1996 compared to $502,000 or $.06 per
common share for the third quarter of 1995, a 52.8% increase. On a pre-tax
basis, earnings were $1,264,000 in 1996 as compared to $551,000 in 1995 - a
$713,000 (129.4%) increase. An $85,000 increase in net interest income, a
$512,000 reduction in ORE-related expenses and a $156,000 reduction in legal
17
<PAGE> 18
fees are the most significant reasons for the 1996 improvement.
Net interest income increased because of a 20 basis point rise in the
net interest margin in the third quarter of 1996 versus 1995. Other income
increased $44,000 during the quarter, primarily due to a $58,000 reversal of
legal fees that were accrued in 1995 to defend a lawsuit by a former employee.
That lawsuit has been withdrawn. Small increases in 1996 for salaries and
benefits, occupancy and equipment expenses were more than offset by the
reduction in ORE-related expenses. ORE-related expenses are expected to continue
to decline as the remaining ORE properties are disposed of in future quarters.
The net recovery of legal expense for the quarter was the result of having
little ORE-related legal fees and reversing $51,000 of legal fees accrued
earlier in 1996 for the aforementioned lawsuit. See Note 4 of Notes to
Consolidated Financial Statements for an analysis of the remaining changes.
18
<PAGE> 19
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
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
19
<PAGE> 20
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 14, 1996 By: /s/ Walter A. Wojcik, Jr.
---------------------- -------------------------
Treasurer
Date: November 14, 1996 By: /s/ Mortimer J. O'Shea
---------------------- -------------------------
President and CEO
20
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