<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 JUNE 30, 1998
[ ] 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)
(973) 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 8,140,949 shares outstanding at August 7,
1998.
<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
June 30, 1998 and December 31, 1997
(Unaudited).................................................................................. 3
Consolidated Statements of Income
for the Six Months Ended June 30,
1998 and 1997 (Unaudited).................................................................... 4
Consolidated Statements of Income
for the Three Months Ended June 30,
1998 and 1997 (Unaudited).................................................................... 5
Consolidated Statement of Changes in
Stockholders' Equity for the Six
Months Ended June 30, 1998 and Year
Ended December 31, 1997 (Unaudited).......................................................... 6
Consolidated Statements of Cash Flows
for the Six Months Ended June 30,
1998 and 1997 (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>
June 30 December 31
1998 1997
---- ----
<S> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and Due From Banks $ 12,146,000 $ 9,550,000
Federal Funds Sold 13,450,000 10,725,000
------------- -------------
Total Cash and Cash Equivalents 25,596,000 20,275,000
Securities:
Available for Sale, at Fair Value 75,212,000 48,556,000
Held to Maturity, at Cost (Fair Value $48,359,000 48,122,000 40,438,000
and $40,652,000)
Loans 163,221,000 169,106,000
Less- Allowance for Possible Loan Losses 4,114,000 4,628,000
------------- -------------
Net Loans 159,107,000 164,478,000
Premises and Equipment, net 3,127,000 3,246,000
Other Real Estate, net 2,069,000 2,192,000
Other Assets, net 6,368,000 5,921,000
Intangible Assets, net (Note 1) 556,000 621,000
------------- -------------
TOTAL ASSETS $ 320,157,000 $ 285,727,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand - Noninterest-Bearing $ 63,122,000 $ 60,367,000
- Interest-Bearing 44,154,000 34,546,000
Savings 97,395,000 84,973,000
Time 63,921,000 62,372,000
Certificates of Deposit over $100,000 8,173,000 7,502,000
------------- -------------
Total Deposits 276,765,000 249,760,000
Securities Sold Under Agreements to Repurchase 7,544,000 1,677,000
Accrued Expenses and Other Liabilities 3,267,000 2,993,000
------------- -------------
Total Liabilities 287,576,000 254,430,000
STOCKHOLDERS' EQUITY
Common Stock 8,139,000 8,107,000
Capital in Excess of Par Value 12,984,000 12,901,000
Retained Earnings 11,457,000 10,339,000
Accumulated Other Comprehensive Income (Loss) 1,000 (50,000)
------------- -------------
Total Stockholders' Equity 32,581,000 31,297,000
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 320,157,000 $ 285,727,000
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 4
RAMAPO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30
1998 1997
---- ----
<S> <C> <C>
INTEREST INCOME
Loans, including Fees $ 7,070,000 $ 7,070,000
Securities:
Taxable 2,891,000 2,200,000
Nontaxable 173,000 81,000
Federal Funds Sold 324,000 262,000
Time Deposit with Bank -- 29,000
------------ ------------
TOTAL INTEREST INCOME 10,458,000 9,642,000
------------ ------------
INTEREST EXPENSE
Savings and Interest-Bearing Demand Deposits 1,603,000 1,344,000
Time Deposits and Certificates of Deposit
over $100,000 1,839,000 1,712,000
Other Borrowings 110,000 --
------------ ------------
TOTAL INTEREST EXPENSE 3,552,000 3,056,000
------------ ------------
NET INTEREST INCOME 6,906,000 6,586,000
Provision for Possible Loan Losses 150,000 240,000
------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 6,756,000 6,346,000
OTHER INCOME
Service Charges on Deposit Accounts 692,000 695,000
Losses on Securities Transactions (20,000) (14,000)
Brokerage Commissions 230,000 185,000
Other Income 254,000 197,000
------------ ------------
TOTAL OTHER INCOME 1,156,000 1,063,000
------------ ------------
OTHER EXPENSES
Salaries and Employee Benefits 2,887,000 2,633,000
Net Occupancy Expense 419,000 431,000
Equipment Expense 341,000 343,000
Other Operating Expenses (Note 2) 1,525,000 1,548,000
------------ ------------
TOTAL OTHER EXPENSES 5,172,000 4,955,000
------------ ------------
INCOME BEFORE TAXES 2,740,000 2,454,000
Provision for Income Taxes 1,053,000 918,000
------------ ------------
NET INCOME $ 1,687,000 $ 1,536,000
============ ============
NET INCOME PER COMMON SHARE (NOTE 3):
Basic $ 0.21 $ 0.19
============ ============
Diluted $ 0.20 $ 0.18
============ ============
</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 June 30
1998 1997
---- ----
<S> <C> <C>
INTEREST INCOME
Loans, including Fees $ 3,525,000 $ 3,572,000
Securities:
Taxable 1,604,000 1,174,000
Nontaxable 91,000 46,000
Federal Funds Sold 159,000 100,000
Time Deposit with Bank -- 15,000
----------- -----------
TOTAL INTEREST INCOME 5,379,000 4,907,000
----------- -----------
INTEREST EXPENSE
Savings and Interest-Bearing Demand Deposits 839,000 683,000
Time Deposits and Certificates of Deposit
over $100,000 935,000 861,000
Other Borrowings 84,000 --
----------- -----------
TOTAL INTEREST EXPENSE 1,858,000 1,544,000
----------- -----------
NET INTEREST INCOME 3,521,000 3,363,000
Provision for Possible Loan Losses 75,000 120,000
----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 3,446,000 3,243,000
OTHER INCOME
Service Charges on Deposit Accounts 350,000 352,000
Losses on Securities Transactions (15,000) (6,000)
Brokerage Commissions 122,000 104,000
Other Income 125,000 98,000
----------- -----------
TOTAL OTHER INCOME 582,000 548,000
----------- -----------
OTHER EXPENSES
Salaries and Employee Benefits 1,431,000 1,338,000
Net Occupancy Expense 210,000 227,000
Equipment Expense 172,000 172,000
Other Operating Expenses (Note 2) 775,000 746,000
----------- -----------
TOTAL OTHER EXPENSES 2,588,000 2,483,000
----------- -----------
INCOME BEFORE TAXES 1,440,000 1,308,000
Provision for Income Taxes 553,000 486,000
----------- -----------
NET INCOME $ 887,000 $ 822,000
=========== ===========
NET INCOME PER COMMON SHARE (NOTE 3):
Basic $ 0.11 $ 0.10
=========== ===========
Diluted $ 0.10 $ 0.10
=========== ===========
</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>
For the year ended December 31, 1997 Comprehensive Retained
and six months ended June 30, 1998: Total Income Earnings
----------------------------------------------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $29,036,000 $8,105,000
Comprehensive income (Note 4):
Net income 3,205,000 $3,205,000 3,205,000
Unrealized losses on securities, net of re-
classification adjustment (see disclosure) (11,000) (11,000)
----------
Comprehensive income $3,194,000
==========
Stock options exercised 38,000
Cash dividends, $.12 per share (971,000) (971,000)
Retirement of treasury stock
----------- ------------
BALANCE, DECEMBER 31, 1997 31,297,000 10,339,000
Comprehensive income (Note 4):
Net income 1,687,000 $1,687,000 1,687,000
Unrealized gains on securities, net of re-
classification adjustment (see disclosure) 51,000 51,000
----------
Comprehensive income $1,738,000
==========
Stock options exercised 115,000
Cash dividends, $.07 per share (569,000) (569,000)
----------- ------------
BALANCE, JUNE 30, 1998 $32,581,000 $11,457,000
=========== ============
DISCLOSURE OF RECLASSIFICATION AMOUNT: Six
Year Ended Months Ended
12/31/97 6/30/98
----------------------------------
Unrealized holding (losses) gains arising during period ($19,000) $39,000
Less: reclassification adjustment for losses
included in net income 8,000 12,000
---------------------------
Net unrealized (losses) gains on securities ($11,000) $51,000
===========================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Capital
For the year ended December 31, 1997 Comprehensive Common in Excess of Treasury
and six months ended June 30, 1998: Income (Loss) Stock Par Value Stock
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 ($39,000) $8,161,000 $13,103,000 ($294,000)
Comprehensive income (Note 4):
Net income
Unrealized losses on securities, net of re-
classification adjustment (see disclosure) (11,000)
Comprehensive income
Stock options exercised 10,000 28,000
Cash dividends, $.12 per share
Retirement of treasury stock (64,000) (230,000) 294,000
----------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 (50,000) 8,107,000 12,901,000 --
Comprehensive income (Note 4):
Net income
Unrealized gains on securities, net of re-
classification adjustment (see disclosure) 51,000
Comprehensive income
Stock options exercised 32,000 83,000
Cash dividends, $.07 per share
----------------------------------------------------------------
BALANCE, JUNE 30, 1998 $1,000 $8,139,000 $12,984,000 $ --
================================================================
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE> 7
RAMAPO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 1,687,000 $ 1,536,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization of Premises and Equipment 283,000 299,000
Amortization of Intangible Assets 65,000 153,000
Amortization (Accretion) of Securities Premium (Discount), net 35,000 (55,000)
Provision for Possible Loan Losses 150,000 240,000
Provision for Possible Losses on Other Real Estate, net -- 115,000
Gain on Sale of Other Real Estate (20,000) --
Loss on Securities Transactions, net 20,000 14,000
Increase in Interest Receivable (291,000) (34,000)
Increase in Accrued Expenses and Other Liabilities 192,000 591,000
Increase in Other Assets (190,000) (286,000)
------------ ------------
Net Cash Provided by Operating Activities 1,931,000 2,573,000
------------ ------------
Cash Flows from Investing Activities:
Securities Available for Sale:
Proceeds from Maturities 4,826,000 1,116,000
Proceeds from Sales/Calls Prior to Maturity 5,469,000 8,108,000
Purchases (36,911,000) (8,618,000)
Securities Held to Maturity:
Proceeds from Maturities 5,301,000 2,131,000
Proceeds from Calls Prior to Maturity 2,540,000 1,000,000
Purchases (15,535,000) (17,032,000)
Decrease (Increase) in Loans Outstanding, net 5,221,000 (1,432,000)
Capital Expenditures (164,000) (243,000)
Advances Made on Other Real Estate (142,000) (271,000)
Proceeds from Sale of Other Real Estate 285,000 556,000
Other -- (10,000)
------------ ------------
Net Cash Used in Investing Activities (29,110,000) (14,695,000)
------------ ------------
Cash Flows from Financing Activities:
Increase in Total Deposits, net 27,005,000 3,693,000
Increase in Short-Term Borrowings, net 5,867,000 2,000
Cash Dividends on Common Stock (487,000) (405,000)
Proceeds from Stock Options Exercised 115,000 9,000
------------ ------------
Net Cash Provided by Financing Activities 32,500,000 3,299,000
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents 5,321,000 (8,823,000)
Cash and Cash Equivalents, Beginning of Period 20,275,000 29,758,000
------------ ------------
Cash and Cash Equivalents, End of Period $ 25,596,000 $ 20,935,000
============ ============
</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.
NOTE 1: INTANGIBLE ASSETS
Categories of net intangible assets are as follows:
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
---- ----
<S> <C> <C>
Purchased Mortgage Servicing Rights $ 23,000 $ 43,000
Core Deposit Premiums 533,000 565,000
Premium on Purchased Home Equity
Lines of Credit - 13,000
-------- --------
Net Intangible Assets $556,000 $621,000
======== ========
</TABLE>
8
<PAGE> 9
NOTE 2: SUPPLEMENTARY STATEMENTS OF INCOME INFORMATION
Major categories of Other Operating Expenses are as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
FDIC Fees $ 15,000 $ 14,000 $ 8,000 $ 7,000
Legal 70,000 107,000 31,000 47,000
Bonding and Insurance 62,000 65,000 25,000 24,000
Consulting Fees 105,000 95,000 45,000 40,000
Credit Reports/Filing Fees 65,000 52,000 33,000 28,000
Examinations 72,000 90,000 36,000 45,000
Postage & Freight 87,000 72,000 39,000 39,000
Telephone 100,000 100,000 53,000 55,000
Amortization - Intangibles 65,000 153,000 26,000 75,000
Automated Services 98,000 92,000 65,000 52,000
Stationery & Printing 126,000 136,000 59,000 67,000
Advertising 103,000 85,000 36,000 44,000
Dues and Subscriptions 36,000 29,000 18,000 14,000
Employee/Customer Relations 41,000 39,000 23,000 25,000
Directors' Fees 67,000 65,000 36,000 35,000
Reimbursements 55,000 47,000 24,000 22,000
ATM MAC Fees 59,000 58,000 30,000 31,000
ORE-Valuation Provisions -- 115,000 -- 28,000
- Cost of Operations, net 158,000 64,000 106,000 55,000
All Others 141,000 70,000 82,000 13,000
---------- ---------- ---------- ----------
$1,525,000 $1,548,000 $ 775,000 $ 746,000
========== ========== ========== ==========
</TABLE>
9
<PAGE> 10
NOTE 3: NET INCOME PER COMMON SHARE
Basic income per common share is calculated by dividing net income for
the respective periods by the weighted average shares outstanding during the
periods. Diluted income per common share gives effect to outstanding stock
options granted to employees and nonemployee directors.
Weighted average shares are as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic 8,129,257 8,098,666 8,136,176 8,099,449
Diluted 8,540,828 8,317,142 8,528,459 8,327,067
</TABLE>
NOTE 4: OTHER COMPREHENSIVE INCOME
The tax effect of other comprehensive income is as follows:
<TABLE>
<CAPTION>
Tax
Before-Tax Benefit or Net-Of-Tax
Six months ended June 30, 1998: Amount Provision Amount
------ --------- ------
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains
arising during period $ 65,000 $(26,000) $ 39,000
Less: reclassification adjustments
for losses realized in net income 20,000 (8,000) 12,000
-------- -------- --------
Net unrealized gains 85,000 (34,000) 51,000
-------- -------- --------
Other comprehensive income $ 85,000 $(34,000) $ 51,000
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1997: Before-Tax Tax Net-Of-Tax
Amount Benefit Amount
------ ------- ------
<S> <C> <C> <C>
Unrealized losses on securities:
Unrealized holding losses
arising during period $(31,000) $ 12,000 $(19,000)
Less: reclassification adjustments
for losses realized in net income 14,000 (6,000) 8,000
-------- -------- --------
Net unrealized losses (17,000) 6,000 (11,000)
-------- -------- --------
Other comprehensive income $(17,000) $ 6,000 $(11,000)
======== ======== ========
</TABLE>
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 June 30, 1998 and results of operations for the six and three
months ended June 30, 1998 and 1997 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
contained elsewhere herein. The information as of June 30, 1998 and for the six
and three months ended June 30, 1998 and 1997 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 six and three
months ended June 30, 1998 are not necessarily indicative of the results which
may be expected for any other period.
FINANCIAL CONDITION AND RECENT OPERATING ENVIRONMENT
GENERAL. A strong and active residential real estate market continued
to be the driving force behind the Corporation's deposit growth and commercial
lending activity in the second quarter of 1998. Law firms serviced by the
Corporation have maintained the higher than normal balances that were evident in
the first quarter, while consumers have found the Corporation's deposit products
to be attractively structured and priced. Although lending activity has
increased in the second quarter as evidenced by a higher volume of pending deals
than in the first quarter, loans outstanding dropped slightly in the second
quarter due to prepayments and the normal time lag needed to close the deals in
process.
The Corporation's market area is a densely populated, highly
competitive suburban area. Calling efforts by officers at all levels of the
Corporation on businesses and referral sources in its trade area have resulted
in increased awareness of Ramapo's capabilities as well as in new depositors and
borrowers. Because the Corporation is committed to providing a high level of
personal service along with the latest technology, management believes that it
is well-positioned to attract customers from rivals that were recently merged
into out-of-state institutions.
The Corporation is pleased with the reception from its
business customers to the introduction last year of Commercial Access and
Treasury Plus. These cash management products demonstrate that
technology-dependent services are not the exclusive domain of large
institutions. The Corporation is also pleased at the growth experienced by its
two newest offices, Fairfield and Parsippany, which were opened in August, 1996
and September, 1997, respectively. These branch offices now cover the cost of
their operation and have excellent potential for further growth.
At June 30, 1998, the Corporation's total assets climbed to $320.2
million, a $13.7 million (4.5%) increase from the March 31, 1998 total, and a
$34.4 million (12.0%) rise from December 31, 1997. A $27.0 million (10.8%)
increase in deposits during the first six months of 1998 was primarily
responsible for this asset growth. The deposit growth and a $5.9 million (3.5%)
decrease in gross loans outstanding during the six months provided most of the
funding for the $34.3 million (38.6%) growth in the securities portfolio and the
$5.3 million (26.2%) increase in cash and cash equivalents.
11
<PAGE> 12
REGULATORY CAPITAL
The Corporation and The Ramapo Bank ("Bank") are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory -
and possibly additional discretionary - actions by regulators that if undertaken
could have a direct material effect on the Corporation's and Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Corporation and Bank each must meet specific
capital guidelines that involve quantitative measures of their respective
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Corporation's and Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Corporation and the Bank to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier 1 capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes that the
Corporation and the Bank meet all capital adequacy requirements to which they
are subject as of June 30, 1998.
As of June 30, 1998, the most recent notification from the Federal
Deposit Insurance Corporation ("FDIC") categorized the Bank as "well
capitalized" under the regulatory framework for prompt corrective action. The
Corporation was notified by the Federal Reserve Bank of New York ("FRB") that it
was "well capitalized" based on the FRB's examination as of June 30, 1996. To be
categorized as "well capitalized" the Corporation and the Bank must maintain
minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set
forth in the table below. There are no conditions or events since those
notifications that management believes have changed the Corporation's or the
Bank's respective categories.
12
<PAGE> 13
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998:
Total Capital
(to Risk-Weighted Assets):
CORPORATION ................................... $34,680,000 16.5% *$16,851,000 *8.0% *$21,063,000 *10.0%
Bank .......................................... $29,194,000 13.9% *$16,799,000 *8.0% *$20,999,000 *10.0%
Tier 1 Capital (to Risk-Weighted Assets):
CORPORATION ................................... $32,029,000 15.2% * $8,425,000 *4.0% *$12,638,000 * 6.0%
Bank .......................................... $26,551,000 12.6% * $8,399,000 *4.0% *$12,599,000 * 6.0%
Tier 1 Capital (to Average Assets):
CORPORATION ................................... $32,029,000 10.3% *$12,400,000 *4.0% *$15,500,000 * 5.0%
Bank .......................................... $26,551,000 8.6% *$12,371,000 *4.0% *$15,464,000 * 5.0%
As of December 31, 1997:
Total Capital (to Risk-Weighted Assets):
CORPORATION ................................... $31,854,000 16.5% *$15,417,000 *8.0% *$19,271,000 *10.0%
Bank .......................................... $29,405,000 15.3% *$15,377,000 *8.0% *$19,221,000 *10.0%
Tier 1 Capital (to Risk-Weighted Assets):
CORPORATION ................................... $29,417,000 15.3% * $7,708,000 *4.0% *$11,563,000 * 6.0%
Bank .......................................... $26,975,000 14.0% * $7,688,000 *4.0% *$11,533,000 * 6.0%
Tier 1 Capital (to Average Assets):
CORPORATION ................................... $29,417,000 10.5% *$11,234,000 *4.0% *$14,042,000 * 5.0%
Bank .......................................... $26,975,000 9.6% *$11,219,000 *4.0% *$14,024,000 * 5.0%
</TABLE>
* denotes greater than or equal to sign
13
<PAGE> 14
ASSET QUALITY
The following table sets forth, as of the dates indicated, the
components of the Corporation's delinquent loans and nonperforming assets.
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. All of the Corporation's ORE at June
30, 1998 and December 31, 1997 consisted of loan collateral that had been
formally repossessed. 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. 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. Such loans, in which a concession was granted to the borrower
related to the borrower's financial difficulties that the Corporation would not
otherwise consider, are reported as impaired loans. For a discussion of impaired
loans see "Allowance for Possible Loan Losses" below.
14
<PAGE> 15
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
---- ----
<S> <C> <C>
Loans 30-89 days past due ................ $1,180,000 $3,256,000
========== ==========
Nonaccrual loans:
Commercial and commercial real estate . $ 428,000 $ 490,000
Residential real estate mortgage ...... 112,000 211,000
Installment ........................... -- 44,000
---------- ----------
540,000 745,000
---------- ----------
Loans past due 90 days or more:
Commercial and commercial real estate . 165,000 8,000
Residential real estate mortgage ...... 91,000 104,000
Installment ........................... 34,000 --
---------- ----------
Total loans past due 90 days or more 290,000 112,000
---------- ----------
Total nonperforming loans .......... $ 830,000 $ 857,000
---------- ----------
Other real estate, net ................... $2,069,000 $2,192,000
---------- ----------
Total nonperforming assets ............... $2,899,000 $3,049,000
========== ==========
</TABLE>
The only loans 30-89 days past due that are considered to be potential problem
loans are several small installment loans totaling $96,000 and one commercial
loan of $198,000. The decrease in this category is due to a problem with one
loan of $2.2 million. This loan, part of a $15.0 million concentration (at
December 31, 1997) to a group of affiliated borrowers, was deemed to be impaired
in March, 1998. Approximately one-half of the loan was placed on nonaccrual
status at March 31, 1998 but was subsequently restructured and returned to
performing status as of June 30, 1998; the remainder was charged off. Five loans
totaling $10.4 million of this $15.0 million concentration are secured by first
mortgages in which payments are received directly from third party tenants; all
such loans are current and performing in accordance with their terms. The
remaining $2.5 million of loans are also current and performing in accordance
with their terms. Management believes that the net carrying value of ORE at June
30, 1998 is equal to the lower of such assets' balances when transferred to ORE
or the estimated fair value at that date (after reduction for estimated selling
costs) of the properties acquired.
15
<PAGE> 16
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 Statement of Financial Accounting Standards
("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 June 30, 1998, 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. The Corporation's
impaired loans totaled $1,676,000 and $2,164,000 at June 30, 1998 and December
31, 1997, respectively, the amounts of its commercial nonaccrual and other
qualifying loans that are performing in accordance with their restructured terms
on those dates. Management believes the allowance for possible loan losses at
June 30, 1998 of $4.1 million, or 495.7% of nonperforming loans and 2.5% 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. 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
specific borrower economic conditions differ substantially from the assumptions
used in making the initial determinations.
LIQUIDITY
At June 30, 1998, the Corporation's liquidity consisted of cash and
cash equivalents of $25.6 million and securities available for sale of $75.2
million. In addition, the Bank has in place both unsecured and secured borrowing
lines of credit. Management deems these amounts to be more than adequate to meet
its short-term cash needs.
The parent company held $6.0 million of cash and cash equivalents at
the Bank at June 30, 1998. Its cash flows from operations are essentially
break-even. These funds are available for general corporate purposes.
16
<PAGE> 17
Management believes that future earnings should be sufficient to allow
for substantial growth and payment of dividends without having to raise
additional capital.
IMPACT OF NEW ACCOUNTING STANDARDS
In June, 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", which requires that a public business enterprise report financial
and descriptive information about its reportable operating segments. The
Statement becomes effective for fiscal years beginning after December 15, 1997;
earlier application is permitted. The Corporation has elected not to adopt this
Statement prior to its effective date of December 31, 1998 and has determined
that it does not have any reportable segments.
The FASB issued SFAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits", in February, 1998. This Statement revises
employers' disclosures about pension and other postretirement benefit plans. The
Statement becomes effective for fiscal years beginning after December 15, 1997;
earlier application is permitted. The Corporation has elected not to adopt this
statement prior to its effective date of December 31, 1998 and has not
determined the effect, if any, on its current disclosures.
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. Statement 133 is effective for
fiscal years beginning after June 15, 1999. A company may also implement the
Statement as of the beginning of any fiscal quarter after issuance (that is,
fiscal quarters beginning June 16, 1998 and thereafter). Statement 133 cannot be
applied retroactively. Statement 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired, or substantively modified after December 31, 1997
(and, at the company's election, before January 1, 1998). The Corporation has
elected not to adopt this statement prior to its effective date, but expects
that the impact of adoption on its financial statements will be immaterial.
YEAR 2000
The Corporation utilizes software and related technologies throughout
its business that will be affected by the date change in the year 2000 ("Y2K").
During 1997, a committee comprised of the entire senior management team and
other key associates was formed to determine the full scope and related costs of
this problem to insure that the Corporation's systems continue to meet its
internal needs and those of its customers.
17
<PAGE> 18
The first phase of this project, the assessment phase, has been
completed. The Y2K committee has identified all hardware, software, systems and
processes that might be affected by the century date change. It has evaluated
the criticality of each and assigned a code ranging from 1 - High to 4 - Not
Critical. A plan of action for each item was developed which include tests and
alternatives. Possible worst case scenarios were discussed to help determine the
criticality of an item. For example, if the Corporation's primary accounting
software does not read the century date change correctly, it is possible that
borrowers' and depositors' accounts will have miscalculations and balance
errors. The entire internal bookkeeping process could be affected to the point
where the Corporation would halt operations until a remedy was put in place.
Thus, the Corporation's primary accounting system is considered to be a mission
critical item and was assigned a 1-High code. On the positive side, the
accounting system's vendor has represented to the Corporation that its software
is Y2K compliant. The vendor has obtained Y2K compliance certification from an
independent testing organization and the software has also been reviewed by the
Federal Financial Institution Examination Council; their report is pending. In
addition, a lending subcommittee was formed to evaluate the risk that the Y2K
problem might have on all of the Corporation's borrowers who have indebtedness
in excess of $250,000. This evaluation, now substantially completed, was
undertaken to assess borrowers' ability to repay loans in the year 2000 and
beyond. Overall, the Corporation believes that the Y2K issue poses a low risk to
a large majority of its borrowers.
The project is currently in the second or testing phase. Written
testing plans have been prepared for all items assigned a High or Moderate
criticality code. Although testing has been completed on a number of these
applications, the Corporation is dependent upon the vendor of its primary
accounting software system to provide it with a test module so that this
software and the systems and processes that are interdependent with it can be
adequately tested. The vendor has represented to the Corporation that this
module will be available by October 1. The Corporation expects to have tests of
all items coded High or Moderate completed by December 31, 1998.
The final phase of this project is to administer the contingency plans
where testing has uncovered weaknesses. This phase has already begun in certain
areas. For instance, many old personal computers ("PC's") and their software
have been replaced with Y2K compliant PC's and software. The Corporation's
primary processor, an IBM AS/400 certified by IBM to be Y2K compliant, was
installed in July, 1998 to replace an older version.
The Corporation believes it has committed sufficient resources to this
project to insure its success. Costs incurred to date have not been material.
The Corporation has no programmers on staff and is reliant on the vendors of
purchased software to upgrade their products to be Y2K compliant if necessary.
To date, the Y2K project is on schedule and future costs are not expected to be
material.
RESULTS OF OPERATIONS
GENERAL. The Corporation's results of operations are dependent
primarily on its net interest income, which 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. The Corporation's net income is also
affected by the generation of noninterest income, which consists primarily of
service fees on deposit accounts and other fee income. 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.
18
<PAGE> 19
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.
SIX MONTHS ENDED JUNE 30, 1998. The Corporation recorded net income of
$1,687,000, or $.20 per diluted common share, for the first six months of 1998
as compared to $1,536,000, or $.18 per diluted common share for the same period
in 1997. On a pre-tax basis, net income increased $286,000 (11.7%) during the
first six months of 1998 versus the same period of 1997, largely due to an
increase in net interest income.
Net interest income rose $320,000 (4.9%) during the first six months of
1998 as compared to the same period of 1997 due to an increase in the average
volume of earning assets; the tax-equivalent net interest margin fell from 5.34%
in the first six months of 1997 to 4.99% in the comparable period of 1998. The
increased earning asset volume was made possible by a $24.6 million (10.4%)
increase in average deposits in 1998 versus 1997.
Increased credit quality resulted in a $90,000 reduction in the
provision for possible loan losses in 1998 versus 1997. Almost half of the
increase in other income was due to a $45,000 (24.3%) rise in brokerage
commissions. All of these increases were offset in part by a $217,000 (4.4%)
increase in other expenses. Salaries and employee benefits rose $254,000 (9.6%)
for the six months in 1998 versus 1997, $67,000 of which was due to staffing a
new branch office that opened in August, 1997; the remainder was due to
higher benefit costs, normal salary increases and increased stock option
valuation expense.
THREE MONTHS ENDED JUNE 30, 1998. A continuation of the net interest
income growth experienced during the first quarter of 1998 was largely
responsible for the $65,000 (7.9%) rise in net income during the second quarter
of 1998 as compared to the second quarter of 1997, from $822,000 or $.10 per
diluted common share in 1997 to $887,000 or $.10 per diluted common share in
1998.
Net interest income for the second quarter of 1998 was $3,521,000, a
$158,000 (4.7%) increase over the comparable 1997 quarter. The increase was
solely due to an increase in average earning assets, as the tax-equivalent net
interest margin fell from 5.38% in 1997 to 4.91% in 1998. The net interest
margin decline is primarily due to the fact that the investment portfolio yield
was lower in 1998 than in the prior year and that investments were a larger
percentage of earning assets in 1998 than in 1997.
Also contributing to the rise in pre-tax earnings in 1998 was a $34,000
(6.2%) increase in other income and a $45,000 decrease in the provision for
possible loan losses. These increases were more than offset, however, by a
$105,000 (4.2%) increase in other expenses, most of which came in the salaries
and employee benefits category.
19
<PAGE> 20
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
See Form 10-Q for March 31, 1998 concerning the 1998 annual meeting of
stockholders held on April 27, 1998.
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibits - The following Exhibit is being filed herewith:
Exhibit 27 - Financial Data Schedule
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: August 14, 1998 By: /s/ Mortimer J. O'Shea
------------------------ -----------------------------
President and CEO
DATE: August 14, 1998 By: /s/ Walter A. Wojcik, Jr.
------------------------ -----------------------------
Treasurer
21
<TABLE> <S> <C>
<ARTICLE> 9
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 12,146,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,450,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 75,212,000
<INVESTMENTS-CARRYING> 48,122,000
<INVESTMENTS-MARKET> 48,359,000
<LOANS> 163,221,000
<ALLOWANCE> 4,114,000
<TOTAL-ASSETS> 320,157,000
<DEPOSITS> 276,765,000
<SHORT-TERM> 7,544,000
<LIABILITIES-OTHER> 3,267,000
<LONG-TERM> 0
0
0
<COMMON> 8,139,000
<OTHER-SE> 24,442,000
<TOTAL-LIABILITIES-AND-EQUITY> 320,157,000
<INTEREST-LOAN> 7,070,000
<INTEREST-INVEST> 3,064,000
<INTEREST-OTHER> 324,000
<INTEREST-TOTAL> 10,458,000
<INTEREST-DEPOSIT> 3,442,000
<INTEREST-EXPENSE> 3,552,000
<INTEREST-INCOME-NET> 6,906,000
<LOAN-LOSSES> 150,000
<SECURITIES-GAINS> (20,000)
<EXPENSE-OTHER> 5,172,000
<INCOME-PRETAX> 2,740,000
<INCOME-PRE-EXTRAORDINARY> 2,740,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,687,000
<EPS-PRIMARY> .21
<EPS-DILUTED> .20
<YIELD-ACTUAL> 4.93
<LOANS-NON> 540,000
<LOANS-PAST> 290,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 294,000
<ALLOWANCE-OPEN> 4,628,000
<CHARGE-OFFS> 1,257,000
<RECOVERIES> 593,000
<ALLOWANCE-CLOSE> 4,114,000
<ALLOWANCE-DOMESTIC> 4,114,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
