<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, 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)
<TABLE>
<S> <C>
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)
</TABLE>
(973) 696-6100
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(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 8,081,199 shares outstanding at November 6, 1998.
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, 1998 (Unaudited) and December 31, 1997............ 3
Consolidated Statements of Income
for the Nine Months Ended September 30,
1998 and 1997 (Unaudited)....................................... 4
Consolidated Statements of Income
for the Three Months Ended September 30,
1998 and 1997 (Unaudited)....................................... 5
Consolidated Statement of Changes in
Stockholders' Equity for the Nine
Months Ended September 30, 1998 (Unaudited) and Year
Ended December 31, 1997......................................... 6
Consolidated Statements of Cash Flows
for the Nine Months Ended September 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
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1998 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents:
Cash and Due From Banks $ 11,412,000 $ 9,550,000
Federal Funds Sold 17,000,000 10,725,000
------------- -------------
Total Cash and Cash Equivalents 28,412,000 20,275,000
Securities:
Available for Sale, at Fair Value 84,246,000 48,556,000
Held to Maturity, at Cost (Fair Value $45,454,000 44,676,000 40,438,000
and $40,652,000)
Loans 163,310,000 169,106,000
Less- Allowance for Possible Loan Losses 4,309,000 4,628,000
------------- -------------
Net Loans 159,001,000 164,478,000
Premises and Equipment, net 3,139,000 3,246,000
Other Real Estate, net 1,850,000 2,192,000
Other Assets, net 5,938,000 5,921,000
Intangible Assets, net (Note 1) 517,000 621,000
------------- -------------
TOTAL ASSETS $ 327,779,000 $ 285,727,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand - Noninterest-Bearing $ 65,036,000 $ 60,367,000
- Interest-Bearing 43,114,000 34,546,000
Savings 98,609,000 84,973,000
Time 64,348,000 62,372,000
Certificates of Deposit over $100,000 12,502,000 7,502,000
------------- -------------
Total Deposits 283,609,000 249,760,000
Securities Sold Under Agreements to Repurchase 7,097,000 1,677,000
Accrued Expenses and Other Liabilities 3,714,000 2,993,000
------------- -------------
Total Liabilities 294,420,000 254,430,000
STOCKHOLDERS' EQUITY (NOTE 2)
Common Stock 8,105,000 8,107,000
Capital in Excess of Par Value 13,004,000 12,901,000
Retained Earnings 11,953,000 10,339,000
Accumulated Other Comprehensive Income (Loss) 297,000 (50,000)
------------- -------------
Total Stockholders' Equity 33,359,000 31,297,000
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 327,779,000 $ 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>
Nine Months Ended September 30
1998 1997
------------ ------------
<S> <C> <C>
INTEREST INCOME
Loans, including Fees $ 10,670,000 $ 10,741,000
Securities:
Taxable 4,658,000 3,369,000
Nontaxable 276,000 143,000
Federal Funds Sold 470,000 340,000
Time Deposit with Bank -- 43,000
------------ ------------
TOTAL INTEREST INCOME 16,074,000 14,636,000
------------ ------------
INTEREST EXPENSE
Savings and Interest-Bearing Demand Deposits 2,533,000 2,041,000
Time Deposits and Certificates of Deposit
over $100,000 2,818,000 2,582,000
Other Borrowings 210,000 10,000
------------ ------------
TOTAL INTEREST EXPENSE 5,561,000 4,633,000
------------ ------------
NET INTEREST INCOME 10,513,000 10,003,000
Provision for Possible Loan Losses 225,000 360,000
------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 10,288,000 9,643,000
OTHER INCOME
Service Charges on Deposit Accounts 1,018,000 1,029,000
Loss on Securities Transactions (20,000) (15,000)
Brokerage Commissions 334,000 279,000
Other Income 376,000 330,000
------------ ------------
TOTAL OTHER INCOME 1,708,000 1,623,000
------------ ------------
OTHER EXPENSES
Salaries and Employee Benefits 4,256,000 4,019,000
Net Occupancy Expense 632,000 668,000
Equipment Expense 520,000 521,000
Other Operating Expenses (Note 3) 2,253,000 2,305,000
------------ ------------
TOTAL OTHER EXPENSES 7,661,000 7,513,000
------------ ------------
INCOME BEFORE TAXES 4,335,000 3,753,000
Provision for Income Taxes 1,610,000 1,401,000
------------ ------------
NET INCOME $ 2,725,000 $ 2,352,000
============ ============
NET INCOME PER COMMON SHARE (NOTE 4):
Basic $ 0.34 $ 0.29
============ ============
Diluted $ 0.32 $ 0.28
============ ============
</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
1998 1997
----------- -----------
<S> <C> <C>
INTEREST INCOME
Loans, including Fees $ 3,600,000 $ 3,671,000
Securities:
Taxable 1,767,000 1,169,000
Nontaxable 103,000 62,000
Federal Funds Sold 146,000 78,000
Time Deposit with Bank -- 14,000
----------- -----------
TOTAL INTEREST INCOME 5,616,000 4,994,000
----------- -----------
INTEREST EXPENSE
Savings and Interest-Bearing Demand Deposits 930,000 697,000
Time Deposits and Certificates of Deposit
over $100,000 979,000 870,000
Other Borrowings 100,000 10,000
----------- -----------
TOTAL INTEREST EXPENSE 2,009,000 1,577,000
----------- -----------
NET INTEREST INCOME 3,607,000 3,417,000
Provision for Possible Loan Losses 75,000 120,000
----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 3,532,000 3,297,000
OTHER INCOME
Service Charges on Deposit Accounts 326,000 334,000
Loss on Securities Transactions -- (1,000)
Brokerage Commissions 104,000 94,000
Other Income 122,000 133,000
----------- -----------
TOTAL OTHER INCOME 552,000 560,000
----------- -----------
OTHER EXPENSES
Salaries and Employee Benefits 1,369,000 1,386,000
Net Occupancy Expense 213,000 237,000
Equipment Expense 179,000 178,000
Other Operating Expenses (Note 3) 728,000 757,000
----------- -----------
TOTAL OTHER EXPENSES 2,489,000 2,558,000
----------- -----------
INCOME BEFORE TAXES 1,595,000 1,299,000
Provision for Income Taxes 557,000 483,000
----------- -----------
NET INCOME $ 1,038,000 $ 816,000
=========== ===========
NET INCOME PER COMMON SHARE (NOTE 4):
Basic $ 0.13 $ 0.10
=========== ===========
Diluted $ 0.12 $ 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 nine months ended September 30, 1998: Total Income Earnings
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $ 29,036,000 $ 8,105,000
Comprehensive income (Note 5):
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 5):
Net income 2,725,000 $ 2,725,000 2,725,000
Unrealized gains on securities, net of re-
classification adjustment (see disclosure) 347,000 347,000
-------------
Comprehensive income $ 3,072,000
=============
Stock options exercised 141,000
Cash dividends, $.11 per share (894,000) (894,000)
Stock repurchased and retired (Note 2) (257,000) (217,000)
- --------------------------------------------------------------------- -------------
BALANCE, SEPTEMBER 30, 1998 $ 33,359,000 $ 11,953,000
===================================================================== =============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Capital
For the year ended December 31, 1997 Comprehensive Common in Excess of Treasury
and nine months ended September 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 5):
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 5):
Net income
Unrealized gains on securities, net of re-
classification adjustment (see disclosure) 347,000
Comprehensive income
Stock options exercised 38,000 103,000
Cash dividends, $.11 per share
Stock repurchased and retired (Note 2) (40,000)
- ------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1998 $297,000 $ 8,105,000 $13,004,000 $ --
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
DISCLOSURE OF RECLASSIFICATION AMOUNT: Nine Months
Year Ended Ended
12/31/97 09/30/98
-----------------------------
<S> <C> <C>
Unrealized holding (losses) gains arising during period $(19,000) $335,000
Add: reclassification adjustment for losses
included in net income 8,000 12,000
-----------------------------
Net unrealized (losses) gains on securities $(11,000) $347,000
=============================
</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
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 2,725,000 $ 2,352,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization of Premises and Equipment 435,000 431,000
Amortization of Intangible Assets 104,000 206,000
Amortization (Accretion) of Securities Premium (Discount), net 77,000 (79,000)
Provision for Possible Loan Losses 225,000 360,000
Provision for Possible Losses on Other Real Estate, net -- 130,000
Gain on Sale of Other Real Estate (20,000) --
Loss on Securities Transactions, net 20,000 15,000
(Increase) Decrease in Interest Receivable (240,000) 101,000
Increase in Accrued Expenses and Other Liabilities 640,000 504,000
Increase in Other Assets (8,000) (265,000)
------------ ------------
Net Cash Provided by Operating Activities 3,958,000 3,755,000
------------ ------------
Cash Flows from Investing Activities:
Securities Available for Sale:
Proceeds from Maturities 12,630,000 3,069,000
Proceeds from Sales/Calls Prior to Maturity 8,469,000 11,070,000
Purchases (56,305,000) (12,712,000)
Securities Held to Maturity:
Proceeds from Maturities 7,783,000 4,777,000
Proceeds from Calls Prior to Maturity 3,540,000 1,000,000
Purchases (15,564,000) (19,475,000)
Decrease (Increase) in Loans Outstanding, net 5,252,000 (5,162,000)
Capital Expenditures (328,000) (488,000)
Advances Made on Other Real Estate (229,000) (605,000)
Proceeds from Sale of Other Real Estate 591,000 687,000
Other -- (11,000)
------------ ------------
Net Cash Used in Investing Activities (34,161,000) (17,850,000)
------------ ------------
Cash Flows from Financing Activities:
Increase in Total Deposits, net 33,849,000 284,000
Increase in Short-Term Borrowings, net 5,420,000 1,002,000
Cash Dividends on Common Stock (813,000) (648,000)
Purchase and Retirement of Common Stock (257,000) --
Proceeds from Stock Options Exercised 141,000 13,000
------------ ------------
Net Cash Provided by Financing Activities 38,340,000 651,000
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents 8,137,000 (13,444,000)
Cash and Cash Equivalents, Beginning of Period 20,275,000 29,758,000
------------ ------------
Cash and Cash Equivalents, End of Period $ 28,412,000 $ 16,314,000
============ ============
</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>
SEPTEMBER 30 DECEMBER 31
1998 1997
-------- --------
<S> <C> <C>
Purchased Mortgage Servicing Rights $ -- $ 43,000
Core Deposit Premiums 517,000 565,000
Premium on Purchased Home Equity
Lines of Credit -- 13,000
-------- --------
Net Intangible Assets $517,000 $621,000
======== ========
</TABLE>
NOTE 2: STOCK REPURCHASE
On September 8, 1998, the Corporation announced its intention to purchase
up to 400,000 shares of RFC common stock. Purchases would be made in the open
market, from time to time. At September 30, 1998, approximately 40,000 shares
had been repurchased under this program.
8
<PAGE> 9
NOTE 3: 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
------------ ------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
FDIC Fees $ 22,000 $ 21,000 $ 7,000 $ 7,000
Legal 101,000 157,000 31,000 50,000
Bonding and Insurance 98,000 113,000 36,000 48,000
Consulting Fees 187,000 162,000 82,000 67,000
Credit Reports/Filing Fees 113,000 74,000 48,000 22,000
Examinations 108,000 135,000 36,000 45,000
Postage & Freight 130,000 118,000 43,000 46,000
Telephone 143,000 148,000 43,000 48,000
Amortization - Intangibles 104,000 206,000 39,000 53,000
Automated Services 154,000 122,000 56,000 30,000
Stationery & Printing 166,000 203,000 40,000 67,000
Advertising 181,000 163,000 78,000 78,000
Dues and Subscriptions 54,000 47,000 18,000 18,000
Employee/Customer Relations 68,000 60,000 27,000 21,000
Directors' Fees 106,000 98,000 39,000 33,000
Reimbursements 71,000 67,000 16,000 20,000
ATM MAC Fees 90,000 89,000 31,000 31,000
ORE-Valuation Provisions - 130,000 - 15,000
-Cost of Operations, net 167,000 92,000 9,000 28,000
All Others 190,000 100,000 49,000 30,000
----------- ---------- ---------- ---------
$2,253,000 $2,305,000 $728,000 $757,000
========== ========== ======== ========
</TABLE>
9
<PAGE> 10
NOTE 4: 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>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic 8,131,408 8,098,938 8,135,640 8,099,498
Diluted 8,523,278 8,352,563 8,488,111 8,423,420
</TABLE>
NOTE 5: OTHER COMPREHENSIVE INCOME
The tax effect of other comprehensive income is as follows:
<TABLE>
<CAPTION>
TAX
BEFORE-TAX BENEFIT OR NET-OF-TAX
Nine Months ended September 30, 1998: AMOUNT PROVISION AMOUNT
--------- --------- ---------
<S> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains
arising during period $ 558,000 $(223,000) $ 335,000
Less: reclassification adjustments
for losses realized in net income 20,000 (8,000) 12,000
--------- --------- ---------
Net unrealized gains 578,000 (231,000) 347,000
--------- --------- ---------
Other comprehensive income $ 578,000 $(231,000) $ 347,000
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
BEFORE-TAX TAX NET-OF-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>
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the Corporation's
financial condition as of September 30, 1998 and results of operations for the
nine and three months ended September 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 September
30, 1998 and for the nine and three months ended September 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 nine and three months ended September 30, 1998 are not
necessarily indicative of the results which may be expected for any other
period.
FINANCIAL CONDITION AND RECENT OPERATING ENVIRONMENT
GENERAL. Overall economic conditions remained positive in the
Corporation's market area during the third quarter of 1998. Residential real
estate remained the most robust sector and was primarily responsible for the
modest growth in gross loans experienced by the Corporation during the quarter.
Recent volatility in the stock and bond markets may be a contributing factor to
the continued deposit growth during the quarter as investors find solace in the
Corporation's insured deposit products. The deteriorating economic conditions in
Asia and Europe have not had an effect on the Corporation since the Corporation
does not lend directly to foreign entities and because the vast majority of its
borrowers are not dependent upon foreign activity for financial health.
The Corporation's market area is a densely populated, highly competitive
suburban area. Business activity in this mature, extensively developed market
remained steady during the quarter. New commercial loans and deposits have
generally resulted from winning new customers from other banks rather than from
expanded business activity of existing customers. 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. The Corporation believes that by providing a high
level of personal service along with the latest technology it can continue to
attract borrowers and depositors from rival 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 September 30, 1998, the Corporation's total assets rose to $327.8
million, a $7.6 million (2.5%) increase from the June 30, 1998 total, and a
$42.1 million (14.7%) addition since December 31, 1997. A $33.8 million (13.6%)
increase in deposits during the nine months ended September 30, 1998 was
primarily responsible for this asset growth. The deposit growth
11
<PAGE> 12
coupled with a $5.8 million (3.4%) decrease in gross loans outstanding during
the nine months provided most of the funding for the $39.9 million (44.9%)
growth in the securities portfolio and the $8.1 million (40.1%) increase in cash
and cash equivalents.
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 September 30, 1998.
As of September 30, 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 SEPTEMBER 30, 1998
Total Capital (to Risk-Weighted Assets):
CORPORATION ............................. $35,256,000 16.4% >$17,225,000 >8.0% >$21,531,000 >10.0%
- - - -
Bank .................................... $29,983,000 14.0% >$17,173,000 >8.0% >$21,467,000 >10.0%
- - - -
Tier 1 Capital (to Risk-Weighted Assets):
CORPORATION ............................. $32,544,000 15.1% >$ 8,612,000 >4.0% >$12,918,000 > 6.0%
- - - -
Bank .................................... $27,279,000 12.7% >$ 8,587,000 >4.0% >$12,880,000 > 6.0%
- - - -
Tier 1 Capital (to Average Assets):
CORPORATION ............................. $32,544,000 10.1% >$12,847,000 >4.0% >$16,059,000 > 5.0%
- - - -
Bank .................................... $27,279,000 8.5% >$12,825,000 >4.0% >$16,032,000 > 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>
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 September 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>
SEPTEMBER 30 DECEMBER 31
1998 1997
---- ----
<S> <C> <C>
Loans 30-89 days past due $ 784,000 $3,256,000
========== ==========
Nonaccrual loans:
Commercial and commercial real estate $ 349,000 $ 490,000
Residential real estate mortgage 111,000 211,000
Installment -- 44,000
---------- ----------
460,000 745,000
---------- ----------
Loans past due 90 days or more:
Commercial and commercial real estate 133,000 8,000
Residential real estate mortgage 337,000 104,000
Installment 8 000 --
---------- ----------
Total loans past due 90 days or more 478,000 112,000
---------- ----------
Total nonperforming loans $ 938,000 $ 857,000
---------- ----------
Other real estate, net $1,850,000 $2,192,000
---------- ----------
Total nonperforming assets $2,788,000 $3,049,000
========== ==========
</TABLE>
The only loans 30-89 days past due that are considered to be potential problem
loans are three small installment loans totaling $9,000. The decrease in this
category from the December 31 total is primarily due to a change in the status
of one $2.2 million loan. 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 at September 30, 1998 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 $1.7 million of loans in this concentration are
also current and performing in accordance with their terms. Management believes
that the net carrying value of ORE at September 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 September 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 $1,389,000 and $2,164,000 at September 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. The reduction resulted from payoffs and the
reclassification on June 30, 1998 of a $1.5 million loan from impaired to
unimpaired status, offset in part by a $1.0 million newly restructured loan
discussed previously in "Asset Quality". Management believes the allowance for
possible loan losses at September 30, 1998 of $4.3 million, or 459.9% of
nonperforming loans and 2.6% 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 September 30, 1998, the Corporation's liquidity consisted of cash and
cash equivalents of $28.4 million and securities available for sale of $84.2
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 $5.9 million of cash and cash equivalents at the
Bank at September 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 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 not determined the
Statement's 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 century 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.
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, the year 2000 leap year,
and other significant dates.
17
<PAGE> 18
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
includes 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. 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. Testing has been completed on a number of these applications. Testing of
the Corporation's most critical application, its primary accounting software
system, has begun. The vendor of this system has supplied the Corporation with a
utility program which will allow the system's operating date to be advanced. The
vendor has also provided the Corporation with a copy of its internal test of the
system for Y2K compatibility. To date, the Corporation has advanced the system's
operating date to January 3, 2000 and is reviewing the resulting output. In
addition, the results of the sixty internal tests provided by the vendor are
being reviewed for their adequacy. 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 old AS/400 was kept and
had its operating system upgraded to be the same as in the new machine. The
system date of the upgraded software has been successfully advanced into the
year 2000, although further testing still remains.
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.
18
<PAGE> 19
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.
NINE MONTHS ENDED SEPTEMBER 30, 1998. The Corporation recorded net income
of $2,725,000, or $.32 per diluted common share, for the first nine months of
1998 as compared to $2,352,000, or $.28 per diluted common share for the same
period in 1997. On a pre-tax basis, net income increased $582,000 (15.5%) during
the first nine months of 1998 versus the same period of 1997, largely due to an
increase in net interest income.
Net interest income rose $510,000 (5.1%) during the first nine 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 5.35%
in the first nine months of 1997 to 4.92% in the comparable period of 1998. The
increased earning asset volume was made possible by a $29.0 million (12.2%)
increase in average deposits in 1998 versus 1997. The reduction in the net
interest margin is largely due to a drop in average gross loans outstanding in
1998 versus the comparable 1997 period and an increase in the lower-yielding
investment portfolio. During 1998, the Corporation launched several initiatives
aimed at increasing loan volume and retention. These initiatives were
responsible for a net increase in gross loans during the third quarter.
Improved credit quality resulted in a $135,000 reduction in the provision
for possible loan losses in 1998 versus 1997. Other income rose $85,000 (5.2%),
largely due to a $55,000 (19.7%) increase in brokerage commissions. These
revenue gains were offset in part by a $148,000 increase in other expenses.
Salaries and employee benefits rose $237,000 for the nine months in 1998 versus
1997, largely due to a $116,000 increase in benefit costs and an additional
$74,000 in salaries and commissions needed to staff a new branch office that
opened in late August, 1997.
THREE MONTHS ENDED SEPTEMBER 30, 1998. The Corporation's net income grew
significantly in the third quarter of 1998 versus 1997, rising $222,000 (27.2%)
from $816,000 or $.10 per diluted common share in 1997 to $1,038,000 or $.12 per
diluted common share in 1998. The $1,595,000 of pre-tax net income recorded by
the Corporation during the quarter marked the second consecutive quarter of
record earnings.
Net interest income for the third quarter of 1998 was $3,607,000, a
$190,000 (5.6%) 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 5.37% in 1997 to 4.79% 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.
19
<PAGE> 20
Also contributing to the rise in pre-tax earnings in 1998 was a $69,000
(2.7%) decrease in other expenses and a $45,000 decrease in the provision for
possible loan losses.
20
<PAGE> 21
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 - The following Exhibit is being filed herewith:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RAMAPO FINANCIAL CORPORATION
----------------------------
(Registrant)
DATE: November 13, 1998 By: /s/ Mortimer J. O'Shea
President and CEO
DATE: November 13, 1998 By: /s/ Walter A. Wojcik, Jr.
Treasurer
22
<TABLE> <S> <C>
<ARTICLE> 9
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 11,412,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 17,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 84,246,000
<INVESTMENTS-CARRYING> 44,676,000
<INVESTMENTS-MARKET> 45,454,000
<LOANS> 163,310,000
<ALLOWANCE> 4,309,000
<TOTAL-ASSETS> 327,779,000
<DEPOSITS> 283,609,000
<SHORT-TERM> 7,097,000
<LIABILITIES-OTHER> 3,714,000
<LONG-TERM> 0
0
0
<COMMON> 8,105,000
<OTHER-SE> 25,254,000
<TOTAL-LIABILITIES-AND-EQUITY> 327,779,000
<INTEREST-LOAN> 10,670,000
<INTEREST-INVEST> 4,934,000
<INTEREST-OTHER> 470,000
<INTEREST-TOTAL> 16,074,000
<INTEREST-DEPOSIT> 5,351,000
<INTEREST-EXPENSE> 5,561,000
<INTEREST-INCOME-NET> 10,513,000
<LOAN-LOSSES> 225,000
<SECURITIES-GAINS> (20,000)
<EXPENSE-OTHER> 7,661,000
<INCOME-PRETAX> 4,335,000
<INCOME-PRE-EXTRAORDINARY> 4,335,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,725,000
<EPS-PRIMARY> .34
<EPS-DILUTED> .32
<YIELD-ACTUAL> 4.85
<LOANS-NON> 460,000
<LOANS-PAST> 478,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 9,000
<ALLOWANCE-OPEN> 4,628,000
<CHARGE-OFFS> 1,264,000
<RECOVERIES> 720,000
<ALLOWANCE-CLOSE> 4,309,000
<ALLOWANCE-DOMESTIC> 4,309,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
