<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 8,133,324 shares at May 8, 1998.
1
<PAGE> 2
RAMAPO FINANCIAL CORPORATION AND SUBSIDIARIES
Index
PAGE
NUMBER
------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at
March 31, 1998 and December 31, 1997
(Unaudited).................................................... 3
Consolidated Statements of Income
for the Three Months Ended March 31,
1998 and 1997 (Unaudited)...................................... 4
Consolidated Statement of Changes in
Stockholders' Equity for the Three
Months Ended March 31, 1998 and Year
Ended December 31, 1997 (Unaudited)............................ 5
Consolidated Statements of Cash Flows
for the Three Months Ended March 31,
1998 and 1997 (Unaudited)...................................... 6
Notes to Consolidated Financial State-
ments (Unaudited)............................................. 7-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................................10-17
PART II - OTHER INFORMATION
ITEM 1 THROUGH ITEM 6..............................................18-19
SIGNATURES..................................................................20
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RAMAPO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and Due From Banks $ 11,942,000 $ 9,550,000
Federal Funds Sold 16,600,000 10,725,000
------------- -------------
Total Cash and Cash Equivalents 28,542,000 20,275,000
Securities:
Available for Sale, at Fair Value 64,293,000 48,556,000
Held to Maturity, at Cost (Fair Value $40,901,000
and $40,652,000) 40,682,000 40,438,000
Loans 164,576,000 169,106,000
Less- Allowance for Possible Loan Losses 3,973,000 4,628,000
------------- -------------
Net Loans 160,603,000 164,478,000
Premises and Equipment, net 3,242,000 3,246,000
Other Real Estate, net 2,303,000 2,192,000
Other Assets, net 6,249,000 5,921,000
Intangible Assets, net (Note 1) 582,000 621,000
------------- -------------
TOTAL ASSETS $ 306,496,000 $ 285,727,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand - Noninterest-Bearing $ 66,935,000 $ 60,367,000
- Interest-Bearing 41,029,000 34,546,000
Savings 88,394,000 84,973,000
Time 63,726,000 62,372,000
Certificates of Deposit over $100,000 8,882,000 7,502,000
------------- -------------
Total Deposits 268,966,000 249,760,000
Securities Sold Under Agreements to Repurchase 2,354,000 1,677,000
Accrued Expenses and Other Liabilities 3,313,000 2,993,000
------------- -------------
Total Liabilities 274,633,000 254,430,000
STOCKHOLDERS' EQUITY
Common Stock 8,132,000 8,107,000
Capital in Excess of Par Value 12,963,000 12,901,000
Retained Earnings 10,895,000 10,339,000
Accumulated Other Comprehensive Loss (127,000) (50,000)
------------- -------------
Total Stockholders' Equity 31,863,000 31,297,000
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 306,496,000 $ 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>
Three Months Ended March 31
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
INTEREST INCOME
Loans, including Fees $3,545,000 $3,498,000
Securities
Taxable 1,287,000 1,026,000
Nontaxable 82,000 35,000
Federal Funds Sold 165,000 162,000
Time Deposit with Bank -- 14,000
---------- ----------
TOTAL INTEREST INCOME 5,079,000 4,735,000
---------- ----------
INTEREST EXPENSE
Savings and Interest-Bearing Demand Deposits 764,000 661,000
Time Deposits and Certificates of Deposit
over $100,000 904,000 851,000
Other Borrowings 26,000 --
---------- ----------
TOTAL INTEREST EXPENSE 1,694,000 1,512,000
---------- ----------
NET INTEREST INCOME 3,385,000 3,223,000
Provision for Possible Loan Losses 75,000 120,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 3,310,000 3,103,000
OTHER INCOME
Service Charges on Deposit Accounts 342,000 343,000
Loss on Securities Transactions, net (5,000) (8,000)
Brokerage Commissions 108,000 81,000
Other Income 129,000 99,000
---------- ----------
TOTAL OTHER INCOME 574,000 515,000
---------- ----------
OTHER EXPENSES
Salaries and Employee Benefits 1,456,000 1,295,000
Net Occupancy Expense 209,000 204,000
Equipment Expense 169,000 171,000
OREO Expense - Cost of Operations, net 52,000 36,000
- Valuation Provisions -- 60,000
Other Operating Expenses (Note 2) 698,000 706,000
---------- ----------
TOTAL OTHER EXPENSES 2,584,000 2,472,000
---------- ----------
INCOME BEFORE TAXES 1,300,000 1,146,000
Provision for Income Taxes 500,000 432,000
---------- ----------
NET INCOME $ 800,000 $ 714,000
========== ==========
Income per Common Share (Note 3):
Basic $ 0.10 $ 0.09
========== ==========
Diluted $ 0.09 $ 0.09
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
RAMAPO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
For the year ended December 31, 1997 Comprehensive Retained Comprehensive
and three months ended March 31, 1998: Total Income Earnings Loss
--------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 $29,036,000 $8,105,000 ($39,000)
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) (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 (50,000)
Comprehensive income (Note 4)
Net income 800,000 $800,000 800,000
Unrealized losses on securities, net of re-
classification adjustment (see disclosure) (77,000) (77,000) (77,000)
-----------
Comprehensive income $723,000
===========
Stock options exercised 87,000
Cash dividends, $.03 per share (244,000) (244,000)
----------- -----------------------------
BALANCE, March 31, 1998 $31,863,000 $10,895,000 ($127,000)
=========== =============================
<CAPTION>
Capital
For the year ended December 31, 1997 Common in Excess of Treasury
and three months ended March 31, 1998: Stock Par Value Stock
------------------------------------------
BALANCE, December 31, 1996 $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)
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 8,107,000 12,901,000 --
Comprehensive income (Note 4)
Net income
Unrealized losses on securities, net of re-
classification adjustment (see disclosure)
Comprehensive income
Stock options exercised 25,000 62,000
Cash dividends, $.03 per share
------------------------------------------
BALANCE, March 31, 1998 $8,132,000 $12,963,000 --
==========================================
<CAPTION>
Disclosure of reclassification amount: Three
Year Ended Months Ended
12/31/97 03/31/98
---------------------------
<S> <C> <C>
Unrealized holding losses arising during period ($19,000) ($80,000)
Less: reclassification adjustment for losses
included in net income 8,000 3,000
---------------------------
Net unrealized losses on securities ($11,000) ($77,000)
===========================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE> 6
RAMAPO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 800,000 $ 714,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization of Premises and Equipment 141,000 153,000
Amortization of Intangible Assets 39,000 78,000
Amortization (Accretion) of Securities Discount, net 1,000 (29,000)
Provision for Possible Loan Losses 75,000 120,000
Provision for Possible Losses on Other Real Estate, net -- 60,000
Loss on Securities Transactions, net 5,000 8,000
(Increase) Decrease in Interest Receivable (44,000) 133,000
Increase in Accrued Expenses and Other Liabilities 320,000 57,000
Increase in Other Assets (233,000) (36,000)
------------ ------------
Net Cash Provided by Operating Activities 1,104,000 1,258,000
------------ ------------
Cash Flows from Investing Activities:
Securities Available for Sale:
Proceeds from Maturities 2,523,000 11,000
Proceeds from Sales/Calls Prior to Maturity 1,490,000 1,965,000
Purchases (19,876,000) (4,988,000)
Securities Held to Maturity:
Proceeds from Maturities 1,513,000 2,025,000
Proceeds from Calls Prior to Maturity 2,540,000 1,000,000
Purchases (4,306,000) (10,945,000)
Decrease in Loans Outstanding, net 3,800,000 4,156,000
Capital Expenditures (137,000) (59,000)
Advances Made on Other Real Estate (111,000) (176,000)
Proceeds from Sale of Other Real Estate -- 254,000
------------ ------------
Net Cash Used in Investing Activities (12,564,000) (6,757,000)
------------ ------------
Cash Flows from Financing Activities:
Increase (Decrease) in Total Deposits, net 19,206,000 (3,909,000)
Increase in Short-Term Borrowings, net 677,000 --
Cash Dividends on Common Stock (243,000) (162,000)
Proceeds from Stock Options Exercised 87,000 9,000
------------ ------------
Net Cash Provided by (Used in) Financing Activities 19,727,000 (4,062,000)
------------ ------------
Net (Decrease) Increase in Cash and Cash Equivalents 8,267,000 (9,561,000)
Cash and Cash Equivalents, Beginning of Period 20,275,000 29,758,000
------------ ------------
Cash and Cash Equivalents, End of Period $ 28,542,000 $ 20,197,000
============ ============
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE> 7
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>
March 31 December 31
1998 1997
-------- --------
<S> <C> <C>
Purchased Mortgage Servicing Rights $ 33,000 $ 43,000
Core Deposit Premiums 549,000 565,000
Premium on Purchased Home Equity
Lines of Credit - 13,000
-------- --------
Net Intangible Assets $582,000 $621,000
======== ========
</TABLE>
7
<PAGE> 8
NOTE 2: SUPPLEMENTARY STATEMENTS OF INCOME INFORMATION
Major categories of Other Operating Expenses are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------
1998 1997
---- -----
<S> <C> <C>
FDIC Fees $ 7,000 $ 7,000
Legal 39,000 60,000
Bonding and Insurance 37,000 41,000
Consulting Fees 60,000 55,000
Credit Reports/Filing Fees 32,000 24,000
Examinations 36,000 45,000
Postage & Freight 48,000 33,000
Telephone 47,000 45,000
Amortization - Intangibles 39,000 78,000
Automated Services 33,000 40,000
Stationery & Printing 67,000 69,000
Advertising 67,000 41,000
Dues and Subscriptions 18,000 15,000
Employee/Customer Relations 18,000 14,000
Reimbursements 31,000 25,000
ATM MAC Fees 29,000 27,000
Directors Fees 31,000 30,000
All Other 59,000 57,000
--------- ---------
$ 698,000 $ 706,000
========= =========
</TABLE>
NOTE 3: INCOME PER COMMON SHARE
Basic income per common share for the three months ended March 31, 1998
and 1997 was calculated by dividing net income for the respective periods by
weighted average shares outstanding of 8,122,260 and 8,097,874, respectively.
Diluted income per common share gives effect to outstanding stock options
granted to employees and nonemployee directors. Weighted average shares used in
this calculation for the three months ended March 31, 1998 and 1997 were
8,553,117 and 8,307,205, respectively.
8
<PAGE> 9
NOTE 4: OTHER COMPREHENSIVE INCOME
The tax effect of other comprehensive income is as follows:
<TABLE>
<CAPTION>
Net-of-
Before-Tax Tax Tax
Three months ended March 31, 1998: Amount Benefit Amount
--------- ------- --------
<S> <C> <C> <C>
Unrealized losses on securities:
Unrealized holding losses
arising during period................ $(134,000) $54,000 $(80,000)
Less: reclassification
adjustments for losses
realized in net income.......... 5,000 (2,000) 3,000
--------- ------- --------
Net unrealized losses.................... (129,000) 52,000 (77,000)
--------- ------- --------
Other comprehensive income................. $(129,000) $52,000 $(77,000)
========= ======= ========
<CAPTION>
Before- Net-of-
Tax Tax Tax
Year ended December 31, 1997: 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>
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condi-
tion and Results of Operations
The following discussion and analysis of the Corporation's financial
condition as of March 31, 1998 and results of operations for the three months
ended March 31, 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 March 31, 1998 and for the
three months ended March 31, 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 three months ended
March 31, 1998 are not necessarily indicative of the results which may be
expected for any other period.
Financial Condition and Recent Operating Environment
General. A healthy economy spurred business activity in the Corporation's
market area during the first quarter of 1998. The mild winter, coupled with low
mortgage rates, led to a strong and active residential real estate market. This
was partially responsible for the deposit growth experienced by the Corporation
in the quarter as the law firms serviced by the Corporation maintained higher
deposit balances. Weak commercial loan demand, normal for this time of year and
higher than normal loan prepayments were responsible for the drop in loan
outstandings during the quarter.
The Corporation operates in a densely populated, highly competitive market
area. Calling efforts by officers at all levels of the Corporation on businesses
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.
10
<PAGE> 11
At March 31, 1998, the Corporation's total assets reached $306.5 million,
a $20.8 million (7.3%) increase over the December 31, 1997 total. This growth
was primarily due to a $19.2 million (7.7%) rise in deposits during the same
period. The deposit growth and a $4.5 million (2.7%) decline in gross loans
outstanding during the quarter provided the funding for the $16.0 million
(18.0%) increase in the securities portfolio and the $5.9 million (54.8%) rise
in federal funds sold.
As was mentioned earlier, business activity in the real estate sector was
one factor that led to higher deposit balances. The success of the Corporation's
new branches in attracting deposits is another reason for that growth. Although
certificates of deposit over $100,000 increased $1.4 million during the quarter,
they represent only 3.3% of total deposits.
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 March 31, 1998.
As of March 31, 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 l 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 category.
11
<PAGE> 12
<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 March 31, 1998:
Total Capital (to Risk-Weighted Assets):
Corporation .......................................... $32,642,000 16.3% >=$16,005,000 >=8.0% >=$20,006,000 >=10.0%
Bank ................................................. $30,149,000 15.1% >=$15,953,000 >=8.0% >=$19,941,000 >=10.0%
Tier 1 Capital (to Risk-Weighted Assets):
Corporation .......................................... $30,123,000 15.1% >= $8,002,000 >=4.0% >=$12,003,000 >= 6.0%
Bank ................................................. $27,639,000 13.9% >= $7,976,000 >=4.0% >=$11,964,000 >= 6.0%
Tier 1 Capital (to Average Assets):
Corporation .......................................... $30,123,000 10.4% >=$11,564,000 >=4.0% >=$14,455,000 >= 5.0%
Bank ................................................. $27,639,000 9.6% >=$11,550,000 >=4.0% >=$14,438,000 >= 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>
12
<PAGE> 13
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. 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. 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.
13
<PAGE> 14
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
---------- ----------
<S> <C> <C>
Loans 30-89 days past due .............. $1,478,000 $3,256,000
========== ==========
Nonaccrual loans:
Commercial and commercial real
estate ............................. $1,513,000 $ 490,000
Residential real estate
mortgage ........................... 195,000 211,000
Installment .......................... -- 44,000
---------- ----------
Total nonaccrual loans ............. 1,708,000 745,000
---------- ----------
Loans past due 90 days or more:
Commercial and commercial real
estate ............................. -- 8,000
Residential real estate
mortgage ........................... 116,000 104,000
Installment .......................... 2,000 --
---------- ----------
Total loans past due 90 days
or more .......................... 118,000 112,000
---------- ----------
Total nonperforming loans .......... $1,826,000 $ 857,000
---------- ----------
Other real estate, net ................. $2,303,000 $2,192,000
---------- ----------
Total nonperforming assets ............. $4,129,000 $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 $79,000 and one
commercial loan of $239,000. The increase in commercial nonaccrual loans is due
to a problem with one loan of $2.2 million. This loan, part of a $15.0 million
concentration 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
and the remainder was charged off. Five loans totaling $10.4 million of this
relationship 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. With the exception of the $239,000 disclosed above
as a potential problem loan, the remaining $2.4 million of loans are also
current and performing in accordance with their terms. Management believes that
the net carrying value of ORE at March 31, 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.
14
<PAGE> 15
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 March 31, 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 $3,170,000 and
$2,164,000 at March 31, 1998 and December 31, 1997, respectively, the amount 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 March 31, 1998 of $4.0 million, or
217.6% of nonperforming loans and 2.4% 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.
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.
15
<PAGE> 16
Liquidity
At March 31, 1998, the Corporation's liquidity consisted of cash and due
from banks of $11.9 million, federal funds sold of $16.6 million and securities
available for sale of $64.3 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 $2.9 million of cash and cash equivalents at the
Bank at March 31, 1998. Its cash flows from operations are essentially
break-even. These funds are available for general corporate purposes.
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 and has not determined if it has 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 and has not determined the
effect, if any, on its current disclosures.
Year 2000
The Corporation utilizes software and related technologies throughout its
business that will be affected by the date change in the year 2000. During 1997,
senior management embarked on a project 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. The project is currently in the
testing phase which should be completed by December 31, 1998. Costs related to
this project to date have not been material.
16
<PAGE> 17
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. 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.
Three Months Ended March 31, 1998. The Corporation recorded net income of
$800,000, or $.09 per diluted common share, for the first three months of 1998
as compared to $714,000, or $.09 per diluted common share for the same period in
1997. On a pre-tax basis, net income increased $154,000 (13.4%) in 1998 versus
1997, largely due to an increase in net interest income.
Net interest income rose $162,000 (5.0%) in 1998 as compared to 1997 due
to an increase in the average volume of earning assets; the tax-equivalent net
interest margin fell from 5.31% in the first quarter of 1997 to 5.08% in the
first quarter of 1998. The increased earning asset volume was made possible by a
$19.8 million (8.5%) increase in average deposits in 1998 versus 1997.
A lower provision for possible loan losses contributed $45,000 to pre-tax
earnings in 1998, while other income added another $59,000 (11.5%). Almost half
of the increase in other income was due to a $27,000 (33.3%) rise in brokerage
commissions. All of these increases were offset in part by a $112,000 (4.5%)
increase in other expenses. Salaries and employee benefits rose $161,000 in the
first quarter of 1998 versus the same quarter in 1997, $55,000 of which was due
to recognizing a higher value for certain stock options; the remainder was due
to higher benefit expenses plus the cost of staffing the Parsippany branch
office, which opened in September, 1997.
17
<PAGE> 18
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
The Corporation's 1998 annual meeting of stockholders was held on April
27, 1998. The sole item of business was the election of two directors of
the Corporation.
In accordance with the nominations described in the Corporation's
definitive Proxy Statement dated March 21, 1998, previously filed with the
Commission, the two (2) individuals named therein for reelection at the
annual meeting, Donald W. Barney and Richard S. Miller, were reelected for
three year terms expiring in 2001. The results of the balloting for the
election of Directors were as follows:
<TABLE>
<CAPTION>
Abstentions and
Name Term of Office Votes For Votes Withheld Broker Non-Votes
---- -------------- --------- -------------- ----------------
<S> <C> <C> <C> <C>
Donald W. Barney Three Years 7,180,124 48,483 0
Richard S. Miller Three Years 7,170,810 57,797 0
</TABLE>
The names of the Corporation's five other directors, and the years in
which their respective terms will expire, are as follows: Erwin D. Knauer
(1999), James R. Kaplan (1999), Louis S. Miller (2000), Mortimer J. O'Shea
(2000), and Victor C. Otley, Jr. (2000).
18
<PAGE> 19
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The following Exhibit is being filed herewith:
Exhibit 27 - Financial Data Schedule
(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: May 14, 1998 By: /s/ Walter A. Wojcik, Jr.
--------------- --------------------------
Treasurer
Date: May 14, 1998 By: /s/ Mortimer J. O'Shea
--------------- -----------------------
President and CEO
20
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 11,942,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 16,600,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 64,293,000
<INVESTMENTS-CARRYING> 40,682,000
<INVESTMENTS-MARKET> 40,901,000
<LOANS> 164,576,000
<ALLOWANCE> 3,973,000
<TOTAL-ASSETS> 306,496,000
<DEPOSITS> 268,966,000
<SHORT-TERM> 2,354,000
<LIABILITIES-OTHER> 3,313,000
<LONG-TERM> 0
0
0
<COMMON> 8,132,000
<OTHER-SE> 23,731,000
<TOTAL-LIABILITIES-AND-EQUITY> 306,496,000
<INTEREST-LOAN> 3,545,000
<INTEREST-INVEST> 1,369,000
<INTEREST-OTHER> 165,000
<INTEREST-TOTAL> 5,079,000
<INTEREST-DEPOSIT> 1,668,000
<INTEREST-EXPENSE> 1,694,000
<INTEREST-INCOME-NET> 3,385,000
<LOAN-LOSSES> 75,000
<SECURITIES-GAINS> (5,000)
<EXPENSE-OTHER> 2,584,000
<INCOME-PRETAX> 1,300,000
<INCOME-PRE-EXTRAORDINARY> 1,300,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 800,000
<EPS-PRIMARY> .10
<EPS-DILUTED> .09
<YIELD-ACTUAL> 5.02
<LOANS-NON> 1,708,000
<LOANS-PAST> 118,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 318,000
<ALLOWANCE-OPEN> 4,628,000
<CHARGE-OFFS> 1,246,000
<RECOVERIES> 516,000
<ALLOWANCE-CLOSE> 3,973,000
<ALLOWANCE-DOMESTIC> 3,973,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
