<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, 1999
[ ] 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 8,373,549 outstanding at May 7, 1999.
1
<PAGE> 2
RAMAPO FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at March 31, 1999
(Unaudited) and December 31, 1998..................... 3
Consolidated Statements of Income
for the Three Months Ended March 31,
1999 and 1998 (Unaudited)............................. 4
Consolidated Statements of Changes in
Stockholders' Equity for the Three Months Ended
March 31, 1999 and Year Ended December 31,
1998 (Unaudited)...................................... 5
Consolidated Statements of Cash Flows
for the Three Months Ended March 31,
1999 and 1998 (Unaudited)............................. 6
Notes to Consolidated Financial Statements
(Unaudited)........................................... 7-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................ 11-17
PART II - OTHER INFORMATION
ITEM 1 THROUGH ITEM 6......................................... 18
SIGNATURES.............................................................. 19
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RAMAPO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and Cash Equivalents:
Cash and Due From Banks $ 10,554,000 $ 10,127,000
Federal Funds Sold 14,400,000 6,100,000
------------- -------------
Total Cash and Cash Equivalents 24,954,000 16,227,000
Securities:
Available for Sale, at Fair Value 94,704,000 95,707,000
Held to Maturity, at Cost (Fair Value $43,511,000 43,403,000 49,480,000
and $49,891,000)
Loans 166,638,000 169,799,000
Less- Allowance for Possible Loan Losses 4,939,000 4,773,000
------------- -------------
Net Loans 161,699,000 165,026,000
Premises and Equipment, net 3,019,000 3,034,000
Other Real Estate, net 259,000 1,920,000
Other Assets, net 6,345,000 5,867,000
Intangible Assets, net 485,000 501,000
------------- -------------
TOTAL ASSETS $ 334,868,000 $ 337,762,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand - Noninterest-Bearing $ 69,036,000 $ 69,623,000
- Interest-Bearing 46,821,000 48,206,000
Savings 101,274,000 98,946,000
Time 66,975,000 67,595,000
Certificates of Deposit over $100,000 9,568,000 11,090,000
------------- -------------
Total Deposits 293,674,000 295,460,000
Securities Sold Under Agreements to Repurchase 2,434,000 4,536,000
Accrued Expenses and Other Liabilities 3,851,000 3,744,000
------------- -------------
Total Liabilities 299,959,000 303,740,000
STOCKHOLDERS' EQUITY
Common Stock 8,162,000 8,114,000
Capital in Excess of Par Value 13,444,000 13,267,000
Retained Earnings 13,509,000 12,694,000
Accumulated Other Comprehensive Loss (206,000) (53,000)
------------- -------------
Total Stockholders' Equity 34,909,000 34,022,000
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 334,868,000 $ 337,762,000
============= =============
</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
------------------------
1999 1998
---------- ----------
<S> <C> <C>
INTEREST INCOME
Loans, including Fees $3,413,000 $3,545,000
Securities
Taxable 1,764,000 1,287,000
Nontaxable 138,000 82,000
Federal Funds Sold 81,000 165,000
---------- ----------
TOTAL INTEREST INCOME 5,396,000 5,079,000
---------- ----------
INTEREST EXPENSE
Savings and Interest-Bearing Demand Deposits 881,000 764,000
Time Deposits and Certificates of Deposit
over $100,000 941,000 904,000
Other Borrowings 29,000 26,000
---------- ----------
TOTAL INTEREST EXPENSE 1,851,000 1,694,000
---------- ----------
NET INTEREST INCOME 3,545,000 3,385,000
Provision for Possible Loan Losses -- 75,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 3,545,000 3,310,000
OTHER INCOME
Service Charges on Deposit Accounts 295,000 342,000
Loss on Securities Transactions, net -- (5,000)
Brokerage Commissions 130,000 108,000
Other Income 338,000 129,000
---------- ----------
TOTAL OTHER INCOME 763,000 574,000
---------- ----------
OTHER EXPENSES
Salaries and Employee Benefits 1,564,000 1,456,000
Net Occupancy Expense 224,000 209,000
Equipment Expense 180,000 169,000
Other Operating Expenses 642,000 750,000
---------- ----------
TOTAL OTHER EXPENSES 2,610,000 2,584,000
---------- ----------
INCOME BEFORE TAXES 1,698,000 1,300,000
Provision for Income Taxes 557,000 500,000
---------- ----------
NET INCOME $1,141,000 $ 800,000
========== ==========
NET INCOME PER COMMON SHARE:
Basic $ 0.14 $ 0.10
========== ==========
Diluted $ 0.13 $ 0.09
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
RAMAPO FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other Capital
For the year ended December 31, 1998 Comprehensive Retained Comprehensive Common in Excess of
and three months ended March 31, 1999: Total Income Earnings Loss Stock Par Value
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 $ 31,297,000 $ 10,339,000 $ (50,000) $ 8,107,000 $12,901,000
Comprehensive income:
Net income 3,923,000 $ 3,923,000 3,923,000 -- -- --
Unrealized losses on securities,
net of reclassification
adjustment (3,000) (3,000) -- (3,000) -- --
------------
Comprehensive income $ 3,920,000
============
Stock options exercised 438,000 -- -- 72,000 366,000
Cash dividends, $.15 per share (1,219,000) (1,219,000) -- -- --
Common stock repurchased and retired (414,000) (349,000) -- (65,000) --
------------ ---------------------------------------------------------
BALANCE, December 31, 1998 34,022,000 12,694,000 (53,000) 8,114,000 13,267,000
Comprehensive income:
Net income 1,141,000 $ 1,141,000 1,141,000 -- -- --
Unrealized losses on securities,
net of reclassification
adjustment (153,000) (153,000) -- (153,000) -- --
------------
Comprehensive income $ 988,000
============
Stock options exercised 225,000 -- -- 48,000 177,000
Cash dividends, $.04 per share (326,000) (326,000) -- -- --
------------ --------------------------------------------------------
BALANCE, March 31, 1999 $ 34,909,000 $ 13,509,000 $ (206,000) $ 8,162,000 $13,444,000
============ =========================================================
</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
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 1,141,000 $ 800,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization of Premises and Equipment 161,000 141,000
Amortization of Intangible Assets 16,000 39,000
Amortization of Securities Premium, net 58,000 1,000
Provision for Possible Loan Losses -- 75,000
Gain on Sale of Other Real Estate (218,000) --
Loss on Securities Transactions, net -- 5,000
Increase in Interest Receivable (126,000) (44,000)
Increase in Accrued Expenses and Other Liabilities 107,000 320,000
Increase in Other Assets (251,000) (233,000)
------------ ------------
Net Cash Provided by Operating Activities 888,000 1,104,000
------------ ------------
Cash Flows from Investing Activities:
Securities Available for Sale:
Proceeds from Maturities 3,261,000 2,523,000
Proceeds from Sales/Calls Prior to Maturity 7,000,000 1,490,000
Purchases (9,560,000) (19,876,000)
Securities Held to Maturity:
Proceeds from Maturities 1,059,000 1,513,000
Proceeds from Calls Prior to Maturity 6,000,000 2,540,000
Purchases (992,000) (4,306,000)
Decrease in Loans Outstanding, net 3,327,000 3,800,000
Capital Expenditures (146,000) (137,000)
Advances Made on Other Real Estate (33,000) (111,000)
Proceeds from Sale of Other Real Estate 1,912,000 --
------------ ------------
Net Cash Provided by (Used in) Investing Activities 11,828,000 (12,564,000)
------------ ------------
Cash Flows from Financing Activities:
(Decrease) Increase in Total Deposits, net (1,786,000) 19,206,000
(Decrease) Increase in Short-Term Borrowings, net (2,102,000) 677,000
Cash Dividends on Common Stock (326,000) (243,000)
Proceeds from Stock Options Exercised 225,000 87,000
------------ ------------
Net Cash (Used in) Provided by Financing Activities (3,989,000) 19,727,000
------------ ------------
Net Increase in Cash and Cash Equivalents 8,727,000 8,267,000
Cash and Cash Equivalents, Beginning of Period 16,227,000 20,275,000
------------ ------------
Cash and Cash Equivalents, End of Period $ 24,954,000 $ 28,542,000
============ ============
</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
At March 31, 1999 and December 31, 1998, net intangible assets
consisted solely of core deposit premiums.
NOTE 2: STOCK REPURCHASE
On April 15, 1999, the Corporation's Board of Directors rescinded its
previously announced stock repurchase program after 65,000 shares of the
Corporation's common stock had been repurchased and retired. A total of 335,000
shares had not been repurchased under the authorization.
7
<PAGE> 8
NOTE 3: SUPPLEMENTARY STATEMENTS OF INCOME INFORMATION
Major categories of Other Operating Expenses are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------------
1999 1998
---- ----
<S> <C> <C>
FDIC Fees $ 9,000 $ 7,000
Legal 39,000 39,000
Bonding and Insurance 37,000 37,000
Consulting Fees 44,000 60,000
Credit Reports/Filing Fees 14,000 32,000
Examinations 40,000 36,000
Postage Freight 66,000 48,000
Telephone 45,000 47,000
Amortization - Intangibles 16,000 39,000
Automated Services 38,000 33,000
Stationery & Printing 25,000 67,000
Advertising 51,000 67,000
Dues and Subscriptions 12,000 18,000
Employee/Customer Relations 21,000 18,000
Reimbursements 18,000 31,000
ATM MAC Fees 32,000 29,000
Directors Fees 34,000 31,000
All Other 56,000 59,000
ORE Operating Expense 45,000 52,000
-------- --------
$642,000 $750,000
======== ========
</TABLE>
8
<PAGE> 9
NOTE 4: NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
--------------------------------------
WEIGHTED AVG. PER SHARE
INCOME SHARES AMOUNT
------ ------ ------
<S> <C> <C> <C>
Net Income per Share - Basic:
Income available to common shareholders $1,141,000 8,142,531 $.14
========== ========= ====
Effect of Dilutive Securities:
Options held by employees 456,604
Options held by nonemployee directors 57,421
---------- ---------
Net Income Per Share - Diluted:
Income available to common share-
holders plus assumed conversions $1,141,000 8,656,556 $.13
========== ========= ====
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
--------------------------------------
WEIGHTED AVG. PER SHARE
INCOME SHARES AMOUNT
------ ------ ------
<S> <C> <C> <C>
Net Income per Share - Basic:
Income available to common shareholders $ 800,000 8,122,260 $.10
========== ========= ====
Effect of Dilutive Securities:
Options held by employees 387,940
Options held by nonemployee directors 42,917
---------- ---------
Net Income Per Share - Diluted:
Income available to common share-
holders plus assumed conversions $ 800,000 8,553,117 $.09
========== ========= ====
</TABLE>
9
<PAGE> 10
NOTE 5: OTHER COMPREHENSIVE LOSS
The tax effect of other comprehensive loss is as follows:
<TABLE>
<CAPTION>
NET-OF-
BEFORE-TAX TAX TAX
Three Months ended March 31, 1999: AMOUNT BENEFIT AMOUNT
------ ------- ------
<S> <C> <C> <C>
Unrealized losses on securities:
Unrealized holding losses
arising during period ............... $(255,000) $102,000 $(153,000)
Less: reclassification adjustments
for losses realized in net income ... -- -- --
--------- -------- ---------
Other comprehensive loss .................. $(255,000) $102,000 $(153,000)
========= ======== =========
</TABLE>
<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
--------- -------- ---------
Other comprehensive loss .................. $(129,000) $ 52,000 $ (77,000)
========= ======== =========
</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 March 31, 1999 and results of operations for the three months
ended March 31, 1999 and 1998 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, 1999 and for the
three months ended March 31, 1999 and 1998 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, 1999 are not necessarily indicative of the results which may be
expected for any other period.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Form 10-Q, both in the MD&A and elsewhere, contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are not historical facts and
include expressions about management's confidence and strategies and
management's expectations about new and existing programs and products,
relationships, opportunities, technology and market conditions. These statements
may be identified by such forward-looking terminology as "expect", "look",
"believe", "anticipate", "may", "will", or similar statements or variations of
such terms. Such forward-looking statements involve certain risks and
uncertainties. These include, but are not limited to, the direction of interest
rates, continued levels of loan quality and origination volume, continued
relationships with major customers including sources for loans, successful
completion of the implementation of Year 2000 technology changes, as well as the
effects of economic conditions and legal and regulatory barriers and structure.
Actual results may differ materially from such forward-looking statements. The
Corporation assumes no obligation for updating any such forward-looking
statement at any time.
FINANCIAL CONDITION AND RECENT OPERATING ENVIRONMENT
GENERAL. Net income for the first quarter of 1999 was the highest for
any first quarter in the Corporation's history. The sale of the last significant
parcel of other real estate helped bring nonperforming assets down to $761,000
at March 31, 1999, the Corporation's lowest level of the last twenty years.
Meanwhile, economic conditions in the Corporation's market area remained
favorable. The retail real estate sector, aided once again by a mild winter,
continued to be strong. Business activity of commercial customers also appeared
to be healthy.
The previously announced merger with Valley National Bancorp ("Valley")
took a step closer to fruition with the approval of the transaction by the
Corporation's shareholders at a special meeting held April 27, 1999. The
transaction is expected to be accounted for as a pooling-of-interests and is
scheduled to close in June, 1999.
Significant changes in individual asset and liability categories are
discussed below.
Total assets decreased $2.9 million (.9%) during the quarter, going
from $337.8 million at December 31, 1998 to $334.9 million at March 31, 1999.
Federal funds sold increased $8.3 million during the period, largely due to
management's efforts to increase liquidity after the merger was announced. This
increase was funded primarily by the $7.1 million (4.9%) reduction in the
investment portfolio and the $3.2 million (1.9%) decrease in gross loans during
the quarter. Sales of other real estate were responsible for the $1.7 million
drop in this category from the December 31, 1998 total.
11
<PAGE> 12
Total deposits fell $1.8 million (.6%) during the first quarter of
1999, while securities sold under agreements to repurchase dropped $2.1 million
(46.3%) from the year end total. The Corporation has found it difficult to
attract new loan and deposit customers in light of the merger announcement.
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, as of March 31,
1999, that the Corporation and the Bank meet all capital adequacy requirements
to which they are subject.
As of March 31, 1999, 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>
Actual
-------------------
Amount Ratio
------ -----
<S> <C> <C>
As of March 31, 1999
Total Capital (to Risk-Weighted Assets):
Corporation .............................. $37,369,000 17.2%
Bank ..................................... $31,861,000 14.7%
Tier 1 Capital (to Risk-Weighted Assets):
Corporation .............................. $34,630,000 16.0%
Bank ..................................... $29,132,000 13.5%
Tier 1 Capital (to Average Assets):
Corporation .............................. $34,630,000 10.4%
Bank ..................................... $29,132,000 8.7%
As of December 31, 1998:
Total Capital (to Risk-Weighted Assets):
Corporation .............................. $36,357,000 16.5%
Bank ..................................... $31,017,000 14.1%
Tier 1 Capital (to Risk-Weighted Assets):
Corporation .............................. $33,574,000 15.2%
Bank ..................................... $28,243,000 12.8%
Tier 1 Capital (to Average Assets):
Corporation .............................. $33,574,000 10.1%
Bank ..................................... $28,243,000 8.5%
</TABLE>
<TABLE>
<CAPTION>
For Capital
Adequacy Purposes
-------------------------------------------------------------------
Amount Ratio
------ -----
<S> <C> <C>
As of March 31, 1999
Total Capital (to Risk-Weighted Assets):
Corporation .............................. greater than or equal to $17,350,000 greater than or equal to 8.0%
Bank ..................................... greater than or equal to $17,288,000 greater than or equal to 8.0%
Tier 1 Capital (to Risk-Weighted Assets):
Corporation .............................. greater than or equal to $8,675,000 greater than or equal to 4.0%
Bank ..................................... greater than or equal to $8,644,000 greater than or equal to 4.0%
Tier 1 Capital (to Average Assets):
Corporation .............................. greater than or equal to $13,358,000 greater than or equal to 4.0%
Bank ..................................... greater than or equal to $13,337,000 greater than or equal to 4.0%
As of December 31, 1998:
Total Capital (to Risk-Weighted Assets):
Corporation .............................. greater than or equal to $17,651,000 greater than or equal to 8.0%
Bank ..................................... greater than or equal to $17,599,000 greater than or equal to 8.0%
Tier 1 Capital (to Risk-Weighted Assets):
Corporation .............................. greater than or equal to $8,826,000 greater than or equal to 4.0%
Bank ..................................... greater than or equal to $8,800,000 greater than or equal to 4.0%
Tier 1 Capital (to Average Assets):
Corporation .............................. greater than or equal to $13,308,000 greater than or equal to 4.0%
Bank ..................................... greater than or equal to $13,287,000 greater than or equal to 4.0%
</TABLE>
<TABLE>
<CAPTION>
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
---------------------------------------------------------------------
Amount Ratio
------ -----
<S> <C> <C>
As of March 31, 1999
Total Capital (to Risk-Weighted Assets):
Corporation .............................. greater than or equal to $21,687,000 greater than or equal to 10.0%
Bank ..................................... greater than or equal to $21,610,000 greater than or equal to 10.0%
Tier 1 Capital (to Risk-Weighted Assets):
Corporation .............................. greater than or equal to $13,012,000 greater than or equal to 6.0%
Bank ..................................... greater than or equal to $12,966,000 greater than or equal to 6.0%
Tier 1 Capital (to Average Assets):
Corporation .............................. greater than or equal to $16,697,000 greater than or equal to 5.0%
Bank ..................................... greater than or equal to $16,671,000 greater than or equal to 5.0%
As of December 31, 1998:
Total Capital (to Risk-Weighted Assets):
Corporation .............................. greater than or equal to $22,064,000 greater than or equal to 10.0%
Bank ..................................... greater than or equal to $21,999,000 greater than or equal to 10.0%
Tier 1 Capital (to Risk-Weighted Assets):
Corporation .............................. greater than or equal to $13,238,000 greater than or equal to 6.0%
Bank ..................................... greater than or equal to $13,199,000 greater than or equal to 6.0%
Tier 1 Capital (to Average Assets):
Corporation .............................. greater than or equal to $16,634,000 greater than or equal to 5.0%
Bank ..................................... greater than or equal to $16,609,000 greater than or equal to 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
March 31, 1999 and December 31, 1998 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.
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1999 1998
---- ----
<S> <C> <C>
Loans 30-89 days past due ........................ $2,334,000 $ 541,000
========== ==========
Nonaccrual loans:
Commercial and commercial real estate ......... $ 298,000 $ 298,000
Residential real estate mortgage .............. 146,000 146,000
---------- ----------
444,000 444,000
---------- ----------
Loans past due 90 days or more:
Residential real estate mortgage .............. 58,000 59,000
---------- ----------
Total nonperforming loans .................. $ 502,000 $ 503,000
---------- ----------
Other real estate, net ........................... $ 259,000 $1,920,000
---------- ----------
Total nonperforming assets ....................... $ 761,000 $2,423,000
========== ==========
</TABLE>
The only loans 30-89 days past due that are considered to be potential problem
loans are five small installment loans totaling $59,000. The increase in this
category from the December 31 total is primarily due to the timing of renewals
of four commercial loans which totaled $1.5 million. Management believes that
the net carrying value of ORE at March 31, 1999 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 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 March 31, 1999, 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 $1,545,000 and $1,558,000 at March 31, 1999 and December
31, 1998, respectively, the amounts of its commercial nonaccrual and
restructured loans that are performing in accordance with their restructured
terms on those dates. Management believes the allowance for possible loan losses
at March 31, 1999 of $4.9 million, or 983.9% of nonperforming loans and 3.0% of
total loans, was adequate. Recoveries of loans previously charged-off exceeded
loan charge-offs by $166,000 during the first quarter of 1999. This, coupled
with the low level of nonperforming loans, enabled the Corporation to eliminate
its budgeted provision to the allowance. 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 March 31, 1999, the Corporation's liquidity consisted of cash and
cash equivalents of $25.0 million and securities available for sale of $94.7
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 $6.3 million of cash and cash equivalents at
the Bank at March 31, 1999. 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.
15
<PAGE> 16
YEAR 2000
At present, the Corporation strongly believes that its merger with
Valley will take place in June, 1999. Conversion of all computer systems is
scheduled to take place immediately following the merger. These events will
substantially eliminate the risk to the Corporation and to Valley posed by the
Corporation's computers and systems concerning the century date change in the
year 2000 ("Y2K"). The discussion that follows describes the efforts to date
taken by the Corporation to deal with Y2K issues.
The Corporation utilizes software and related technologies throughout
its business that will be affected by 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. 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 substantially completed on these
applications, including the Corporation's most critical application, its primary
accounting software system. The vendor of this system has supplied the
Corporation with a utility program which allows 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, all tests of this
system have yielded satisfactory results. In addition, the results of the sixty
internal tests provided by the vendor have been reviewed for their adequacy.
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 is ongoing.
16
<PAGE> 17
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. 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, 1999. The Corporation recorded net income
of $1,141,000 or $.13 per diluted share for the first three months of 1999, a
43% increase over the $800,000 or $.09 per diluted share recorded for the first
quarter of 1998. The 1999 results were a record for any first quarter in the
Corporation's history.
Net interest income rose $160,000 (4.7%) during the quarter as compared
to the same period in 1998 due to an increase in average earning assets; the
tax-equivalent net interest margin fell from 5.08% in the first quarter of 1998
to 4.62% in the comparable 1999 quarter. The rise in average earning assets,
principally investments, was made possible by a $39.3 million (15.4%) rise in
average deposits in 1999 versus 1998. The net interest margin reduction was due
to maintaining a higher proportion of lower-yielding investments and federal
funds sold than in the prior year's quarter. Also pricing pressure on loans
caused their average yield to drop in 1999 compared to 1998.
No provision for possible loan losses was taken in 1999 due to strong
recoveries of previously charged-off loans. Other income increased $189,000
(32.9%) in 1999 compared to the first quarter of 1998, largely due to a $218,000
gain recorded on the sale of the last significant parcel of ORE. Total other
expenses increased just $26,000 in 1999 compared to 1998, as modest increases in
salaries and employee benefits, occupancy expense and equipment expense were
offset in part by a 14.4% reduction in other operating expenses. More than half
of this reduction was in the stationery and printing and advertising categories.
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 results of a special meeting of stockholders held on April 27, 1999
were previously reported on Form 8-K, filed April 29, 1999.
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 -
April 16, 1999 - First Quarter 1999 Earnings
April 29, 1999 - Special Meeting of Stockholders on
April 27, 1999
18
<PAGE> 19
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 12, 1999 By: /s/ Mortimer J. O'Shea
------------ ------------------------
President and CEO
DATE: May 12, 1999 By: /s/ Walter A. Wojcik, Jr.
------------ -------------------------
Treasurer
19
<TABLE> <S> <C>
<ARTICLE> 9
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 10,554,000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 14,400,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 94,704,000
<INVESTMENTS-CARRYING> 43,403,000
<INVESTMENTS-MARKET> 43,511,000
<LOANS> 166,638,000
<ALLOWANCE> 4,939,000
<TOTAL-ASSETS> 334,868,000
<DEPOSITS> 293,674,000
<SHORT-TERM> 2,434,000
<LIABILITIES-OTHER> 3,851,000
<LONG-TERM> 0
0
0
<COMMON> 8,162,000
<OTHER-SE> 26,747,000
<TOTAL-LIABILITIES-AND-EQUITY> 334,868,000
<INTEREST-LOAN> 3,413,000
<INTEREST-INVEST> 1,902,000
<INTEREST-OTHER> 81,000
<INTEREST-TOTAL> 5,396,000
<INTEREST-DEPOSIT> 1,822,000
<INTEREST-EXPENSE> 1,851,000
<INTEREST-INCOME-NET> 3,545,000
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,610,000
<INCOME-PRETAX> 1,698,000
<INCOME-PRE-EXTRAORDINARY> 1,698,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,141,000
<EPS-PRIMARY> .14
<EPS-DILUTED> .13
<YIELD-ACTUAL> 4.53
<LOANS-NON> 444,000
<LOANS-PAST> 58,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 59,000
<ALLOWANCE-OPEN> 4,773,000
<CHARGE-OFFS> 3,000
<RECOVERIES> 169,000
<ALLOWANCE-CLOSE> 4,939,000
<ALLOWANCE-DOMESTIC> 4,939,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
