<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1998
0-24997
Commission File Number
SOUTH JERSEY FINANCIAL CORPORATION, INC.
(Name of small business issuer in its charter.)
<TABLE>
<S> <C>
DELAWARE 22-3615289
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization)
</TABLE>
4651 ROUTE 42, TURNERSVILLE, NEW JERSEY 08012
(Address of Principal Executive Offices) (Zip Code)
(609) 629-6000
(Issuer's telephone number)
NONE
Securities registered under Section 12(b) of the Exchange Act
COMMON STOCK, PAR VALUE $.01 PER SHARE
Securities registered under Section 12(g) of the Exchange Act
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [_]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
[X]
The issuer's revenues for its most recent fiscal year were $18,936,000.
As of March 31, 1999, the issuer had 3,793,430 shares of common stock issued or
outstanding.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the issuer was $41,131,179. This figure is based on the
average bid and asked price of the issuer's common stock on March 18, 1999,
which was $11.1875 as reported in The Wall Street Journal. For purposes of this
calculation, the registrant is assuming that directors and executive officers
are affiliates.
Transitional Small Business Disclosure Format (check one) Yes [_] No [X]
<PAGE>
INDEX
<TABLE>
<CAPTION>
PART I
Page No.
--------
<S> <C>
Item 1. Description of Business....................................................... 1
Item 2. Description of Property....................................................... 29
Item 3. Legal Proceedings............................................................. 29
Item 4. Submission of Matters to a Vote of Security Holders........................... 29
PART II
Item 5. Market for the Common Equity
and Related Stockholder Matters............................................... 30
Item 6. Management's Discussion and Analysis or Plan of Operations.................... 30
Item 7. Financial Statements.......................................................... 40
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure........................................... 41
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act...................................... 41
Item 10. Executive Compensation........................................................ 43
Item 11. Security Ownership of Certain Beneficial Owners and Management................ 51
Item 12. Certain Relationships and Related Transactions................................ 52
Item 13. Exhibits and Reports on Form 8-K.............................................. 53
</TABLE>
SIGNATURES
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
- --------------------------------
GENERAL
South Jersey Financial Corporation, Inc. (the "Company") was incorporated
under Delaware law on September 28, 1998. The Company was formed to acquire
South Jersey Savings and Loan Association, Turnersville, New Jersey (the
"Association") as part of the Association's conversion from a mutual to stock
form of organization (the "Conversion"). In connection with the Conversion, on
February 12, 1999, the Company issued an aggregate 3,793,430 shares of its
common stock, par value $0.01 per share (the "Common Stock"), of which 3,512,435
shares were sold in a subscription offering at a purchase price of $10 per share
and 280,995 shares were issued and contributed to the South Jersey Savings
Charitable Foundation (the "Foundation"), a charitable foundation established by
the Association. The Company is a savings and loan holding company and is
subject to regulation by the Office of Thrift Supervision ("OTS"), the Federal
Deposit Insurance Corporation ("FDIC") and the Securities and Exchange
Commission ("SEC"). Currently, the Company does not transact any material
business other than through its subsidiary, the Association. At December 31,
1998, the Association had total assets of $285.6 million, total deposits of
$236.2 million and equity of $26.9 million.
The Association was originally organized in 1921 and operated as Knight
Park Building and Loan Association of Collingswood, New Jersey. In 1950, the
Association merged with Vineyard Building and Loan Association and changed its
name to South Jersey Savings and Loan Association. The Association conducts
business from its home office and operation centers located in Turnersville, New
Jersey and its two full service branch offices located in Collingswood and
Glendora, New Jersey. The Association's principal business has been and
continues to be attracting retail deposits from the general public in the areas
surrounding its three banking offices and investing those deposits, together
with funds generated from operations and borrowings, primarily in one- to four-
family mortgage loans and consumer loans, including home equity loans, home
equity lines of credit and education loans. To a lesser extent, the Association
also originates multi-family and commercial real estate loans. The Association
currently originates all of its loans for investment. The Association also
invests in mortgage-backed securities and investment securities, primarily U.S.
government and agency obligations, and other permissible investments. The
Association's revenues are derived principally from interest on its loans, and
to a lesser extent, interest and dividends on its investment and mortgage-backed
securities and other noninterest income. The Association's primary sources of
funds are deposits, principal and interest payments on loans and mortgage-backed
securities and Federal Home Loan Bank ("FHLB") advances.
MARKET AREA
The Association is a community-oriented banking institution offering a
variety of financial products and services to meet the needs of the communities
it serves. The Association's lending and deposit gathering is concentrated in
its primary market area consisting of Gloucester and Camden Counties, New
Jersey. All of the Association's offices are located within 20 miles of
Philadelphia, Pennsylvania. The Association invests primarily in loans secured
by first or second mortgages on properties located in areas surrounding its
offices.
Turnersville is located in largely suburban Gloucester County, New Jersey
on State Highway 42 approximately 50 miles northwest of Atlantic City, New
Jersey and 20 miles southeast of Philadelphia. Collingswood and Glendora are
located in Camden County, New Jersey, which county primarily consists of mature
fully developed communities. Heavily traveled U.S. Interstates 95, 295, 676 and
76 run through the Association's primary market area. These highways provide
easy access to the cities of Philadelphia, New York and Newark, New Jersey,
which are major international centers for business, commerce and trade. In
recent years, Gloucester County has experienced an influx of new residents and
employers as the Philadelphia suburbs have expanded into the Association's
primary market area.
1
<PAGE>
The economy in the Association's primary market area is based upon a
mixture of service and retail trade. Other employment is provided by a variety
of wholesale trade, manufacturing, federal, state and local government,
hospitals, universities and utilities. This area is also home to commuters
working in Philadelphia and, to a lesser extent, New York. In the late 1980's
and early 1990's, due in part to the effects of a prolonged decline in the
national and regional economy, layoffs in the financial services industry and
corporate relocations, New Jersey experienced reduced levels of employment.
These events, in conjunction with a surplus of available commercial and
residential properties, resulted in an overall decline during this period in the
underlying values of properties located in New Jersey. However, New Jersey's
real estate market has recovered in recent periods. Whether improvement will
continue is dependent, in large part, upon the general economic health of the
United States and New Jersey, and other factors beyond the Association's control
and, therefore, cannot be estimated.
COMPETITION
The Association faces significant competition both in generating loans and
in attracting deposits. The Association's primary market area is highly
competitive and the Association faces direct competition from a significant
number of financial institutions, many with a state wide or regional presence
and, in some cases, a national presence. Many of these financial institutions
are significantly larger and have greater financial resources than the
Association. The Conversion, by increasing the Association's capital and adding
the resources of the Company as a possible source of strength for the
Association, should promote the Association's ability to compete and to take
advantage of growth opportunities that might arise. The Association's
competition for loans comes principally from commercial banks, savings banks,
mortgage brokers, mortgage banking companies and insurance companies. Its most
direct competition for deposits has historically come from savings banks and
associations, commercial banks and credit unions. In addition, the Association
faces increasing competition for deposits from non-bank institutions such as
brokerage firms and insurance companies in such instruments as short-term money
market funds, corporate and government securities funds, mutual funds and
annuities. Competition may also increase as a result of the lifting of
restrictions on the interstate operations of financial institutions.
In recent years, most locally headquartered competitors in the
Association's primary market area have been acquired by larger, regional
financial institutions, resulting in a reduced presence of local, community-
based institutions. The Association believes that this reduction of community-
based institutions has created opportunities for the Association, as one of the
few remaining locally headquartered financial institutions in its primary market
area, to achieve controlled asset growth and moderate geographic expansion. To
take advantage of this perceived opportunity, the Association intends to enhance
its current operating strategy by expanding the products and services it offers,
as necessary, in order to improve its market share in its primary market area.
In this regard, the Association has begun to offer new IRA deposit products and
has recently introduced 24 hour banking by telephone with voice response
capabilities. The Association may also seek to expand its lending activities
into areas outside of its primary market area.
PERSONNEL
As of December 31, 1998, the Association had 66 full-time employees and 24
part-time employees. The employees are not represented by a collective
bargaining unit and the Association considers its relationship with its
employees to be good.
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. The Association's loan portfolio consists
primarily of first mortgage loans secured by one- to four-family residential
real estate. At December 31, 1998, the Association's loans totalled $108.4
million, of which $88.1 million, or 81.2%, were one- to four-family residential
first mortgage loans. Such residential mortgage loans consisted of 90.3% of
fixed-rate loans and 9.7% of adjustable-rate loans, most of which were indexed
to the one or three year Constant Maturity Treasury ("CMT") Index. At December
31, 1998, the Association also had $3.2 million, or 2.9% of total loans, in
multi-family and commercial real estate loans.
2
<PAGE>
The Association's consumer loans at December 31, 1998 aggregated $17.2
million, or 15.9% of total loans. Such consumer loans included $13.3 million of
home equity loans, $1.1 million of home equity lines of credit, $2.2 million of
education loans and $600,000 of other consumer loans. The Association's home
equity loans and lines of credit and education loans constituted 83.8% and 12.5%
of consumer loans, respectively, and 13.3% and 2.0% of total loans,
respectively, at December 31, 1998.
The Association generally has not sold loans in recent years and had no
mortgage loans held for sale at December 31, 1998 and at each of the five years
ended December 31, 1998. The types of loans that the Association may originate
are subject to federal and state laws and regulations. Interest rates charged
by the Association on loans are affected by the demand for such loans and the
supply of money available for lending purposes and the rates offered by
competitors. These factors are, in turn, affected by, among other things,
economic conditions, monetary policies of the federal government, including the
Federal Reserve Board ("FRB"), and legislative tax policies.
3
<PAGE>
The following table sets forth the composition of the Association's loan
portfolio in dollar amounts and as a percentage of the portfolio at the dates
indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------------------- ------------------- ------------------ ------------------ --------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
----------- -------- -------- ---------- -------- -------- --------- -------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REAL ESTATE LOANS:
One- to four-family..... $ 88,068 81.21% $ 78,488 78.42% $ 80,681 76.05% $ 82,935 77.45% $ 88,033 78.37%
Multi-family and
commercial............. 3,181 2.94 3,179 3.18 6,707 6.32 7,007 6.54 7,303 6.50
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total real estate
loans............ 91,249 84.15 81,667 81.60 87,388 82.37 89,942 83.99 95,336 84.87
CONSUMER LOANS:
Home equity loans and
lines of credit....... 14,403 13.28 15,254 15.24 15,313 14.43 14,301 13.35 14,154 12.60
Education............... 2,144 1.98 2,427 2.43 2,514 2.37 1,912 1.79 1,829 1.63
Other................... 644 0.59 732 0.73 879 0.83 935 0.87 1,008 0.90
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total consumer
loans............ 17,191 15.85 18,413 18.40 18,706 17.63 17,148 16.01 16,991 15.13
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans.......... 108,440 100.00% 100,080 100.00% 106,094 100.00% 107,090 100.00% 112,327 100.00%
====== ====== ====== ====== ======
LESS:
Deferred loan
origination fees
and discounts.......... 323 447 645 670 741
Allowance for loan
losses................. 940 667 1,186 1,068 968
-------- -------- -------- -------- --------
Total loans, net..... $107,177 $ 98,966 $104,263 $105,352 $110,618
======== ======== ======== ======== ========
</TABLE>
4
<PAGE>
LOAN MATURITY. The following table shows the remaining contractual maturity
of the Association's total loans at December 31, 1998. The table does not
include the effect of future principal prepayments.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
------------------------------------------
MULTI-
ONE- TO FAMILY AND
FOUR- COMMERCIAL TOTAL
FAMILY REAL ESTATE CONSUMER LOANS
--------- ----------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Amounts due in:
One year or less..................... $ 81 $ 969 $ 1,013 $ 2,063
After one year:
More than one year to three years.... 865 126 2,100 3,091
More than three years to five years.. 2,724 240 2,715 5,679
More than five years to 10 years..... 24,018 384 5,948 30,350
More than 10 years to 20 years....... 30,493 848 5,415 36,756
More than 20 years................... 29,887 614 -- 30,501
------- ------ ------- --------
Total amount due.................. $88,068 $3,181 $17,191 $108,440
======= ====== ======= ========
</TABLE>
The following table sets forth, at December 31, 1998, the dollar amount of
loans contractually due after December 31, 1999, and whether such loans have
fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER DECEMBER 31, 1999
-------------------------------
FIXED ADJUSTABLE TOTAL
--------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Real estate loans:
One- to four-family.......... $81,671 $6,316 $ 87,987
Multi-family and commercial.. 1,252 960 2,212
------- ------ --------
Total real estate loans... 82,923 7,276 90,199
Consumer loans.................. 13,646 2,532 16,178
------- ------ --------
Total loans............... $96,569 $9,808 $106,377
======= ====== ========
</TABLE>
ORIGINATION AND SERVICING OF LOANS. The Association's mortgage lending
activities are conducted primarily by its loan personnel operating at its
banking offices. All loans originated by the Association are underwritten
pursuant to the Association's policies and procedures. The Association
originates both adjustable-rate and fixed-rate loans, the substantial majority
of which are fixed-rate loans. The Association's ability to originate fixed- or
adjustable-rate loans is dependent upon the relative customer demand for such
loans, which is affected by the current and expected future level of interest
rates. It is the general policy of the Association to retain all loans
originated in its portfolio.
In recent periods, loan repayments and prepayments have exceeded loan
originations. This has resulted in a decrease in the Association's total loans,
net, over the previous three fiscal periods from a year-end high of $110.6
million at December 31, 1994, representing 49.6% of total assets, to a year-end
low of $99.0 million at December 31, 1997, representing 39.6% of total assets.
However, for the year ended December 31, 1998, the Association has increased
loan originations and purchases, primarily of one- to four-family real estate
loans. Such increase was attributable in significant part to refinancings due to
a favorable interest rate environment and a greater acceptability by the
Association to refinancing its own loans.
In an effort to address the diminished loan growth in recent years, the
Association is focusing its lending activities on the communities surrounding
its Turnersville, New Jersey office which is located in more suburban Gloucester
County. The Association may also seek to expand its primary market area and its
lending activities to areas
5
<PAGE>
outside of Gloucester and Camden Counties. However, there can be no assurances
that such geographic expansion activities will take place or, if they do take
place, that they will be successful.
The following table sets forth the Association's loan originations, sales
and principal repayments for the years indicated:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
-------------------------------
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Loans at beginning of year....................... $100,080 $106,094 $107,090
-------- -------- --------
Originations:
Real estate:
One- to four-family..................... 17,083 8,580 8,149
Multi-family and commercial............. 357 205 197
-------- -------- --------
Total real estate loan originations.. 17,440 8,785 8,346
Consumer:
Home equity loans and lines of credit... 6,300 6,343 6,244
Education............................... 323 290 846
Other................................... 522 606 786
-------- -------- --------
Total consumer loan originations..... 7,145 7,239 7,876
-------- -------- --------
Total loans originated............... 24,585 16,024 16,222
Loans purchased.................................. 6,532 -- --
Deduct:
Principal loan repayments and prepayments..... 22,617 22,011 17,218
Loan sales(1).............................. 90 -- --
Transfers to REO........................... 50 27 --
-------- -------- --------
Total deductions..................... 22,757 22,038 17,218
-------- -------- --------
Net loan activity................................ 8,360 (6,014) (996)
-------- -------- --------
Loans at end of year....................... $108,440 $100,080 $106,094
======== ======== ========
</TABLE>
_________________________
(1) In 1998, the Association sold its Freddie Mac ("FHLMC") servicing portfolio
and its related participatory interest of $90,000 in such loan portfolio.
ONE- TO FOUR-FAMILY MORTGAGE LENDING. The Association currently offers
both fixed-rate and adjustable-rate mortgage ("ARM") loans with maturities of up
to 30 years secured by single residences, which are considered to be real
property which contain one to four residences. Most of such loans are located in
the Association's primary market area. One- to four-family mortgage loan
originations are generally obtained from the Association's in-house loan
representatives, from existing or past customers and through advertising and
referrals from members of the Association's local communities. At December 31,
1998, the Association's one- to four-family mortgage loans totalled $88.1
million, or 81.2% of total loans. Of the one- to four-family mortgage loans
outstanding at that date, 92.8% were fixed-rate loans and 7.2% were ARM loans.
The Association currently offers fixed-rate mortgage loans with terms
of up to 30 years. The Association also currently offers a number of ARM loans
with terms of up to 30 years and interest rates which adjust every one or three
years from the outset of the loan. The interest rates for the Association's ARM
loans are indexed to either the one or three year CMT Index. The Association's
ARM loans generally provide for periodic (not more than 2%) and overall (not
more than 6%) caps on the increase or decrease in the interest rate at any
adjustment date and over the life of the loan.
6
<PAGE>
The origination of adjustable-rate residential mortgage loans, as opposed
to fixed-rate residential mortgage loans, helps reduce the Association's
exposure to increases in interest rates. However, adjustable-rate loans
generally pose credit risks not inherent in fixed-rate loans, primarily because
as interest rates rise, the underlying payments of the borrower rise, thereby
increasing the potential for default. Periodic and lifetime caps on interest
rate increases help to reduce the risks associated with adjustable-rate loans
but also limit the interest rate sensitivity of such loans.
All one- to four-family mortgage loans are underwritten according to the
Association's policies and guidelines. Generally, the Association originates
one-to four-family residential mortgage loans in amounts of up to 80% of the
lower of the appraised value or selling price of the property securing the loan
and up to 95% of the appraised value or selling price if private mortgage
insurance ("PMI") is obtained. Mortgage loans originated by the Association
generally include due-on-sale clauses which provide the Association with the
contractual right to deem the loan immediately due and payable in the event the
borrower transfers ownership of the property without the Association's consent.
Due-on-sale clauses are an important means of adjusting the yields on the
Association's fixed-rate mortgage loan portfolio and the Association has
generally exercised its rights under these clauses. The Association requires
fire, casualty, title and, when applicable, flood insurance on all properties
securing real estate loans made by the Association.
The Association offers employees of the Association, other than executive
officers and directors, who satisfy certain criteria and the general
underwriting standards of the Association fixed and adjustable-rate mortgage
loans with reduced loan origination fees and/or interest rates which are
currently 100 basis points below the rates offered to the Association's other
customers, the Employee Mortgage Rate ("EMR"). The EMR is limited to the
purchase, construction or refinancing of an employee's owner-occupied primary
residence. The EMR normally ceases upon termination of employment or if the
property no longer is the employee's primary residence. Upon termination of the
EMR, the interest rate reverts to the contract rate in effect at the time that
the loan was extended. All other terms and conditions contained in the original
mortgage and note continue to remain in effect. As of December 31, 1998, the
Association had $2.3 million of EMR loans, or 2.1% of total loans.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LENDING. The Association originates
multi-family and commercial real estate loans that are generally secured by five
or more unit apartment buildings and properties used for business purposes such
as small office buildings or retail facilities located in the Association's
primary market area. The Association's multi-family and commercial real estate
underwriting policies provide that such real estate loans may be made in amounts
of up to 70% of the appraised value of the property, subject to the
Association's current loans-to-one-borrower policy limit, which at December 31,
1998 was $2.7 million. The Association's multi-family and commercial real estate
loans may be made with terms of up to 20 years and are offered with interest
rates that adjust periodically. In reaching its decision on whether to make a
multi-family or commercial real estate loan, the Association considers the net
operating income of the property, the borrower's expertise, credit history and
profitability and the value of the underlying property. Environmental risk
evaluations are generally required for all multi-family and commercial real
estate loans. Generally, all multi-family and commercial real estate loans made
to corporations, partnerships and other business entities require personal
guarantees by the principals. On an exception basis, the Association may not
require a personal guarantee on such loans depending on the creditworthiness of
the borrower and the amount of the downpayment and other mitigating
circumstances. The Association's multi-family and commercial real estate loan
portfolio at December 31, 1998 was $3.2 million, or 2.9% of total loans. The
largest multi-family or commercial real estate loan in the Association's
portfolio at December 31, 1998 was a performing $249,000 loan secured by an
office building and warehouse in Cherry Hill, New Jersey.
Loans secured by multi-family and commercial real estate properties
generally involve larger principal amounts and a greater degree of risk than
one-to four-family residential mortgage loans. Because payments on loans
secured by multi-family and commercial real estate properties are often
dependent on the successful operation or management of the properties, repayment
of such loans may be subject to adverse conditions in the real estate market or
the economy. The Association seeks to minimize these risks through its
underwriting standards.
CONSUMER LENDING. Consumer loans at December 31, 1998 amounted to $17.2
million, or 15.9% of the Association's total loans, and consisted primarily of
home equity loans, home equity lines of credit, education loans and, to a
significantly lesser extent, secured and unsecured personal loans and new and
used automobile loans. Such loans
7
<PAGE>
are generally originated in the Association's primary market area and generally
are secured by real estate, deposit accounts and automobiles. These loans are
typically shorter term and generally have higher interest rates than one- to
four-family mortgage loans.
The Association offers home equity loans ("HELs") and home equity lines of
credit ("HELOCs") (collectively, "equity loans"). Most of the Association's
equity loans are secured by second mortgages on one- to four-family residences
located in the Association's primary market area. At December 31, 1998, these
loans totalled $14.4 million, or 13.3% of the Association's total loans and
83.8% of consumer loans. HELs are generally offered with terms of up to 15 years
and only with fixed-rates of interest which rates will vary depending on the
amortization period chosen by the borrower. At December 31, 1998, HELs totalled
$13.3 million, or 12.2% of the Association's total loans and 77.1% of consumer
loans. HELOCs generally have adjustable-rates of interest which adjust on a
monthly basis. The adjustable-rate of interest charged on such loans is indexed
to the prime rate as reported in The Wall Street Journal. Adjustable-rate HELOCs
generally provide for overall caps (not more than 6% above the initial interest
rate) on the increase or decrease in the interest rate over the life of the
loan. At December 31, 1998, the Association had $2.9 million of HELOCs of which
$1.1 million, or 1.1% of total loans, was drawn down at such date. The
underwriting standards employed by the Association for equity loans include a
determination of the applicant's credit history and an assessment of the
applicant's ability to meet existing obligations and payments on the proposed
loan and the value of the collateral securing the loan. Generally, the maximum
combined loan-to-value ratio ("LTV") on equity loans is 80% on owner-occupied
properties and 70% on non-owner -occupied properties. The stability of the
applicant's monthly income may be determined by verification of gross monthly
income from primary employment and, additionally, from any verifiable secondary
income. Creditworthiness of the applicant is of primary consideration.
With respect to education lending, the Association participates in the
United States Department of Education (the "DOE") Title IV loan programs
commonly referred to as the Federal Family of Education Loan Programs ("FFELP").
The loans in this program that the Association participates in include the
Federal Subsidized Stafford Loan and the Federal Parent Loan to Undergraduate
Students (PLUS) Loan. All FFELP loans that were disbursed prior to October 1,
1993 are 100% guaranteed as to principal and interest by the full faith of the
United States Government if serviced properly. Loans disbursed after October 1,
1993 are guaranteed to at least 98% of principal plus eligible interest by the
full faith of the United States Government if serviced properly. Under certain
circumstances loans guaranteed at the 98% level will be insured to the 100%
level. Education loans held by the Association are administrated and guaranteed
by the New Jersey Higher Education Assistance Authority ("NJHEAA"). The
Association underwrites, operates and administrates participation in the FFELP
under the policies and procedures outlined in the NJHEAA guidelines for Loan
Guaranty Programs. At December 31, 1998, education loans totalled $2.1 million,
or 12.5% of consumer loans and 2.0% of the Association's total loans.
The Association also originates other types of consumer loans primarily
consisting of secured and unsecured personal loans and new and used automobile
loans. At December 31, 1998, these consumer loans totalled $644,000, or 0.6% of
the Association's total loans and 3.7% of consumer loans. Secured personal loans
are generally secured by deposit accounts. Unsecured personal loans generally
have a maximum borrowing limitation of $7,500 and generally require a debt ratio
(the ratio of debt service to net earnings) of 36%. Automobile loans have a
maximum borrowing limitation of 80% of the sale price of a new automobile or 80%
of the fair market value of a used automobile. At December 31, 1998 personal
loans totalled $395,000, or 2.3% of consumer loans; and automobile loans
totalled $75,000, or 0.4% of consumer loans.
Loans secured by rapidly depreciable assets such as automobiles or that are
unsecured entail greater risks than one- to four-family mortgage loans. In such
cases, repossessed collateral for a defaulted loan may not provide an adequate
source of repayment of the outstanding loan balance, since there is a greater
likelihood of damage, loss or depreciation of the underlying collateral.
Further, consumer loan collections on these loans are dependent on the
borrower's continuing financial stability and, therefore, are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Finally, the application of various federal and state laws, including federal
and state bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans in the event of a default.
8
<PAGE>
LOAN APPROVAL PROCEDURES AND AUTHORITY. The Board of Directors establishes
the lending policies of the Association and oversees the Association's lending
activity. The Board of Directors has established a Loan Committee comprised of
four members of the Association's Board of Directors. In addition, the
Association maintains an "In House" Loan Committee comprised of the
Association's President, Executive Vice President, Senior Lending Officer and
Vice President of Lending.
The Board of Directors has authorized the following persons and groups of
persons to approve loans up to the amounts indicated: one- to four-family
mortgage loans in amounts up to $150,000 may be approved by the Association's In
House Loan Committee; and all such loans in excess of $150,000 require the
approval of the Board's Loan Committee. All multi-family and commercial real
estate loans require the approval of the Board's Loan Committee.
With respect to consumer loans, home equity loans and equity lines of
credit in amounts up to $25,000 and automobile loans in amounts up to $10,000
may be approved by the Association's Vice President of Lending; home equity
loans and equity lines of credit in excess of $25,000 and up to $50,000 and
automobile loans in excess of $10,000 and up to $15,000 require the approval of
the Association's Senior Lending Officer; home equity loans and equity lines of
credit in excess of $50,000 and up to $100,000 and automobile loans in excess of
$15,000 and up to $25,000 require the approval of the Association's In House
Loan Committee; and home equity loans and equity lines of credit in excess of
$100,000 and automobile loans in excess of $25,000 require the approval of the
Board's Loan Committee.
Certain education loans (PLUS loans) may be approved by the Association's
Vice President of Lending or Senior Lending Officer. Other education loans
(Federal Subsidized Stafford Loans) are reviewed by the Association but are
actually approved by the NJHEAA. All education loans are made in amounts up to
that which is guaranteed by the NJHEAA. Loans on savings accounts may be
approved by any branch manager or assistant branch manager. Such loans are fully
secured by the savings account or certificate of deposit utilized as collateral
for the loan.
DELINQUENT LOANS, CLASSIFIED ASSETS AND REAL ESTATE OWNED
DELINQUENCIES AND CLASSIFIED ASSETS. Reports listing all delinquent
accounts are generated and reviewed by management on a monthly basis and the
Board of Directors performs a quarterly review of all loans or lending
relationships delinquent 30 days or more and all real estate owned ("REO"). The
procedures taken by the Association with respect to delinquencies vary depending
on the nature of the loan, period and cause of delinquency and whether the
borrower has been habitually delinquent. When a borrower fails to make a
required payment on a loan, the Association may take a number of steps to have
the borrower cure the delinquency and restore the loan to current status. The
Association generally sends the borrower a written notice of non-payment after
the loan is first past due. The Association's guidelines provide that telephone,
written correspondence and/or face-to-face contact will be attempted to
ascertain the reasons for delinquency and the prospects of repayment. When
contact is made with the borrower at any time prior to foreclosure, the
Association will attempt to obtain full payment, work out a repayment schedule
with the borrower to avoid foreclosure or, in some instances, accept a deed in
lieu of foreclosure. In the event payment is not then received or the loan not
otherwise satisfied, additional letters and telephone calls generally are made.
If the loan is still not brought current or satisfied and it becomes necessary
for the Association to take legal action, which typically occurs after a loan is
90 days or more delinquent, the Association will commence foreclosure
proceedings against any real or personal property that secures the loan. If a
foreclosure action is instituted and the loan is not brought current, paid in
full, or refinanced before the foreclosure sale, the property securing the loan
generally is sold at foreclosure and, if purchased by the Association, becomes
real estate owned.
Federal regulations and the Association's Asset Classification Policy
require that the Association utilize an internal asset classification system as
a means of reporting problem and potential problem assets. The Association has
incorporated the OTS internal asset classifications as a part of its credit
monitoring system. The Association currently classifies problem and potential
problem assets as "Substandard," "Doubtful" or "Loss" assets. An asset is
considered "Substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "Doubtful" have all of the
9
<PAGE>
weaknesses inherent in those classified "Substandard" with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "Loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
which do not currently expose the insured institution to sufficient risk to
warrant classification in one of the aforementioned categories but possess
weaknesses are required to be designated "Special Mention."
When the Association classifies one or more assets, or portions thereof, as
Substandard, it establishes a general valuation allowance for loan losses in an
amount deemed prudent by management. General valuation allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When the Association classifies one or
more assets, or portions thereof, as Doubtful, it establishes a specific
allowance for losses equal to 50% of the amount of the asset so classified, with
respect to uncollateralized assets, and the difference between the loan amount
and the collateral value with respect to collateralized assets. Assets, or
portions thereof, classified as Loss are charged off.
A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS which can order the establishment of additional general or specific loss
allowances. The OTS, in conjunction with the other federal banking agencies, has
adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the policy
statement recommends that institutions have effective systems and controls to
identify, monitor and address asset quality problems; that management has
analyzed all significant factors that affect the collectibility of the portfolio
in a reasonable manner; and that management has established acceptable allowance
evaluation processes that meet the objectives set forth in the policy statement.
Although management believes that, based on information currently available to
it at this time, its allowance for loan losses is adequate, actual losses are
dependent upon future events and, as such, further additions to the level of
allowances for loan losses may become necessary. In addition, the OTS or other
federal banking agencies may require the Association to recognize additions to
the allowance, based on their judgments about information available to them at
the time of their examination.
The Association's Loan Committee reviews and classifies the Association's
assets on a quarterly basis and the Board of Directors reviews the results of
the reports on a quarterly basis. The Association classifies assets in
accordance with the management guidelines described above. At December 31, 1998,
the Association had $639,000 of assets designated as Substandard which consisted
of nine mortgage loans and nine consumer loans. At that same date the
Association had $76,000 of assets classified as Doubtful consisting of three
one-to four-family mortgage loans. At December 31, 1998, the Association had no
loans classified as Loss. As of December 31, 1998, the Association also had a
total of four loans, totalling $389,000, designated as Special Mention. At
December 31, 1998, the largest adversely (other than Special Mention) classified
loan was a mortgage loan with an aggregate carrying balance of $92,000 and was
secured by a one- to four-family property. The following table sets forth the
delinquencies in the Association's loan portfolio as of the dates indicated.
10
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------------------------------------------------- -------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
---------------------- ------------------------ ----------------------- -------------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF BALANCE OF OF BALANCE OF OF BALANCE OF OF BALANCE OF
LOANS LOANS LOANS LOANS LOANS LOANS LOANS LOANS
-------- ---------- ------ ---------- ------ ---------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family.... 3 $ 120 6 $ 199 3 $ 162 11 $ 328
Multi-family and
commercial........... -- -- 1 58 -- -- 1 57
Consumer Loans:
Home equity loans and
lines of credit...... 2 57 5 205 4 133 2 100
Education.............. 17 35 23 52 16 31 46 110
Other.................. 1 1 1 3 2 6 2 7
-- ----- -- ----- -- ----- -- -----
Total............... 23 $ 213 36 $ 517 25 $ 332 62 $ 602
== ===== == ===== == ===== == =====
Delinquent loans to
total loans, net....... 0.20% 0.48% 0.34% 0.61%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------
60-89 DAYS 90 DAYS OR MORE
---------------------- -----------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL
OF BALANCE OF OF BALANCE OF
LOANS LOANS LOANS LOANS
-------- ---------- ------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family.... -- $ -- 19 $ 783
Multi-family and
commercial........... -- -- -- --
Consumer Loans:
Home equity loans and
lines of credit...... 1 30 1 23
Education.............. 20 46 54 109
Other.................. 1 7 1 1
----- ----- ----- -----
Total............... 22 $ 83 75 $ 916
===== ===== ===== =====
Delinquent loans to
total loans, net....... 0.08% 0.88%
</TABLE>
NON-PERFORMING ASSETS AND IMPAIRED LOANS. The following table sets forth
information regarding non-accrual loans and REO. At December 31, 1998, non-
accrual loans totalled $523,000 consisting of 16 loans, and REO totalled $0. At
December 31, 1998, the Association had $52,000 of education loans which were 90
days or more delinquent, but for which it continued to accrue interest because
of government guarantees. It is the policy of the Association to cease accruing
interest on mortgage loans 90 days or more past due and to cease accruing
interest on consumer loans 60 days or more past due (unless the loan principal
and interest are determined by management to be fully secured and in the process
of collection) and to charge off most of the accrued interest. On January 1,
1995, the Association adopted SFAS No. 114 "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118. At December 31, 1998, 1997
and 1996, the Association had recorded investments of $76,000, $77,000 and
$553,000, respectively, in impaired loans which had specific allowances of
$9,000, $10,000 and $160,000, respectively. For the years ended December 31,
1998, 1997 and 1996, the amount of interest income that would have been
recognized on non-accrual loans if such loans had continued to perform in
accordance with their contractual terms was $46,000, $54,000 and $50,000,
respectively.
11
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------
1998 1997 1996 1995 1994
----------------------------------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Non-accruing loans:
One- to four-family real estate... $ 199 $ 328 $ 783 $ 292 $ 519
Multi-family and commercial
real estate..................... 58 57 -- 142 --
Consumer.......................... 266 246 61 92 32
----- ----- ----- ----- ------
Total(1)....................... 523 631 844 526 551
Real estate owned (REO)(2)........... -- -- -- 23 --
----- ----- ----- ----- ------
Total nonperforming assets(3).. 523 631 844 549 551
Troubled debt restructurings......... 67 -- 155 116 3,244
----- ----- ----- ----- ------
Troubled debt restructurings and
total nonperforming assets......... $ 590 $ 631 $ 999 $ 665 $3,795
===== ===== ===== ===== ======
Total nonperforming loans and
troubled debt restructurings as a
percentage of total loans.......... 0.54% 0.63% 0.94% 0.62% 3.38%
Total nonperforming assets and
troubled debt restructurings as a
percentage of total assets......... 0.21% 0.25% 0.41% 0.28% 1.70%
</TABLE>
______________________
(1) Total non-accruing loans equals total nonperforming loans.
(2) Real estate owned balances are shown net of related specific loss
allowances.
(3) Nonperforming assets consist of nonperforming loans (and impaired loans),
other repossessed assets and REO.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in its loan portfolio and the general economy. The allowance for
loan losses is maintained at an amount management considers adequate to cover
estimated losses in loans receivable which are deemed probable and estimable
based on information currently known to management. The allowance is based upon
a number of factors, including current economic conditions, actual loss
experience and industry trends. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
Association's allowance for loan losses. Such agencies may require the
Association to make additional provisions for estimated loan losses based upon
their judgments about information available to them at the time of their
examination. As of December 31, 1998, the Association's allowance for loan
losses was 0.87% of total loans compared to 0.67% as of December 31, 1997. The
Association had non-accrual loans of $523,000 and $631,000 at December 31, 1998
and December 31, 1997, respectively. The Association will continue to monitor
and modify its allowance for loan losses as conditions dictate. While
management believes the Association's allowance for loan losses is sufficient to
cover losses inherent in its loan portfolio at this time, no assurances can be
given that the Association's level of allowance for loan losses will be
sufficient to cover loan losses incurred by the Association or that adjustments
to the allowance for loan losses will not be necessary if economic and other
conditions differ substantially from the economic and other conditions used by
management to determine the current level of the allowance for loan losses.
12
<PAGE>
The following table sets forth activity in the Association's allowance for
loan losses for the years indicated.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Allowance for loan losses, beginning
of year............................. $ 667 $ 1,186 $ 1,068 $ 968 $ 874
Charged-off loans:
One- to four-family real estate... 12 370 4 35 6
Multi-family and commercial
real estate.................... -- 516 20 -- 157
Consumer.......................... 21 37 41 45 48
------- ------- ------- ------- ------
Total charged-off loans........ 33 923 65 80 211
------- ------- ------- ------- ------
Recoveries on loans previously
charged off:
One- to four-family real estate... 4 -- -- -- --
Consumer.......................... 2 4 3 -- 5
------- ------- ------- ------- ------
Total recoveries............... 6 4 3 -- 5
------- ------- ------- ------- ------
Net loans charged-off................. (27) (919) (62) (80) (206)
Provision for loan losses............. 300 400 180 180 300
------- ------- ------- ------- ------
Allowance for loan losses, end
of year............................. $ 940 $ 667 $ 1,186 $ 1,068 $ 968
======= ======= ======= ======= ======
Net loans charged-off to average
interest-earning loans.............. 0.03% 0.89% 0.06% 0.07% 0.18%
Allowance for loan losses to total
loans, net.......................... 0.88% 0.67% 1.14% 1.01% 0.88%
Allowance for loan losses to
nonperforming loans and
troubled debt restructuring......... 159.22% 105.71% 118.72% 166.36% 25.51%
Net loans charged-off to
allowance for loan losses........... 2.85% 137.78% 5.23% 7.49% 21.28%
Recoveries to charge-offs............. 17.06% 0.43% 4.62% --% 2.37%
</TABLE>
13
<PAGE>
The following table sets forth the Association's allowance for loan losses
in each of the categories listed at the dates indicated and the percentage of
such amounts to the total allowance and the percentage of loans in each category
to total loans.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------- ---------------------------------- ---------------------------------
% OF PERCENT % OF PERCENT % OF PERCENT
ALLOWANCE OF LOANS ALLOWANCE OF LOANS ALLOWANCE OF LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
------- ---------- -------- ------ --------- ---------- ------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate................ $533 56.70% 84.15% $313 46.93% 81.60% $ 915 77.15% 82.37%
Consumer................... 233 24.79 15.85 129 19.34 18.40 105 8.85 17.63
Unallocated................ 174 18.51 -- 225 33.73 -- 166 14.00 --
---- ------ ------ ---- ------ ------ ------ ------ ------
Total allowance
for loan losses....... $940 100.00% 100.00% $667 100.00% 100.00% $1,186 100.00% 100.00%
==== ====== ====== ==== ====== ====== ====== ====== ======
<CAPTION>
-------------------------------------------------------------------
1995 1994
---------------------------------- -------------------------------
% OF PERCENT % OF PERCENT
ALLOWANCE OF LOANS ALLOWANCE OF LOANS
IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
------- --------- ------------ ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Real estate................ $ 766 71.72% 83.99% $625 64.57% 84.87%
Consumer................... 102 9.55 16.01 52 5.37 15.13
Unallocated................ 200 18.73 -- 291 30.06 --
------ ------ ------ ---- ------ ------
Total allowance
for loan losses....... $1,068 100.00% 100.00% $968 100.00% 100.00%
====== ====== ====== ==== ====== ======
</TABLE>
14
<PAGE>
REAL ESTATE OWNED. At both December 31, 1998 and December 31, 1997, the
Association had no real estate owned. When the Association does acquire property
through foreclosure or deed in lieu of foreclosure, it is initially recorded at
the lesser of the carrying value of the loan or fair value of the property at
the date of acquisition less costs to sell. Thereafter, if there is a further
deterioration in value, the Association provides for a specific valuation
allowance and charges operations for the diminution in value. It is the policy
of the Association to have obtained an appraisal or broker's price opinion on
all real estate subject to foreclosure proceedings prior to the time of
foreclosure. It is the Association's policy to require appraisals on a periodic
basis on foreclosed properties and conduct inspections on foreclosed properties.
INVESTMENT ACTIVITIES
New Jersey chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies and certificates of deposit of insured
banks and savings institutions. Subject to various restrictions, New Jersey
chartered savings institutions may also invest their assets in investment-grade
corporate debt securities and mutual funds whose assets conform to the
investments that a state-chartered savings institution is otherwise authorized
to make directly. Additionally, the Association must maintain minimum levels of
investments that qualify as liquid assets under OTS regulations. Historically,
the Association has maintained liquid assets above the minimum OTS requirements
and at a level considered to be adequate to meet its normal daily activities.
The investment policy of the Association, as approved by the Board of
Directors, requires management to maintain adequate liquidity, generate a
favorable return on investments without incurring undue interest rate and credit
risk and to complement the Association's lending activities. The Association
primarily utilizes investments in securities for liquidity management and as a
method of deploying excess funding not utilized for investment in loans.
Generally, the Association's investment policy is more restrictive than the OTS
regulations allow and, accordingly, the Association has invested primarily in
U.S. government and agency securities, which qualify as liquid assets under the
OTS regulations, federal funds and U.S. government sponsored agency issued
mortgage-backed securities. As required by SFAS No. 115, the Association has
established an investment portfolio of securities that are categorized as held-
to-maturity, available-for-sale or held for trading. The Association generally
invests in securities as a method of utilizing funds not utilized for loan
origination activity and as a method of maintaining liquidity at levels deemed
appropriate by management. The Association does not currently maintain a
portfolio of securities categorized as held for trading. At December 31, 1998,
the Association's securities portfolio totalled $120.8 million, or 42.3% of
assets, all of which was categorized as held-to-maturity.
At December 31, 1998, the Association had invested $50.8 million in Fannie
Mae ("FNMA"), FHLMC and Ginnie Mae ("GNMA") mortgage-backed securities, or 17.8%
of total assets, all of which were classified as held-to-maturity. In addition,
$42.0 million, or 14.7%, of total assets, were debt obligations issued by
federal agencies which generally have stated maturities from one month to four
years. Also, $28.0 million, or 9.8% of total assets were debt obligations issued
by federal agencies which have stated maturities from 30 months to 20 years, but
which also have call features. Such callable securities allow the issuer, after
a specified period of time, to repay the security prior to its stated maturity.
Based on interest rate ranges anticipated by the Association, the Association
estimates that the substantial majority of such securities will be called prior
to their stated maturities. The Association is subject to additional interest
rate risk and reinvestment risk compared to its evaluation of that risk if
changes in interest rates exceed ranges anticipated by the Association in
estimating the anticipated life of such callable investment securities.
Investments in mortgage-backed securities involve a risk that actual prepayments
will be greater than estimated prepayments over the life of the security, which
may require adjustments to the amortization of any premium or accretion of any
discount relating to such instruments thereby changing the net yield on such
securities. There is also reinvestment risk associated with the cash flows from
such securities or in the event such securities are redeemed by the issuer. In
addition, the market value of such securities may be adversely affected by
changes in interest rates.
15
<PAGE>
The following table sets forth information regarding the amortized cost and
fair value of the Association's securities at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------
1998 1997 1996
---------------------- ----------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
----------- --------- ----------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
Debt securities held-to-maturity:
Obligations of U.S. $ 69,870 $ 70,611 $ 78,934 $ 79,502 $ 77,010 $ 77,028
government agencies.......................
Other securities............................. 100 100 100 100 100 100
-------- -------- -------- -------- -------- --------
Total investment securities......... 69,970 70,711 79,034 79,602 77,110 77,128
-------- -------- -------- -------- -------- --------
FHLB stock..................................... 1,249 1,249 1,233 1,233 1,150 1,150
-------- -------- -------- -------- -------- --------
Mortgage-backed securities:
Mortgage-backed securities held
to maturity:
FHLMC..................................... 20,334 20,967 26,679 27,013 23,529 23,526
FNMA...................................... 29,763 30,165 17,627 17,673 16,752 16,496
GNMA...................................... 686 740 925 977 1,117 1,152
-------- -------- -------- -------- -------- --------
Total mortgage-backed securities.. 50,783 51,872 45,231 45,663 41,398 41,174
-------- -------- -------- -------- -------- --------
Total securities.................... $122,002 $123,832 $125,498 $126,498 $119,658 $119,452
======== ======== ======== ======== ======== ========
</TABLE>
16
<PAGE>
The following table sets forth the Association's securities activities for
the years indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
---------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
MORTGAGE-BACKED SECURITIES (HELD TO MATURITY):
Mortgage-backed securities, beginning of year....................... $45,231 $41,398 $31,672
Purchases: mortgage-backed securities............................... 20,059 10,030 16,029
Repayments and prepayments:
Mortgage-backed securities......................................... 14,495 6,167 6,217
Decrease in premium................................................. (12) (30) (86)
------- ------- -------
Mortgage-backed securities, end of year............................. $50,783 $45,231 $41,398
======= ======= =======
INVESTMENT SECURITIES (HELD TO MATURITY):
Investment securities, beginning of year............................ $79,034 $77,110 $72,180
Purchases: investment securities.................................... 34,731 36,215 30,549
Calls: investment securities........................................ 31,020 17,000 6,000
Maturities: investment securities................................... 12,600 17,000 19,000
Decrease in premium................................................. (175) (291) (619)
------- ------- -------
Investment securities, end of year.................................. $69,970 $79,034 $77,110
======= ======= =======
FHLB STOCK:
FHLB stock, beginning of year....................................... $ 1,233 $ 1,150 $ 1,182
Purchases........................................................... 16 83 --
Redemptions......................................................... -- -- 32
------- ------- -------
FHLB stock, end of year............................................. $ 1,249 $ 1,233 $ 1,150
======= ======= =======
</TABLE>
The table below sets forth information regarding the carrying value,
weighted average yields and contractual maturities of the Association's
investment securities and mortgage-backed securities as of December 31, 1998.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
---------------------------------------------------------------------------------------------
MORE THAN ONE YEAR MORE THAN FIVE YEARS
ONE YEAR OR LESS TO FIVE YEARS TO TEN YEARS MORE THAN TEN YEARS
---------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
---------- --------- ---------- --------- --------- ---------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-maturity
securities:
Investment securities:
Obligations of U.S.
Government agencies...... $11,993 6.35% $30,781 6.10% $ 999 7.55% $26,097 7.02%
Other investments.......... -- -- 100 3.50 -- -- -- --
Mortgage-backed
securities.................. -- -- 824 9.08 4,300 7.75 45,659 7.01
FHLB stock..................... 1,249 7.00 -- -- -- -- -- --
------- ------- ------ -------
Total securities
at amortized cost....... $13,242 6.41% $31,705 6.17% $5,299 7.71% $71,756 7.01%
======= ======= ====== =======
<CAPTION>
TOTAL
----------------------
WEIGHTED
CARRYING AVERAGE
VALUE YIELD
--------- ----------
<S> <C> <C>
Held-to-maturity
securities:
Investment securities:
Obligations of U.S.
Government agencies...... $ 69,870 6.51%
Other investments.......... 100 3.50
Mortgage-backed
securities.................. 50,783 7.11
FHLB stock..................... 1,249 7.00
--------
Total securities
at amortized cost....... $122,002 6.76%
========
</TABLE>
17
<PAGE>
SOURCES OF FUNDS
GENERAL. Deposits, loan repayments and prepayments, cash flows generated
from operations and FHLB advances are the primary sources of the Association's
funds for use in lending, investing and for other general purposes.
DEPOSITS. The Association offers a variety of deposit accounts with a
range of interest rates and terms. The Association's deposits consist of
checking, money market, savings, NOW, certificate accounts and Individual
Retirement Accounts. More than 50% of the funds deposited in the Association
are in certificate of deposit accounts. At December 31, 1998, core deposits
(savings, NOW, money market and club accounts) represented 48.3% of total
deposits. The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and
competition. The Association's deposits are obtained predominantly from the
areas in which its branch offices are located. The Association has historically
relied primarily on customer service and long-standing relationships with
customers to attract and retain these deposits; however, market interest rates
and rates offered by competing financial institutions significantly affect the
Association's ability to attract and retain deposits. The Association uses
traditional means of advertising its deposit products, including print media and
generally does not solicit deposits from outside its market area. The
Association does not actively solicit certificate accounts in excess of $100,000
or use brokers to obtain deposits. At December 31, 1998, $59.0 million, or
48.3% of the Association's certificate of deposit accounts were to mature within
one year.
The following table presents the deposit activity of the Association for
the years indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Increase (decrease) before
interest credited................. $ 3,889 $(2,336) $(2,725)
Interest credited.................. 9,153 8,708 8,439
------- ------- -------
Net increase....................... $13,042 $ 6,372 $ 5,714
======= ======= =======
</TABLE>
At December 31, 1998, the Association had $10.4 million in certificate
accounts in amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
MATURITY PERIOD AMOUNT RATE
- -------------------------------------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Three months or less.................. $ 434 5.30%
Over 3 through 6 months............... 1,022 4.89
Over 6 through 12 months.............. 1,268 5.08
Over 12 months........................ 7,645 6.29
-------
Total.............................. $10,369 5.53%
=======
</TABLE>
18
<PAGE>
The following table sets forth the distribution of the Association's
average deposit accounts for the years indicated and the weighted average
interest rates on each category of deposits presented and such information at
December 31, 1998. Averages for the years presented utilize month-end
balances.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
PERCENT OF PERCENT OF PERCENT OF
TOTAL AVERAGE TOTAL AVERAGE TOTAL AVERAGE
AVERAGE AVERAGE RATE AVERAGE AVERAGE RATE AVERAGE AVERAGE RATE
BALANCE DEPOSITS PAID BALANCE DEPOSITS PAID BALANCE DEPOSITS PAID
--------- ---------- ------- --------- ---------- ------- --------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Savings accounts................. $ 34,227 14.9% 2.74% $ 35,599 16.3% 2.68% $ 38,738 18.1% 2.75%
Money market accounts............ 43,453 18.9 3.43 41,597 19.0 3.67 37,495 17.6 3.64
NOW accounts..................... 28,659 12.5 2.18 27,598 12.6 2.34 25,882 12.1 2.24
Club accounts.................... 1,050 0.5 2.51 1,009 0.5 2.52 1,013 0.5 2.53
Certificates of deposit.......... 117,302 51.1 5.76 108,506 49.7 5.68 106,679 49.9 5.70
Noninterest-bearing deposits:
Demand deposits................ 4,749 2.1 -- 4,244 1.9 -- 3,922 1.8 --
-------- ----- -------- ----- -------- -----
Total average deposits....... $229,440 100.0% 4.29% $218,553 100.0% 4.26% $213,729 100.0% 4.27%
======== ===== ======== ===== ======== =====
</TABLE>
19
<PAGE>
The following table presents by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at December 31, 1998.
<TABLE>
<CAPTION>
PERIOD TO MATURITY FROM DECEMBER 31, 1998 AT DECEMBER 31,
--------------------------------------------- ------------------
LESS ONE TWO TO OVER
THAN ONE TO TWO THREE THREE
YEAR YEARS YEARS YEARS TOTAL 1997 1996
-------- ------- ------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CERTIFICATE ACCOUNTS:
0 to 4.00%............ $ 600 $ -- $ -- $ 16 $ 616 $ -- $ --
4.01 to 5.00%......... 17,866 2,000 -- 19 19,885 5,052 33,291
5.01 to 6.00%......... 36,898 12,939 9,710 6,877 66,424 71,398 35,266
6.01 to 7.00%......... 3,611 1,487 2,789 27,379 35,266 33,474 35,708
7.01 to 8.00%......... -- 27 -- -- 27 1,357 1,804
8.01 to 9.00%......... 4 -- -- -- 4 5 1,259
Over 9.00%............ -- -- -- -- -- -- --
------- ------- ------- ------- -------- -------- --------
Total certificate
accounts........... $58,979 $16,453 $12,499 $34,291 $122,222 $111,286 $107,328
======= ======= ======= ======= ======== ======== ========
</TABLE>
BORROWINGS. The Association utilizes advances from the FHLB of New York as
an alternative to retail deposits to fund its operations as part of its
operating strategy. These FHLB advances are collateralized primarily by the
Association's mortgage loans and mortgage-backed securities and secondarily by
the Association's investment in capital stock of the FHLB of New York. FHLB
advances are made pursuant to several different credit programs, each of which
has its own interest rate and range of maturities. The maximum amount that the
FHLB of New York will advance to member institutions, including the Association,
fluctuates from time to time in accordance with the policies of the FHLB of New
York. At December 31, 1998 and 1997, the Association had $20.6 million and
$176,000 in outstanding FHLB advances, respectively.
The following table sets forth information regarding the Association's
borrowed funds at or for the years ended on the dates indicated:
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED
DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
FHLB advances:
Average balance outstanding............ $ 3,222 $ 176 $ 176
======= ===== =====
Maximum amount outstanding at any
month-end during the year............. $20,576 $ 176 $ 176
======= ===== =====
Balance outstanding at end of year..... $20,576 $ 176 $ 176
======= ===== =====
Weighted average interest rate during
the year.............................. 5.14% 6.62% 6.62%
======= ===== =====
Weighted average interest rate at end
of year............................... 5.06% 6.62% 6.62%
======= ===== =====
</TABLE>
20
<PAGE>
REGULATION
GENERAL
The Association is subject to extensive regulation, examination and
supervision by the New Jersey Department of Banking and Insurance (the
"Department"), as its chartering agency, the OTS, as its primary federal
regulator, and the FDIC, as the deposit insurer. The Association is a member of
the FHLB System. The Association's deposit accounts are insured up to
applicable limits by the Savings Association Insurance Fund (the "SAIF") managed
by the FDIC. The Association must file reports with the Commissioner of the
Department (the "Commissioner"), the OTS and the FDIC concerning its activities
and financial condition in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with, or acquisitions of,
other financial institutions. There are periodic examinations by the
Department, the OTS and the FDIC to test the Association's compliance with
various regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the Department, the OTS, the FDIC or the
Congress, could have a material adverse impact on the Company, the Association
and their operations. The Company, as a savings and loan holding company, is
required to file certain reports with and otherwise comply with the rules and
regulations of the OTS and of the Securities and Exchange Commission (the "SEC")
under the federal securities laws.
The description of statutory provisions and regulations applicable to
savings associations set forth in this Form 10-KSB do not purport to be complete
descriptions of such statutes and regulations and their effects on the
Association and the Company and is qualified in its entirety by reference to
such statutes and regulations.
FEDERAL REGULATION OF SAVINGS INSTITUTIONS
BUSINESS ACTIVITIES. The activities of New Jersey chartered, FDIC insured
savings institutions are governed by New Jersey law, federal statutes applicable
to state-chartered and FDIC-insured savings associations and the regulations
issued by the agencies to implement these laws. These laws and regulations
delineate the nature and extent of the activities in which savings associations
may engage.
ACTIVITIES AND INVESTMENT. Federal law imposes certain restrictions on the
activities and investments of state savings associations such as the
Association. No state savings association may engage as principal in any
activity that is not permissible for federally chartered savings associations
unless the association is in compliance with federal regulatory capital
requirements and the FDIC has determined that the activity does not pose a
significant risk to the deposit insurance fund. A state savings association may
engage in an activity that is permissible for a federal savings association, but
in a greater amount, only if the institution is in capital compliance and the
FDIC has not determined that engaging in that amount of activity poses a risk to
the affected deposit insurance fund. Also, a state savings association may not
acquire directly an equity investment of a type or in an amount that is not
permissible for federal associations except shares of service corporations so
long as the institution is in capital compliance and the FDIC determines that no
significant risk to the deposit insurance fund is posed by the investment.
LOANS-TO-ONE BORROWER. Savings institutions are generally subject to the
national bank limit on loans-to-one borrower. This limit is 15% of the
Association's unimpaired capital and surplus, plus an additional 10% of
unimpaired capital and surplus, if such loan is secured by readily-marketable
collateral. At December 31, 1998, the Association's regulatory limit on loans-
to-one borrower was $4.0 million. At December 31, 1998, the Association's
largest aggregate amount of loans-to-one borrower consisted of $1.2 million in
real estate mortgage loans all of which were secured by one- to four-family
properties.
21
<PAGE>
QTL TEST. Federal law requires savings institutions to meet a qualified
thrift lender test. Under the test, a savings association is required to either
meet the standards for a "domestic building and loan association" under the
federal tax code or maintain at least 65% of its "portfolio assets" (total
assets less: (i) specified liquid assets up to 20% of total assets; (ii)
intangibles, including goodwill; and (iii) the value of property used to conduct
business) in certain "qualified thrift investments" (primarily residential
mortgages and related investments, including mortgage-backed and related
securities) in at least 9 months out of each 12-month period. A savings
association that fails the QTL test must either convert to a bank charter or
operate under certain restrictions. As of December 31, 1998, the Association
maintained 69.8% of its portfolio assets in qualified thrift investments and,
therefore, met the test.
LIMITATION ON CAPITAL DISTRIBUTIONS. OTS regulations impose limitations
upon all capital distributions by a savings institution, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule during 1998 established three tiers of institutions,
which were based primarily on an institution's capital level. An institution
that exceeded all fully phased-in regulatory capital requirements before and
after a proposed capital distribution and has not been advised by the OTS that
it is in need of more than normal supervision, could, after prior notice to, but
without the approval of the OTS, make capital distributions during a calendar
year equal to the greater of: (i) 100% of its net earnings to date during the
calendar year plus the amount that would reduce by one-half its "surplus capital
ratio" (the excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year; or (ii) 75% of its net earnings for the previous
four quarters. Any additional capital distributions would require prior OTS
approval. At December 31, 1998, the Association was a Tier 1 Association.
Effective April 1, 1999, the OTS's capital distribution regulation will change.
Under the new regulation, an application to and the prior approval of the OTS
will be required prior to any capital distribution if the institution does not
meet the criteria for "expedited treatment" of applications under OTS
regulations (i.e., generally, examination ratings in the two top categories),
the total capital distributions for the calendar year exceed net income for that
year plus the amount of retained net income for the preceding two years, the
institution would be undercapitalized following the distribution or the
distribution would otherwise be contrary to a statute, regulation or agreement
with OTS. If an application is not required, the institution must still provide
prior notice to OTS of the capital distribution.
In the event the Association's capital fell below its capital requirements
or the OTS notified it that it was in need of more than normal supervision, the
Association's ability to make capital distributions could be restricted. In
addition, the OTS could prohibit a proposed capital distribution by any
institution, which would otherwise be permitted by the regulation, if the OTS
determines that such distribution would constitute an unsafe or unsound
practice.
LIQUIDITY. The Association is required to maintain an average daily
balance of specified liquid assets equal to a monthly average of not less than a
specified percentage (currently 4%) of its net withdrawable deposit accounts
plus short-term borrowings. Monetary penalties may be imposed for failure to
meet these liquidity requirements. The Association's average liquidity ratio
for the year ended December 31, 1998 was 46.14%, which exceeded the applicable
requirements. The Association has never been subject to monetary penalties for
failure to meet its liquidity requirements.
ASSESSMENTS. Savings institutions are required by regulation to pay
assessments to the OTS and to the Department to fund the agencies' operations.
The assessments paid by the Association to these agencies for the year ended
December 31, 1998 totalled $80,274.
TRANSACTIONS WITH RELATED PARTIES. The Association's authority to engage
in transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution, including the Company
and any non-savings institution subsidiaries that the Company may establish) is
limited by federal law. The aggregate amount of covered transactions with any
individual affiliate is limited to 10% of the capital and surplus of the savings
institution and the aggregate amount of transactions with all affiliates is
limited to 20% of the savings institution's capital and surplus. Certain
transactions with affiliates are required to be secured by collateral in an
amount and of a type described in federal law and the purchase of low quality
assets from affiliates is generally prohibited. Federal law generally requires
that certain transactions with affiliates, including loans and asset purchases,
must be on terms and
22
<PAGE>
under circumstances, including credit standards, that are substantially the same
or at least as favorable to the institution as those prevailing at the time for
comparable transactions with non-affiliated companies.
ENFORCEMENT. The OTS has primary federal enforcement responsibility over
federally insured savings institutions and has the authority to bring action
against all "institution-affiliated parties," including stockholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate in
wrongful action likely to have an adverse effect on an insured institution.
Formal enforcement action may range from the issuance of a capital directive or
cease and desist order to removal of officers or directors, receivership,
conservatorship or termination of deposit insurance. Civil penalties cover a
wide range of violations and can amount to $25,000 per day, or $1 million per
day in especially egregious cases. The FDIC also has the authority to take
enforcement action be taken with respect to a particular savings institution
under certain circumstances. Federal and state law also establishes criminal
penalties for certain violations.
STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking agencies have
adopted final regulations and Interagency Guidelines Establishing Standards for
Safety and Soundness to implement these safety and soundness standards. The
Guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. If the appropriate federal banking agency
determines that an institution fails to meet any standard prescribed by the
Guidelines, the agency may require the institution to submit to the agency an
acceptable plan to achieve compliance with the standard.
CAPITAL REQUIREMENTS. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3.0% leverage ("core" or "Tier 1" capital) ratio and an 8.0% risk based
capital standard. Core (Tier 1) capital is defined as common stockholders'
equity (including retained earnings), non-cumulative perpetual preferred stock
and related surplus, minority interests in equity accounts of consolidated
subsidiaries less intangibles other than certain mortgage servicing rights and
credit card relationships. The OTS regulations require that, in meeting the
leverage ratio, tangible and risk-based capital standards institutions generally
must deduct investments in and loans to subsidiaries engaged in activities not
permissible for a national bank. In addition, the OTS prompt corrective action
regulation provides that a savings institution that has a leverage capital ratio
of less than 4% (3% for institutions receiving the highest examination rating)
will be deemed to be "undercapitalized" and may be subject to certain
restrictions.
The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8.0%. In determining the amount of risk-
weighted assets, all assets, including certain off-balance sheet assets, are
multiplied by a risk-weight of 0% to 100%, as assigned based on the risks OTS
believes are inherent in the type of asset. The components of core capital are
equivalent to those discussed earlier under the 3% leverage standard. The
components of supplementary capital currently include cumulative preferred
stock, long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock and, within specified limits,
the allowance for loan and lease losses. Overall, the amount of supplementary
capital included as part of total capital cannot exceed 100% of core capital.
Effective October 1998, institutions may also include in supplementary capital
up to 45% of the pretax unrealized holding gains on available-for-sale equity
securities with readily determinable fair values.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Savings associations with "above normal" interest rate
risk exposure would be subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. The OTS has postponed
indefinitely the date that the component will first be deducted from an
institution's total capital. At December 31, 1998, the Association met each of
its capital requirements, in each case on a fully phased-in basis.
PROMPT CORRECTIVE REGULATORY ACTION
The OTS is required to take certain supervisory actions against
undercapitalized institutions, the severity of which depends upon the
institution's degree of capitalization. Generally, a savings institution that
has a total risk-based capital of less than 8.0% or a leverage ratio or a Tier 1
capital or risk-based assets ratio that is less than 4.0% is
23
<PAGE>
considered to be undercapitalized. A savings institution that has a total risk-
based capital less than 6.0%, a Tier 1 risk-based capital ratio of less than
3.0% or a leverage ratio that is less than 3.0% is considered to be
"significantly undercapitalized" and a savings institution that has a tangible
capital to assets ratio equal to or less than 2.0% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
critically undercapitalized. The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date an
association receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions may become immediately applicable to the
institution depending upon its category, including, but not limited to,
increased monitoring by regulators, restrictions on growth and capital
distributions and limitations on expansion. The OTS could also take any one of a
number of discretionary supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and directors.
INSURANCE OF DEPOSIT ACCOUNTS
The FDIC has adopted a risk-based insurance assessment system. The FDIC
assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period. An institution is also placed in one of
three supervisory subcategories within each capital group, based on a
supervisory evaluation provided to the FDIC by the institution's primary federal
regulator and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned with the most well capitalized,
healthy institutions receiving the lowest rates. The FDIC currently has an
assessment schedule for SAIF-insured deposits of 0 to 22 basis points of
assessable deposits.
SAIF members also must make payments on bonds issued by the Financing
Corporation in the late 1980s to recapitalize the predecessor to SAIF.
Management cannot predict the level of FDIC insurance assessments on an on-going
basis, or whether the BIF and SAIF will eventually be merged.
The Association's assessment rate for 1998 was 6.105 basis points and the
regular premium expense, including FICO payments, for this period was $136,226.
The FDIC is authorized to raise the assessment rates in certain
circumstances. The FDIC has exercised this authority several times in the past
and may raise insurance premiums in the future. If such action is taken by the
FDIC, it could have an adverse effect on the earnings of the Association.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Association does not know of any practice, condition
or violation that might lead to termination of deposit insurance.
FEDERAL HOME LOAN BANK SYSTEM
The Association is a member of the FHLB System, which consists of 12
regional FHLBs. The FHLB provides a central credit facility primarily for
member institutions. The Association, as a member of the FHLB, is required to
acquire and hold shares of capital stock in the FHLB in an amount at least equal
to 1.0% of the aggregate principal amount of its unpaid residential mortgage
loans and similar obligations at the beginning of each year, or 1/20 of its
advances (borrowings) from the FHLB, whichever is greater. The Association was
in compliance with this requirement with an investment in FHLB stock at December
31, 1998 of $1.2 million.
The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. For the years ended December 31, 1998, 1997 and
1996, dividends from the FHLB to the Association amounted to
24
<PAGE>
approximately $90,000, $81,000 and $76,000, respectively. Further, there can be
no assurance that the impact of recent or future legislation on the FHLBs will
not also cause a decrease in the value of the FHLB stock held by the
Association.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain non-interest-earning reserves against their transaction accounts. The
Federal Reserve Board regulations generally require that reserves be maintained
against aggregate transaction accounts as follows: for accounts aggregating
$46.5 million or less (subject to adjustment by the Federal Reserve Board) the
reserve requirement is 3.0% and for accounts greater than $46.5 million, the
reserve requirement is $1.4 million plus 10% (subject to adjustment by the
Federal Reserve Board between 8% and 14%) against that portion of total
transaction accounts in excess of $46.5 million. The first $4.9 million of
otherwise reservable balances (subject to adjustment by the Federal Reserve
Board) are exempted from the reserve requirements. The Association is in
compliance with the foregoing requirements.
NEW JERSEY LAW
GENERAL. The Commissioner regulates, among other things, the Association's
internal business procedures as well as its deposits, lending and investment
activities, and its ability to declare and pay dividends. The Commissioner must
approve changes to the Association's Certificate of Incorporation, establishment
or relocation of branch offices, mergers and the issuance of additional stock.
In addition, the Commissioner conducts periodic examinations of the Association.
Certain of the areas regulated by the Commissioner are not subject to similar
regulation by the FDIC.
ENFORCEMENT. Under New Jersey law, the Commissioner has extensive
enforcement authority over New Jersey savings and loan institutions and, under
certain circumstances, affiliated parties, insiders, and agents. The
Commissioner's enforcement authority includes: cease and desist orders,
receivership, conservatorship, restraining orders, removal of officers and
directors, emergency closures, dissolution, and liquidation. Fines for
violations range from $100 per day to $5,000.
HOLDING COMPANY REGULATION
The Company is a non-diversified unitary savings and loan holding company
within the meaning of the federal law. As such, the Company is required to
register with the OTS and is subject to OTS regulations, examinations,
supervision and reporting requirements. In addition, the OTS has enforcement
authority over the Company and its non-savings institution subsidiaries. Among
other things, this authority permits the OTS to restrict or prohibit activities
that are determined to be a serious risk to the subsidiary savings institution.
The Association must notify the OTS 30 days before declaring any dividend to the
Company.
As a unitary savings and loan holding company, the Company generally is not
restricted under existing laws as to the types of business activities in which
it may engage, provided that the Association continues to be a qualified thrift
lender. Upon any non-supervisory acquisition by the Company of another savings
association, the Company would become a multiple savings and loan holding
company (if the acquired institution is held as a separate subsidiary) and would
be subject to extensive limitations on the types of business activities in which
it could engage. Federal law limits the activities of a multiple savings and
loan holding company and its non-insured institution subsidiaries primarily to
activities permissible for bank holding companies under the Bank Holding Company
Act subject to the prior approval of the OTS, and to other activities authorized
by OTS regulation.
Federal law prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution, or holding company thereof,
without prior written approval of the OTS; from acquiring or retaining, with
certain exceptions, more than 5% of a non-subsidiary holding company or savings
association. A savings and loan holding company is also prohibited from
acquiring more than 5% of a company engaged in activities other than those
authorized for savings and loan holding companies by federal law; or acquiring
or retaining control of a depository institution that is not insured by the
FDIC. In evaluating applications by holding companies to acquire savings
institutions, the OTS must consider the
25
<PAGE>
financial and managerial resources and future prospects of the company and
institution involved, the effect of the acquisition on the risk to the insurance
funds, the convenience and needs of the community and competitive factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, except: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies, and (ii) the acquisition of
a savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.
THRIFT RECHARTERING LEGISLATION
Legislation enacted in 1996 provided that the BIF and SAIF were to have
merged on January 1, 1999 if there were no more savings associations as of that
date. Various proposals to eliminate the federal savings association charter,
create a uniform financial institutions charter, abolish the OTS and restrict
savings and loan holding company activities have been introduced in Congress.
The Association is unable to predict whether such legislation will be enacted or
the extent to which the legislation would restrict or disrupt its operations.
FEDERAL SECURITIES LAWS
Prior to the Conversion, the Company filed with the SEC a registration
statement under the Securities Act of 1933 (the "Securities Act") for the
registration of the common stock to be issued pursuant to the Conversion (the
"Common Stock"). Upon completion of the Conversion, the Company's Common Stock
became registered with the SEC under the Securities Exchange Act of 1934 (the
"Exchange Act"). The Company is subject to the information, proxy solicitation,
insider trading restrictions and other requirements under the Exchange Act.
The registration under the Securities Act of shares of the Common Stock
issued in the Conversion does not cover the resale of such shares. Shares of
the Common Stock purchased by persons who are not affiliates of the Company may
be resold without registration. Shares purchased by an affiliate of the Company
will be subject to the resale restrictions of Rule 144 under the Securities Act.
If the Company meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of the Company who complies with the
other conditions of Rule 144 (including those that require the affiliate's sale
to be aggregated with those of certain other persons) would be able to sell in
the public market, without registration, a number of shares not to exceed, in
any three-month period, the greater of (i) 1% of the outstanding shares of the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by the
Company to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. The Company and the Association report their income on a December
31 calendar year basis using the accrual method of accounting and will be
subject to federal income taxation in the same manner as other corporations with
some exceptions, including particularly the Association's reserve for bad debts
discussed below. The following discussion of tax matters material to the
operations of the Company and the Association is intended only as a summary and
does not purport to be a comprehensive description of the tax rules applicable
to the Association or the Company. The Association was last audited by the
Internal Revenue Service ("IRS") in 1991 and has not been audited by the New
Jersey Department of Revenue ("DOR") in the past five years.
BAD DEBT RESERVE. For taxable years beginning after December 31, 1995,
although the 1996 Tax Act generally repealed the bad debt method of accounting
for thrift institutions, thrift institutions such as the Association that are
treated as small banks under the Code (those with assets under $500 million) are
allowed to utilize the experience method or the specific charge-off method to
account for bad debt losses. Thus, the Association will take a bad debt
26
<PAGE>
deduction for federal income tax purposes which is based on its current or
historic net charge-offs. For tax years beginning prior to December 31, 1995,
the Association as a qualifying thrift had been permitted to establish a reserve
for bad debts and to make annual additions to such reserve, which were
deductible for federal income tax purposes. Under such prior tax law, generally
the Association recognized a bad debt deduction equal to 8% of taxable income.
Under the 1996 Tax Act, the Association is required to recapture all or a
portion of the additions to its bad debt reserve made subsequent to the base
year (which is the Association's last taxable year beginning before January 1,
1988). The Association began to recapture such bad debt reserves ratably over a
six-year period commencing in the Association's calendar 1996 tax year. In
fiscal 1997, the Association recorded a deferred tax liability for this bad debt
recapture. As a result, the recapture is not anticipated to have an effect on
the Association's future net income or federal income tax expense for financial
reporting purposes.
POTENTIAL RECAPTURE OF BASE YEAR BAD DEBT REVENUE. The Association's bad
debt reserve as of the base year is not subject to automatic recapture as long
as the Association continues to carry on the business of banking. If the
Association no longer qualifies as a bank, the balance of the pre-1988 reserves
(and the supplemental reserves) is restored to income ratably over a six-year
period beginning in the tax year the Association no longer qualifies as a bank.
The base year bad debt reserve is also subject to recapture to the extent that
the Association makes "non-dividend distributions" that are considered as made
from the pre-1988 bad debt reserves. To the extent that such reserves exceed the
amount that would have been allowed under the experience method ("Excess
Distributions"), then an amount based on the amount distributed will be included
in the Association's taxable income. "Non-dividend distributions" include
distributions in excess of the Association's current and accumulated earnings
and profits, distributions in redemption of stock, and distributions in partial
or complete liquidation. However, dividends paid out of the Association's
current or accumulated earnings and profits, as calculated for federal income
tax purposes, will not be considered to result in a distribution from the
Association's bad debt reserve. The amount of additional taxable income created
from an Excess Distribution is the amount that, when reduced by the tax
attributable to the income, is equal to the amount of the distribution. Thus, if
after the Conversion, the Association makes a "non-dividend distribution," then
approximately one and one-half times the amount so distributed would be
includable in gross income for federal income tax purposes, assuming a 34%
corporate income tax rate (exclusive of state and local taxes). The Association
does not intend to pay dividends that would result in a recapture of any portion
of its bad debt reserve.
CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the bad debt
reserve deduction claimed by the Association over the deduction that would have
been allowable under the experience method is treated as a preference item for
purposes of computing the AMTI. Generally, only 90% of AMTI can be offset by
net operating loss carryovers of which the Association currently has none.
AMTI is increased by an amount equal to 75% of the amount by which the
Association's adjusted current earnings exceeds its AMTI (determined without
regard to this preference and prior to reduction for net operating losses). In
addition, for taxable years beginning after June 30, 1986 and before January 1,
1996, an environmental tax of 0.12% of the excess of AMTI (with certain
modifications) over $2 million was imposed on corporations, including the
Association, whether or not an Alternative Minimum Tax ("AMT") is paid. The
Association does not expect to be subject to the AMT.
DIVIDENDS RECEIVED DEDUCTION AND OTHER MATTERS. For federal purposes, the
Company may exclude from its income 100% of dividends received from the
Association as a member of the same affiliated group of corporations. This
corporate dividends received deduction is generally 70% in the case of dividends
received from unaffiliated corporations with which the Company and the
Association will not file a consolidated tax return, except that if the Company
or the Association own more than 20% of the stock of a corporation distributing
a dividend then, generally, 80% of any dividends received may be deducted.
STATE AND LOCAL TAXATION
The Association is subject to New Jersey's Savings Institution Tax at the
rate of 3% on its taxable income, before net operating loss deductions and
special deductions for federal income tax purposes. The Company will be required
to file a New Jersey income tax return because it will be doing business in New
Jersey. For New Jersey tax
27
<PAGE>
purposes, regular corporations are presently taxed at a rate equal to 9% of
taxable income. For this purpose, "taxable income" generally means Federal
taxable income subject to certain adjustments (including addition of interest
income on state and municipal obligations).
DELAWARE TAXATION
As a Delaware holding company not earning income in Delaware, the Company
is exempt from Delaware corporate income tax but is required to file an annual
report with and pay an annual franchise tax to the State of Delaware. However,
to the extent that the Company conducts business outside of Delaware, the
Company may be considered doing business and subject to additional taxing
jurisdictions outside of Delaware.
28
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY.
- --------------------------------
The Association currently conducts its business through three full service
banking offices and two operations centers located in Gloucester and Camden
Counties, New Jersey. Consistent with its business planning strategy, the
Association is planning to expand and remodel its administrative and home office
in order to move the functions of its two operation centers to that single
location. The Association expects to incur capital expenditures of up to $2.5
million in connection with such expansion. Once the expansion is complete, in
or about the first quarter of 2000, the Company believes that the Association's
facilities will be adequate to meet the then-present and immediately foreseeable
needs of the Association and the Company. The following table sets forth the
Association's offices as of December 31, 1998.
<TABLE>
<CAPTION>
NET BOOK VALUE
OF PROPERTY OR
ORIGINAL LEASEHOLD TOTAL
YEAR DATE OF IMPROVEMENTS AT DEPOSITS AT
LEASED OR LEASED OR LEASE DECEMBER 31, DECEMBER
LOCATION OWNED ACQUIRED EXPIRATION 1998 31, 1998
- -------- ---------- ----------- ------------ --------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ADMINISTRATIVE/HOME OFFICE:
4651 Route 42
Turnersville, NJ 08012 Owned 1979 -- $1,017 $ 48,929
BRANCH OFFICES:
627 Haddon Avenue
Collingswood, NJ 08108 Owned 1957 -- 1,160 111,332
10 E. Evesham Road
Glendora, NJ 08029 Owned 1967 -- 90 75,987
OPERATIONS CENTERS:
4641 Route 42 July
Turnersville, NJ 08012 Leased 1996 June 1999/(1)/ 5 --
251 Johnson Road Leased January December
Turnersville, NJ 08012 1988 1999/(2)/ -- --
-------- --------
Total................ $2,272 $236,248
======== ========
</TABLE>
_______________________________
(1) The Association is currently in the first of two one-year renewal
options.
(2) Since the expiration of the lease's original three-year term, the
Association has continuously renewed the lease for one-year periods.
ITEM 3. LEGAL PROCEEDINGS.
- -------------------------
The Association is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings, in the aggregate, are believed by management to be
immaterial to the Company's financial condition, results of operations or cash
flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- -----------------------------------------------------------
None.
29
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
- ---------------------------------------------------------------------
The Company began trading its Common Stock on the Nasdaq National Market
("Nasdaq") on February 12, 1999 under the symbol "SJFC." The reported average
bid and asked prices on March 18, 1999 are $11.125 and $11.25, respectively.
The Company had approximately 1,529 shareholders of record as of March 18, 1999.
The Board of Directors of the Company has the authority to declare
dividends on the Common Stock, subject to statutory and regulatory requirements.
In the future, the Board of Directors intends to consider a policy of paying
cash or stock dividends on the Common Stock. However, no decision has been made
with respect to the payment of dividends. Declarations of dividends by the
Board of Directors, if any, will depend upon a number of factors, including the
amount of net proceeds retained by the Company in the Conversion, investment
opportunities available to the Company or the Association, capital requirements,
regulatory limitations, the Company's and the Association's financial condition
and results of operations, tax considerations and general economic conditions.
No assurances can be given, however, that any dividends will be paid or, if
commenced, will continue to be paid.
The Company is subject to the requirements of Delaware law, which generally
limit dividends to an amount equal to the excess of the net assets of the
Company (the amount by which total assets exceed total liabilities) over its
statutory capital (generally defined as the aggregate par value of the
outstanding shares of the Company's capital stock having a par value plus the
amount of the consideration paid for shares of the Company's capital stock
without par value) or, if there is no such excess, to its net profits for the
current and/or immediately preceding fiscal year.
Additionally, in connection with the Conversion, the Company committed to
the OTS that during the one-year period following the consummation of the
Conversion, the Company would not declare an extraordinary dividend to
stockholders which would be treated by recipient stockholders as a tax-free
return of capital for federal income tax purposes without prior approval of the
OTS.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
- -------------------------------------------------------------------
GENERAL
The Company does not transact any material business other than through its
wholly owned subsidiary, the Association. The Association's results of
operations are dependent primarily on net interest income, which is the
difference between the income earned on its loan and investment portfolios and
its cost of funds, consisting of the interest paid on deposits and borrowings.
Results of operations are also affected by the Association's provision for loan
losses, security sales activities, service charges and other fee income, and
noninterest expense. The Association's noninterest expense principally consists
of compensation and employee benefits, office occupancy and equipment expense,
federal deposit insurance premiums, data processing, advertising and business
promotion and other expenses. Results of operations are also significantly
affected by general economic and competitive conditions, particularly changes in
interest rates, government policies and actions of regulatory authorities.
FORWARD-LOOKING STATEMENTS
The preceding and following discussion may contain certain forward-looking
statements which are based on management's current expectations regarding
economic, legislative, and regulatory issues that may impact the Company's
earnings in future periods. Factors that could cause future results to vary
materially from current management expectations include, but are not limited to:
general economic conditions, changes in interest rates, deposit flows, real
estate values, and competition; changes in accounting principles, policies, or
guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory and technological factors affecting the
Company's operations, pricing, products and services. In particular, these
issues may impact management's
30
<PAGE>
estimates used in evaluating market risk and interest rate risk in its NPV
table, loan loss provisions, classification of assets, Year 2000 issues,
accounting estimates and other estimates used throughout this discussion.
Further description of the risks and uncertainties to the business are included
in detail in the "Description of Business" section (Item 1) of the Company's 10-
KSB.
MANAGEMENT STRATEGY
The Association operates as a family and consumer-oriented community
savings and loan association, offering traditional savings deposit and loan
products to its local community. In recent years, the Association's strategy
has been to maintain profitability while managing its equity position and
limiting its credit and interest rate risk exposure. To accomplish these
objectives, the Association has sought to:
. Control credit risk by emphasizing the origination of single-family,
owner-occupied residential mortgage loans and consumer loans,
consisting primarily of home equity loans and lines of credit and
education loans
. Offer superior service and competitive rates to increase its core
deposit base
. Invest funds in excess of loan demand in mortgage-backed and
investment securities
. Control operating expenses
In recent years, most locally headquartered competitors in the
Association's primary market area have been acquired by larger, regional
financial institutions, resulting in a reduced presence of local, community-
based institutions. The Association believes that this reduction of community-
based institutions has created opportunities for the Association, as one of the
few remaining locally headquartered financial institutions in its primary market
area, to achieve controlled asset growth and moderate geographic expansion. To
take advantage of this perceived opportunity, the Association intends to
continue its current operating strategy in an effort to enhance its long-term
profitability while maintaining a reasonable level of interest rate risk. The
Association also intends to enhance its current operating strategy by expanding
the products and services it offers, as necessary, in order to improve its
market share in its primary market area. In this regard, the Association has
begun to offer new IRA deposit products and has recently introduced 24 hour
banking by telephone with voice response capabilities. The Association may also
seek to expand its lending activities into areas outside of its primary market
area.
MANAGEMENT OF INTEREST RATE RISK AND MARKET RISK ANALYSIS
QUALITATIVE INFORMATION ABOUT MARKET RISK
The principal objective of the Association's interest rate risk management
is to evaluate the interest rate risk included in balance sheet accounts,
determine the level of risk appropriate given the Association's business
strategy, operating environment, capital and liquidity requirements and
performance objectives, and manage the risk consistent with the Association's
Interest Rate Risk Management Policy. Through such management, the Association
seeks to reduce the vulnerability of its operations to changes in interest
rates. The Board of Directors is responsible for reviewing asset/liability
policies and interest rate risk position. The Board of Directors reviews the
Association's interest rate risk position on a quarterly basis. In connection
with such review, the Board evaluates the Association's business activities and
strategies, the effect of those strategies on the Association's net interest
margin, the market value of the portfolio, and the effect the changes in
interest rates will have on the Association's portfolio and exposure limits.
The extent of the movement of interest rates is an uncertainty that could have a
negative impact on the earnings of the Association.
In recent years, the Association has utilized the following strategies to
manage interest rate risk: (1) emphasizing and competitively pricing its
adjustable-rate and shorter-term (up to 15 years) fixed-rate loan products in an
effort to make those products more attractive to potential borrowers; and (2)
investing in shorter-term securities
31
<PAGE>
which generally bear lower yields, compared to longer-term investments, but
which better position the Association for increases in market interest rates.
QUANTITATIVE INFORMATION ABOUT MARKET RISK
NET PORTFOLIO VALUE. The Association's interest rate sensitivity is
primarily monitored by management through the use of a model which internally
generates estimates of the change in the Association's net portfolio value
("NPV") over a range of interest rate scenarios. NPV is the present value of
expected cash flows from assets, liabilities, and off-balance sheet contracts.
The NPV ratio, under any interest rate scenario, is defined as the NPV in that
scenario divided by the market value of assets in the same scenario. The OTS
model is based upon data submitted on the Association's quarterly Thrift
Financial Reports. The following table sets forth the Association's NPV as of
December 31, 1998 (the latest NPV analysis prepared by the OTS), as calculated
by the OTS.
<TABLE>
<CAPTION>
CHANGE IN NPV AS PERCENT OF
INTEREST RATES VALUE OF ASSETS
------------------------
NET PORTFOLIO VALUE
----------------------------------
IN BASIS POINTS NPV
(RATE SHOCK) AMOUNT $ CHANGE % CHANGE RATIO CHANGE (1)
- ----------------- -------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
400 $30,354 $ (902) (3)% 10.84% 19
300 31,199 (57) -- 10.99 34
200 31,817 562 2 11.07 42
100 31,878 622 2 10.97 32
Static 31,256 10.65
(100) 30,354 (901) (3) 10.25 (40)
(200) 29,003 (2,253) (7) 9.71 (94)
(300) 28,187 (3,069) (10) 9.34 (131)
(400) 26,514 (4,742) (15) 8.72 (193)
</TABLE>
___________________________
(1) Expressed in basis points.
Shortcomings are inherent in the methodology used in the above interest
rate risk measurements. Modeling changes in NPV require the making of
assumptions which may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the NPV
model presented assumes that the composition of the Association's interest
sensitive assets and liabilities existing at the beginning of a period remains
constant over the period being measured and also assumes that a particular
change in interest rates is reflected uniformly across the yield curve
regardless of the duration to maturity or repricing of specific assets and
liabilities. Accordingly, although the NPV table provides an indication of the
Association's interest rate risk exposure at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on the Association's net interest
income and will differ from actual results.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on interest-
earning assets and expense on interest-bearing liabilities. Net interest income
also depends upon the relative amounts of interest-earning assets and interest-
bearing liabilities and the interest rate earned or paid on them.
32
<PAGE>
AVERAGE BALANCE SHEETS. The following tables set forth information
relating to the Association at and for the years ended December 31, 1998, 1997
and 1996. The average yields and costs are derived by dividing income or
expense by the average balance of interest-earning assets or interest-bearing
liabilities, respectively, for the years shown, except where noted otherwise,
and reflect annualized yields and costs. Average balances are derived from
average monthly balances. The use of average monthly balances rather than
average daily balances does not result in any material differences in the
following presentation. The yields and costs include fees which are considered
adjustments to yields.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1998 1997 1996
---------------------------------- ------------------------------- -------------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------------ ---------- --------- ---------- ----------- -------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
INTEREST EARNING ASSETS:
Loans (1):
Real estate.......... $ 83,729 $ 6,519 7.79% $ 84,564 $ 6,705 7.93% $ 88,209 $ 7,007 7.94%
Consumer............. 17,816 1,522 8.54 18,691 1,618 8.66 17,559 1,543 8.79
-------- ------- -------- ------- -------- -------
Total loans........ 101,545 8,041 7.92 103,255 8,323 8.06 105,768 8,550 8.08
Mortgage-backed
securities............. 48,203 3,532 7.33 44,506 3,434 7.72 37,609 2,960 7.87
Investment securities
(2):
Taxable.............. 82,394 5,653 6.86 78,114 5,244 6.71 77,974 4,941 6.34
Non-taxable.......... -- -- -- -- -- -- -- -- --
Interest-bearing 20,961 1,081 5.16 11,152 605 5.42 9,892 505 5.10
deposits............... -------- ------- -------- ------- -------- -------
Total
interest-earning
assets.............. 253,103 18,307 7.23% 237,027 17,606 7.43% 231,243 16,956 7.33%
Noninterest-earning assets. 7,306 7,037 6,794
-------- -------- --------
Total assets....... $260,409 $244,064 $238,037
======== ======== ========
LIABILITIES AND EQUITY:
INTEREST-BEARING
LIABILITIES:
Deposits................ $229,440 9,839 4.29% $218,553 9,318 4.26% $213,715 9,118 4.27%
FHLB advances........... 3,222 166 5.14 176 12 6.82 176 12 6.82
-------- ------- -------- ------- -------- -------
Total
interest-bearing
liabilities........ 232,662 10,005 4.30 218,729 9,330 4.27 213,891 9,130 4.27
------- ------- -------
Noninterest-bearing
liabilities............ 1,926 1,787 2,171
-------- -------- --------
Total liabilities.. 234,588 220,516 216,062
Equity.................. 25,821 23,548 21,975
-------- -------- --------
Total liabilities
and equity......... $260,409 $244,064 $238,037
======== ======== ========
Net interest-earning
assets................. $ 20,441 $ 18,298 $ 17,352
======== ======== ========
Net interest
income/interest
rate spread (3)........ $ 8,302 2.93% $ 8,276 3.16% $ 7,826 3.06%
======= ==== ======= ==== ======= ====
Net interest margin as
a percentage
of interest-earning
assets (4)........... 3.28% 3.49% 3.38%
======= ======= =======
Ratio of
interest-earning assets
to interest-bearing
liabilities............ 108.79% 108.37% 108.11%
======== ======== ========
</TABLE>
_________________________________
(1) Balances are net of deferred loan origination costs, undisbursed proceeds of
construction loans in process, and include nonperforming loans.
(2) Includes investment securities held-to-maturity and stock in the FHLB New
York.
(3) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
33
<PAGE>
RATE/VOLUME ANALYSIS. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Association's interest income
and interest expense during the years indicated. Information is provided in
each category with respect to: (i) changes attributable to changes in volume
(changes in volume multiplied by prior rate); (ii) changes attributable to
changes in rate (changes in rate multiplied by prior volume); and (iii) the net
change. The changes attributable to the combined impact of volume and rate have
been allocated on a proportional basis between changes in rate and volume.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
COMPARED TO COMPARED TO COMPARED TO
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------------- -------------------------------- --------------------------------
INCREASE (DECREASE) INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO DUE TO
--------------------- --------------------- ---------------------
RATE VOLUME NET RATE VOLUME NET RATE VOLUME NET
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans:
Real estate.......... $(119) $ (67) $(186) $(11) $(291) $(302) $(110) $(243) $(353)
Consumer............. (21) (75) (96) (24) 99 75 (44) 29 (15)
----- ----- ----- ----- ------ ------ ------ ----- -----
Total loans..... (140) (142) (282) (35) (192) (227) (154) (214) (368)
Mortgage-backed
securities............. (174) 272 98 (62) 536 474 (85) 516 431
Investment securities
(taxable).............. 124 285 409 294 9 303 292 527 819
Investment securities
(non taxable).......... -- -- -- -- -- -- (25) -- (25)
Interest-earning
deposits............... (57) 533 476 34 66 100 (40) (42) (82)
----- ----- ----- ----- ------ ------ ------ ----- -----
Total interest-earning
assets............... (247) 948 701 231 419 650 (12) 787 775
----- ----- ----- ----- ------ ------ ------ ----- -----
INTEREST-BEARING
LIABILITIES:
Deposits................ 69 452 521 (14) 214 200 141 398 539
Borrowed money.......... (3) 157 154 -- -- -- -- -- --
----- ----- ----- ----- ------ ------ ------ ----- -----
Total interest-bearing
liabilities.......... 66 609 675 (14) 214 200 141 398 539
----- ----- ----- ----- ------ ------ ------ ----- -----
Increase (decrease) in net
interest income........... $(313) $ 339 $ 26 $ 245 $ 205 $ 450 $ (153) $ 389 $ 236
===== ===== ===== ===== ====== ====== ====== ===== =====
</TABLE>
34
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1998 AND DECEMBER 31, 1997
Total assets increased by $35.8 million, or 14.3%, to $285.6 million at
December 31, 1998 from $249.8 million at December 31, 1997. The increase in
assets was funded primarily by borrowings, deposit inflows and retained earnings
and resulted in increases in federal funds sold, the loan portfolio and the
mortgage-backed security portfolio.
Cash and cash equivalents increased $30.8 million, or 160.4%, to $50.0
million at December 31, 1998 from $19.2 million at December 31, 1997. The
increase in cash and cash equivalents was primarily in federal funds sold. The
security portfolio decreased $3.5 million, or 2.8%, to $120.8 million at
December 31, 1998 from $124.3 million at December 31, 1997. The decrease was
primarily due to a decrease in the investment security portfolio offset by an
increase in the mortgage-backed security portfolio.
The net loan portfolio increased $8.2 million, or 8.3%, to $107.2 million
at December 31, 1998 from $99.0 million at December 31, 1997. Total real estate
loans increased $9.6 million, or 11.7%, to $91.2 million at December 31, 1998,
from $81.7 million at December 31, 1997. This increase was primarily a result
of an increase of $9.6 million, or 12.2%, in one- to- four family real estate
loans to $88.1 million at December 31, 1998 from $78.5 million at December 31,
1997. Multi-family and commercial real estate loans remained constant at $3.2
million. Consumer loans decreased $1.2 million, or 6.6%, to $17.2 million at
December 31, 1998 from $18.4 million at December 31, 1997.
Total nonperforming loans decreased to $523,000 at December 31, 1998 from
$631,000 at December 31, 1997, representing 0.48% and 0.63%, respectively, of
total loans at such dates. Nonperforming assets and troubled debt
restructurings also decreased to 0.21% at December 31, 1998, from 0.25% at
December 31, 1997 of total assets at such dates.
Total deposits increased by $13.0 million, or 5.8%, to $236.2 million at
December 31, 1998, from $223.2 million at December 31, 1997. The increase was
primarily due to an increase of $10.9 million, or 9.8%, in certificates of
deposits to $122.2 million at December 31, 1998 from $111.3 million at December
31, 1997. The increase in certificates of deposit was primarily due to a
strategy of offering more competitive rates on such deposits in an effort to
attract longer-term deposits. The increase in certificates of deposit was
augmented by an increase in core deposits (savings, money market and NOW
accounts) which increased to $108.4 million at December 31, 1998 from $107.7
million at December 31, 1997. Non-interest-bearing demand accounts increased to
$5.6 million at December 31, 1998 from $4.3 million at December 31, 1997.
Advances from FHLB increased by $20.4 million to $20.6 million at
December 31, 1998 from $200,000 at December 31, 1997. In the fourth quarter
of 1998, the Association began utilizing advances to implement a leverage
strategy.
Total equity increased by $2.2 million, or 8.8%, to $26.9 million at
December 31, 1998 from $24.7 million at December 31, 1997. The increase in
equity was a result of net income of $2.2 million.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND
DECEMBER 31, 1997
GENERAL. Net income for the year ended December 31, 1998 totaled $2.2
million which was a decrease of $91,000, or 4.0%, from $2.3 million for the year
ended December 31, 1997. The decrease was attributed to an increase in
noninterest expense partially offset by an increase in net interest income and a
decrease in the provision for loan losses. The net interest margin decreased
for the year ended December 31, 1998 due to a generally lower interest rate
environment.
INTEREST INCOME. Total interest income increased by $700,000, or 4.0%,
to $18.3 million for the year ended December 31, 1998 from $17.6 million at
December 31, 1997, primarily due to an increase of $16.1 million, or 6.8%, in
the average balance of interest earnings assets, offset by a decrease of 20
basis points in the weighted average yield on interest earning assets to 7.23%
for the year ended December 31, 1998 from 7.43% for the year ended December 31,
1997. Interest income on loans decreased $281,000, or 3.4%, to $8.0 million for
the year ended December 31, 1998
35
<PAGE>
from $8.3 million for the year ended December 31, 1997. This decrease was due to
a decrease of $1.7 million in the average balance of loans and a decrease of 14
basis points in the weighted average yield to 7.92% for the year ended December
31, 1998, from 8.06% for the year ended December 31, 1997. Interest income on
mortgage-backed securities increased $97,000, or 2.8%, to $3.5 million for the
year ended December 31, 1998 from $3.4 million for the year ended December 31,
1997. The increase was due to an increase of $3.7 million, or 8.3%, in the
average balance of mortgage-backed securities offset by a 39 basis point
decrease in the weighted average yield to 7.33% for the year ended December 31,
1998 from 7.72% for the year ended December 31, 1997. Interest income on
investment securities and interest bearing deposits increased $884,000, or
15.1%, to $6.7 million for the year ended December 31, 1998, from $5.8 million
for the year ended December 31, 1997. The increase was due to an increase of
$14.1 million, or 15.8%, in the average balance of such assets offset by a
decrease of 4 basis points in the weighted average yield to 6.51% for the year
ended December 31, 1998 from 6.55% for year ended December 31, 1997.
INTEREST EXPENSE. Interest expense increased by $674,000, or 7.2%, to
$10.0 million for the year ended December 31, 1998, from $9.3 million for the
year ended December 31, 1997. Interest expense on deposits increased $520,000,
or 5.6%, to $9.8 million for the year ended December 31, 1998 from $9.3 million
for the year ended December 31, 1997. The increase was primarily due to an
increase in the average balance of certificates accounts to $117.3 million for
the year ended December 31, 1998, from $108.5 million for the year ended
December 31, 1997, and an increase of 7 basis points in the weighted average
cost of certificate accounts to 5.79% for the year ended December 31, 1998, from
5.72% for the year ended December 31, 1997. The increase in the average balance
of certificate accounts was primarily due to efforts to solicit certificate
accounts by more competitively pricing such accounts to attract longer-term
deposits. Interest expense on advances increased to $166,000 for the year ended
December 31, 1998 from $12,000 for the year ended December 31, 1997, an increase
of $154,000. The increase in interest expense on advances was attributed to an
increase in the average balance of advances to $3.2 million for the year ended
December 31, 1998 from $176,000 for the year ended December 31, 1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the year
ended December 31, 1998 was $300,000, compared to $400,000 for the year ended
December 31, 1997. The $100,000, or 25.0% decrease was attributable to a pay
off in 1997 of the largest commercial real estate loan on which provisions had
been made for a probable loss. At December 31, 1998 and December 31, 1997, the
ratios of the allowance for loan losses to non-performing loans was 179.60% and
105.55%, respectively. Management periodically analyzes the sufficiency of its
allowances based upon portfolio composition, asset classifications, loan-to-
value ratios, potential impairments in the loan portfolio, and other factors.
Management plans to continue its emphasis on one-to-four family mortgage loans
and consumer loans and therefore believes that the provisions for loan losses
and the allowance for loan losses are currently reasonable and adequate to cover
any probable losses reasonably expected in the existing loan portfolio. While
management estimates loan losses using the best available information, no
assurance can be given that future additions to the allowance will not be
necessary based on changes in economic and real estate market conditions,
further information obtained regarding problem loans, identification of
additional problem loans and other factors, both within and outside of
management's control.
NONINTEREST INCOME. Noninterest income increased $6,000, or 1.0%, to
$629,000 for the year ended December 31, 1998, from $623,000 for the year ended
December 31, 1997. The increase is attributable to a gain on the sale of real
estate owned of $3,000 for the year ended December 31, 1998 compared to a loss
on the sale of real estate owned of $15,000 for the year ended December 31,
1997.
NONINTEREST EXPENSE. Total noninterest expense increased $275,000, or
5.5%, to $5.2 million for the year ended December 31, 1998, from $5.0 million
for the year ended December 31, 1997. Compensation and employee benefits
increased $243,000 or 8.2%, to $3.2 million for the year ended December 31, 1998
from $3.0 million for the year ended December 31, 1997, primarily due to normal
increases in salaries as well as increases in benefits costs. Data processing
increased $33,000 or 10.1%, to $360,000 for the year ended December 31, 1998
from $327,000 for the year ended December 31, 1997. The increase was due to the
introduction in the third quarter of 1998 of a telephone banking service and an
increase in pricing by the Association's outside data processor. The Company
expects increased expenses in the future as a result of the establishment of the
ESOP, stock-based incentive plans and supplemental executive
36
<PAGE>
retirement plan and the need to satisfy reporting and other obligations of a
publicly owned company. The Company expects an increase in non-interest expense
due to the funding of a charitable foundation in the first quarter of 1999 in
the amount of $2.8. million.
INCOME TAXES. Income tax expense totaled $1.2 million for the year ended
December 31, 1998 compared to $1.3 million for the year ended December 31, 1997,
resulting in effective tax rates of 36.0% for both years ended December 31, 1998
and 1997. The decrease in income tax expense for the year ended December 31,
1998 was attributable to a decrease in pre-tax income, which decreased to $3.4
million for the year ended December 31, 1998 from $3.5 million for the year
ended December 31, 1997. The Company expects a tax benefit of $1.0 million due
to the contribution to the charitable foundation in the first quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Association's primary sources of funds are deposits, principal and
interest payments on loans, mortgage-backed and investment securities and
borrowings from the FHLB-New York. The Association uses the funds generated to
support its lending and investment activities as well as any other demands for
liquidity such as deposit outflows. While maturities and scheduled amortization
of loans are predictable sources of funds, deposit flows, mortgage prepayments
and the exercise of call features are greatly influenced by general interest
rates, economic conditions and competition. The Association has continued to
maintain the required levels of liquid assets as defined by OTS regulations.
This requirement of the OTS, which may be varied at the direction of the OTS
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The Association's currently required
liquidity ratio is 4.0%. At December 31, 1998, the Association's liquidity
ratio was 48.76%.
At December 31, 1998, the Association exceeded all of its regulatory
capital requirements with a tangible capital level of $26.9 million, or 9.40%,
of total adjusted assets, which is above the required level of $4.3 million, or
1.5%; core capital of $26.9 million, or 9.40%, of total adjusted assets, which
is above the required level of $8.6 million, or 3.0%; and risk-based capital of
$27.8 million, or 27.52%, of risk-weighted assets, which is above the required
level of $8.1 million, or 8.0%.
The Association's most liquid assets are cash and cash equivalents. The
levels of these assets are dependent on the Association's operating, financing,
lending and investing activities during any given period. At December 31, 1998,
cash and cash equivalents totalled $50.0 million, or 17.50% of total assets.
The Association has other sources of liquidity if a need for additional
funds arises, including FHLB advances. At December 31, 1998, the Association
had $20.6 in advances outstanding from the FHLB, and at December 31, 1998, had
an additional overall borrowing capacity from the FHLB of $85.7 million.
Depending on market conditions, the pricing of deposit products and FHLB
advances, the Association may rely on FHLB borrowing to fund asset growth.
Outstanding commitments to originate first mortgage loans totalled $2.4
million at December 31, 1998. Management of the Association anticipates that it
will have sufficient funds available to meet its current loan commitments.
Certificates of deposit which are scheduled to mature in one year or less from
December 31, 1998 totalled $59.0 million. From December 31, 1997 to December
31, 1998, the Association experienced a 65% retention rate on funds maturing
from certificates of deposit. It has been and will continue to be a priority of
management to retain time deposits. The Association relies primarily on
competitive rates, customer service, and long-standing relationships with
customers to retain deposits. From time to time, the Association will also
offer competitive special products to its customers to increase retention.
Based upon the Association's experience with deposit retention and current
retention strategies, management believes that, although it is not possible to
predict future terms and conditions upon renewal, a significant portion of such
deposits will remain with the Association.
37
<PAGE>
YEAR 2000 COMPLIANCE
As the year 2000 approaches, an important business issue has emerged
regarding how existing computer application software programs and operating
systems can accommodate this date value. Many existing application software
products are designed to accommodate only two digits. If not corrected, many
computer applications and systems could fail or create erroneous results by or
at the Year 2000. While the Association maintains an internal computer system
for many operating functions, the substantial majority of the Association's data
processing is out-sourced to a third party vendor. The Association has formed a
Year 2000 Committee (the "Y2K Committee") and has adopted a Year 2000 Policy.
The Y2K Committee has been identifying potential problems associated with the
Year 2000 issue and has implemented a plan designated to ensure that all
software used in connection with the Association's business will manage and
manipulate data involving the transition with data from 1999 to 2000 without
functional or data abnormality and without inaccurate results related to such
data. The Association has prepared a critical issues schedule with a timeline
and assigned responsibilities. In addition, the Association recognizes that its
ability to be Year 2000 compliant is dependent upon the cooperation of its
vendors. The Association is requiring its computer systems and software vendors
to represent that the products provided are or will be Year 2000 compliant and
has planned a program of testing for compliance. The Association has received
representations from its primary third party data processing vendor that it has
resolved any year 2000 problems in its software and is Year 2000 compliant. The
Association participated in Year 2000 testing with its primary third party data
processing vendor in August 1998. In February 1999, the Association also
participated in integration and proxy testing of the third party data processor
with Automated Teller Machine (ATM), Electronic Funds Transfer (EFT) and check
processing systems. The validation processes revealed no material problems with
the third party processor. The Association anticipates that all of its vendors
also will have resolved any Year 2000 problems in their software or hardware by
June 30, 1999. The Association has completed testing of its minor hardware and
software systems. The results indicated that most applications were Year 2000
compliant. All Year 2000 issues for the Association, including testing, are
expected to be addressed and any problems remedied by June 30, 1999. The
Association has also provided brochures to its customers to make them aware of
the Year 2000 issue.
The Association's operations may also be affected by the Year 2000
compliance of its significant suppliers and other vendors, including those
vendors that provide non-information and technology systems. The Association
has begun the process of requesting information related to the Year 2000
compliance of its significant suppliers and other vendors. However, the
Association does not currently have complete information concerning the
compliance status of its significant suppliers and other vendors. In the event
that any of the Association's significant suppliers or other vendors do not
successfully achieve Year 2000 compliance in a timely manner, the Association's
business or operations could be adversely affected. The Association is in the
process of completing a business resumption contingency plan in the event that
there are any system interruptions. As part of the contingency plan, the
Association intends to implement manual systems or engage alternative suppliers
or other vendors if it fails to achieve Year 2000 compliance or its current
significant suppliers or vendors fail to meet Year 2000 operating requirements.
There can be no assurances, however, that such plan or the performances by any
of the Association's suppliers and vendors will be effective to remedy all
potential problems.
The lending activities of the Association are concentrated almost
exclusively in one- to four-family mortgage lending. Due to the small
individual and aggregate balance of loans to multi-family and commercial
borrowers, it has been determined that customer Year 2000 readiness issues
should have an insignificant impact on the Association. Since the Association
plans to continue its emphasis on one- to four-family mortgage loans, Year 2000
compliance of potential borrowers will not be a major issue. If the Association
were to entertain loan applications from significant multi-family or commercial
borrowers, the Association would request statements concerning Year 2000
readiness from the potential borrowers.
The Association is currently engaging in an upgrade of its technology
systems in addition to implementing its Year 2000 policy. The Association has
budgeted approximately $150,000 in connection with the costs associated with
achieving Year 2000 compliance and its related technology systems upgrade and,
as of December 31, 1998, had expended approximately $20,000. Material costs, if
any, that may arise from the failure to achieve Year 2000 compliance by either
the Association's third party data processing vendor or its significant
suppliers and other vendors is not currently determinable. To the extent that
the Association's systems are not fully Year 2000 compliant, there can
38
<PAGE>
be no assurance that potential systems interruptions or the cost necessary to
update software would not have a materially adverse effect on the Association's
business, financial condition, results of operations, cash flows or business
prospects. In the event that the Association's progress towards becoming Year
2000 compliant is deemed inadequate, regulatory action may be undertaken.
IMPACT OF INFLATION AND CHANGING PRICES
The Financial Statements and Notes thereto presented herein have been
prepared in accordance with generally accepted accounting principles ("GAAP,")
which require the measurement of financial position and operating results
generally in terms of historical dollar amounts without considering the changes
in the relative purchasing power of money over time due to inflation. The
impact of inflation is reflected in the increased cost of the Association's
operations. Unlike industrial companies, nearly all of the assets and
liabilities of the Association are monetary in nature. As a result, interest
rates have a greater impact on the Association's performance than do the effects
of general levels of inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the prices of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
COMPREHENSIVE INCOME. In June 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income." This statement establishes standards for
reporting and displaying of comprehensive income and its components. The
Association was not required to implement SFAS No. 130 as this statement does
not apply to an enterprise that has no items of other comprehensive income in
any period presented.
SEGMENT REPORTING. In June 1997, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This statement
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. SFAS No. 131 is effective
for fiscal years beginning after December 31, 1997. Management has determined
that the Association has one reportable segment and the adoption of SFAS No. 131
did not have an impact on the Association's financial statements.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June 1998
the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 establishes accounting and reporting
for derivative instruments, including instruments embedded in other contracts,
and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management has not yet determined the impact, if any, of this statement on the
Company's or the Association's consolidated financial statements.
39
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
- ----------------------------
40
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of
South Jersey Savings and Loan Association:
We have audited the accompanying statements of financial condition of South
Jersey Savings and Loan Association (the "Association") as of December 31, 1998
and 1997, and the related statements of income and retained earnings, and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Association's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of South Jersey Savings and Loan Association as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 26, 1999
F-1
<PAGE>
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
Cash and amounts due from depository institutions $ 4,241,035 $ 3,704,631
Interest-bearing deposits with banks 396,000 495,000
Federal funds sold 45,350,000 15,000,000
------------- -------------
Cash and cash equivalents 49,987,035 19,199,631
Investment securities held to maturity (approximate fair values -
1998, $70,711,243; 1997, $79,601,903) 69,970,033 79,034,160
Mortgage-backed securities held to maturity (approximate fair
values - 1998, $51,872,423; 1997, $45,662,774) 50,783,081 45,231,329
Loans receivable, net 107,177,291 98,966,195
Accrued interest receivable 2,219,308 2,258,869
Federal Home Loan Bank stock - at cost 1,249,100 1,232,700
Office properties and equipment, net 3,164,291 3,323,854
Deferred income taxes 122,098 16,470
Prepaid expenses and other assets 964,727 541,820
------------- -------------
TOTAL ASSETS $285,636,964 $249,805,028
============= =============
LIABILITIES AND RETAINED EARNINGS
Liabilities:
Deposits $236,248,028 $223,205,518
Advances from Federal Home Loan Bank 20,576,000 176,000
Advances from borrowers for taxes and insurance 840,266 729,410
Accounts payable and accrued expenses 1,056,207 960,091
Income taxes payable 52,568 44,694
------------- -------------
Total liabilities 258,773,069 225,115,713
Commitments (Note 4)
Retained earnings 26,863,895 24,689,315
------------- -------------
TOTAL LIABILITIES AND RETAINED EARNINGS $285,636,964 $249,805,028
============= =============
</TABLE>
See notes to financial statements.
F-2
<PAGE>
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
INTEREST INCOME:
Loans $ 8,041,684 $ 8,322,469 $ 8,549,929
Mortgage-backed securities 3,531,542 3,434,287 2,960,443
Investments 6,733,514 5,849,573 5,445,569
------------ ----------- -----------
Total interest income 18,306,740 17,606,329 16,955,941
------------ ----------- -----------
INTEREST EXPENSE:
Deposits 9,838,842 9,318,673 9,117,553
Other 165,699 11,674 11,971
------------ ----------- -----------
Total interest expense 10,004,541 9,330,347 9,129,524
------------ ----------- -----------
NET INTEREST INCOME 8,302,199 8,275,982 7,826,417
PROVISION FOR LOAN LOSSES 300,000 400,000 180,000
------------ ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 8,002,199 7,875,982 7,646,417
------------ ----------- -----------
OTHER INCOME:
Service charges and other fees 621,220 623,372 668,779
Gain (loss) on sale of REO 3,063 (14,654) 11,553
Other 4,918 14,007 1,083
------------ ----------- -----------
Total other income 629,201 622,725 681,415
------------ ----------- -----------
OTHER EXPENSES:
Personnel related 3,219,529 2,976,599 2,919,817
Fixed asset 729,338 723,206 668,676
Federal deposit insurance premium 136,226 138,217 455,811
SAIF assessment 1,313,798
Data processing 359,519 326,529 326,022
Advertising 70,630 55,497 76,330
Other operating 719,378 739,854 757,168
------------ ----------- -----------
Total other expenses 5,234,620 4,959,902 6,517,622
------------ ----------- -----------
INCOME BEFORE INCOME TAXES 3,396,780 3,538,805 1,810,210
------------ ----------- -----------
INCOME TAXES:
Current taxes 1,327,828 1,144,827 728,087
Deferred taxes (benefit) (105,628) 128,473 (74,287)
------------ ----------- -----------
Total income taxes 1,222,200 1,273,300 653,800
------------ ----------- -----------
NET INCOME 2,174,580 2,265,505 1,156,410
RETAINED EARNINGS, BEGINNING OF YEAR 24,689,315 22,423,810 21,267,400
------------ ----------- -----------
RETAINED EARNINGS, END OF YEAR $ 26,863,895 $ 24,689,315 $ 22,423,810
============ ============ ============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,174,580 $ 2,265,505 $ 1,156,410
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for:
Loan losses 300,000 400,000 180,000
Depreciation 294,323 296,823 252,324
Amortization of:
Premiums, discounts on mortgage-backed securities, net 12,584 29,574 85,964
Premiums, discounts on investments, net 175,522 290,333 619,601
Deferred and prepaid loan fees (135,816) (80,608) (85,669)
Changes in assets and liabilities which provided (used) cash:
Accrued interest receivable 39,561 191,198 (7,140)
Prepaid expenses and other assets (422,907) (25,867) 23,315
Prepaid income taxes (140,887) (111,507)
Deferred income taxes (105,628) 128,473 (74,287)
Deferred and prepaid loan fees 11,176 (117,251) 60,858
Accounts payable and accrued expenses 96,116 (30,018) 4,846
Income taxes payable 7,874 44,694 (19,989)
------------ ----------- -----------
Net cash provided by operating activities 2,447,385 3,251,969 2,084,726
------------ ----------- -----------
INVESTING ACTIVITIES:
Purchases of:
Mortgage-backed securities (20,059,100) (10,030,001) (16,029,193)
Investment securities (34,731,395) (36,214,701) (30,549,223)
Federal Home Loan Bank stock (16,400) (82,400)
Office properties and equipment (134,760) (193,593) (357,161)
Proceeds from:
Sale of loans 90,379
Maturing investment securities 43,620,000 34,000,000 25,000,000
Maturing mortgage-backed securities 14,494,764 6,167,399 6,302,763
Sale of Federal Home Loan Bank stock 31,700
Principal collected on long-term loans 22,639,910 21,119,160 17,093,152
Long-term loans originated or acquired (31,116,745) (16,024,641) (16,221,483)
------------ ----------- -----------
Net cash used in investing activities (5,213,347) (1,258,777) (14,729,445)
------------ ----------- -----------
FINANCING ACTIVITIES:
Net increase in deposits 13,042,510 6,371,302 5,714,418
Net increase in FHLB advances 20,400,000
Increase (decrease) in advances from borrowers for taxes and insurance 110,856 (58,378) (17,807)
------------ ----------- -----------
Net cash provided by financing activities 33,553,366 6,312,924 5,696,611
------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 30,787,404 8,306,116 (6,948,108)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 19,199,631 10,893,515 17,841,623
------------ ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 49,987,035 $ 19,199,631 $ 10,893,515
============ =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for:
Interest $ 9,876,938 $ 9,342,618 $ 9,113,654
============ =========== ===========
Income taxes $ 1,077,000 $ 1,245,000 $ 870,000
============ =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCIAL ACTIVITIES:
Loans transferred to REO $ 49,937 $ 27,714 $ 23,342
============ =========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
South Jersey Savings and Loan Association (the "Association") was a
state-chartered mutual savings and loan established in 1950 which is
principally in the business of attracting customer deposits to provide
mortgage and consumer loan funds to the community. The Association
completed its conversion to a state chartered stock savings and loan
association (see Note 16). The main branch is located in Turnersville, New
Jersey, with other branches in Collingswood and Glendora, New Jersey.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following summarizes the Association's significant accounting and
reporting policies:
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those
estimates.
Accounting for Certain Debt and Equity Securities - The Association
classifies investments as follows:
Securities that the Association has the positive intent and ability to
hold to maturity are classified as "held-to-maturity" and reported at
amortized cost.
Securities not classified as held-to-maturity are classified as
"available-for-sale" and reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component
of retained earnings, net of applicable income taxes. The Association
did not classify any security as available-for-sale at December 31,
1998 or 1997.
Provision for Loan Losses - Provision for loan losses includes charges to
reduce the recorded balances of loans receivable and real estate acquired
by foreclosure to their estimated net realizable value or fair value, as
applicable. Such provisions are based on management's estimate of net
realizable value or fair value of the collateral, as applicable,
considering the current and currently anticipated future operating or
sales conditions, thereby causing these estimates to be particularly
susceptible to changes that could result in a material adjustment to
results of operations in the near term. Recovery of the carrying value of
such loans and real estate acquired by foreclosure is dependent to a great
extent on economic, operating and other conditions that may be beyond the
Association's control.
Real Estate Acquired Through Foreclosure - Real estate acquired through
foreclosure is carried at the lower of fair value less estimated cost to
sell or the balance of the loan on the property at date of acquisition.
Costs relating to the development and improvement of property are
capitalized, and those relating to holding the property are charged to
expense.
F-5
<PAGE>
Accrued Interest Receivable - Interest income is recognized as earned.
Accrual of loan interest is discontinued and a reserve established on
existing accruals if management believes, that after considering economic
and business conditions and collection efforts, that the borrowers'
financial condition is such that collection of interest is doubtful.
Office Properties and Equipment - Office properties and equipment are
recorded at cost. Depreciation is computed using the straight-line method
over the expected useful lives of the assets. The costs of maintenance and
repairs are expensed as they are incurred and renewals and betterments are
capitalized.
Deferred Loan Fees - The Association defers all loan fees, net of certain
direct loan origination costs. The balance is accreted into income as a
yield adjustment over the life of the loan using the interest method.
Cash and Cash Equivalents - For purposes of reporting cash flows, cash and
cash equivalents include cash, interest-bearing deposits (with original
maturities of 90 days or less), and federal funds sold. Generally, federal
funds sold are repurchased the following day.
Income Taxes - Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities - In June 1996, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 125,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities and in December 1996, SFAS No. 127,
Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125. SFAS No. 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a
financial components approach that focuses on control. Under that
approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished.
These statements were effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31,
1996, with certain provisions deferred until January 1, 1998. The adoption
of these standards did not have a significant effect on the Association's
financial position or results of operations
Comprehensive Income - In June 1997, the FASB issued SFAS No. 130,
Reporting Comprehensive Income. This statement establishes standards for
reporting and displaying of comprehensive income and its components. The
Association was not required to implement SFAS No. 130 as this statement
does not apply to an enterprise that has no items of other comprehensive
income in any period presented.
Segment Reporting - In June 1997, the FASB issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. This
Statement requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. SFAS No.
131 is effective for fiscal years beginning after December 15, 1997.
Management has determined that the Association has
F-6
<PAGE>
one reportable segment and the adoption of SFAS No. 131 did not have an
impact of the Association's financial statements.
Accounting Principles Issued But Not Yet Adopted - In June 1998, SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, was
issued. This statement requires an entity to recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The accounting for changes in the
fair value of a derivative depends on the intended use of the derivative
and the resulting designation. This statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999, and will not be
applied retroactively to financial statements of prior periods. Management
of the Association is in the process of evaluating the impact, if any,
this statement will have on the Association's results of operations or
financial position when adopted.
3. INVESTMENT SECURITIES HELD TO MATURITY
Investment securities held to maturity are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury and government
agencies $33,606,183 $667,471 $ 34,273,654
FHLB Notes 36,263,850 223,914 $ 150,175 36,337,589
State and municipal issues 100,000 100,000
----------- -------- --------- ------------
Total $69,970,033 $891,385 $ 150,175 $ 70,711,243
=========== ======== ========= ============
<CAPTION>
December 31, 1997
-------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury and government
agencies $42,111,414 $413,458 $ 21,377 $ 42,503,495
FHLB notes 36,822,746 205,492 29,830 36,998,408
State and municipal issues 100,000 100,000
----------- -------- --------- ------------
Total 79,034,160 $618,950 $ 51,207 $ 79,601,903
=========== ======== ========= ============
</TABLE>
The amortized cost and approximate fair value of debt securities at
December 31, 1998 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or repay obligations with or without call or
prepayment penalties.
F-7
<PAGE>
<TABLE>
<CAPTION>
Amortized Approximate
Cost Fair Value
<S> <C> <C>
Due in one year or less $11,993,395 $12,077,933
Due after one year through five years 30,880,598 31,543,563
Due after five years 27,096,040 27,089,747
----------- -----------
Total $69,970,033 $70,711,243
=========== ===========
</TABLE>
4. MORTGAGE-BACKED SECURITIES - HELD TO MATURITY
Mortgage-backed securities held to maturity are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
GNMA pass-through certificates $ 685,916 $ 53,801 $ 739,717
FNMA pass-through certificates 29,762,707 475,233 $ 72,892 30,165,048
FHLMC pass-through certificates 20,334,458 633,200 20,967,658
------------ ----------- -------- ------------
Total $ 50,783,081 $ 1,162,234 $ 72,892 $ 51,872,423
============ =========== ======== ============
<CAPTION>
December 31, 1997
---------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
GNMA pass-through certificates $ 924,818 $ 52,694 $ 433 $ 977,079
FNMA pass-through certificates 17,627,059 160,544 114,882 17,672,721
FHLMC pass-through certificates 26,679,452 385,449 51,927 27,012,974
------------ --------- --------- ------------
Total $ 45,231,329 $ 598,687 $ 167,242 $ 45,662,774
============ ========= ========= ============
</TABLE>
At December 31, 1998, mortgage-backed securities pledged for public
deposits were $818,366.
F-8
<PAGE>
5. LOANS RECEIVABLE
Loans receivable at December 31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Residential mortgage loans (primarily single-family) $ 89,249,161 $ 79,562,947
Nonresidential mortgage loans 1,999,455 2,104,430
Education loans 2,144,114 2,426,467
Loans on savings accounts 169,734 147,743
Consumer loans 14,873,521 15,805,447
Commercial loans 3,718 33,000
------------ ------------
Total 108,439,703 100,080,034
Less:
Allowance for loan losses (939,737) (666,524)
Deferred fees and other credits (322,675) (447,315)
------------ ------------
Net $107,177,291 $ 98,966,195
============ ============
</TABLE>
The Association lends to borrowers primarily in its local market area. The
ultimate repayment of these loans is dependent to a certain degree on the
local economy and real estate market.
Nonaccrual loans amounted to $523,229 and $631,469 at December 31, 1998
and 1997, respectively. Interest income which should have been earned on
these loans during the years ended December 31, 1998 and 1997 was $45,556
and $54,087, respectively. Interest income recognized on these loans
during the years ended December 31, 1998 and 1997 was $37,709 and $26,376,
respectively.
The Association originates and purchases both adjustable and fixed
interest rate loans. At December 31, 1998, the composition of these loans
was as follows:
<TABLE>
<CAPTION>
Fixed-Rate Adjustable-Rate
- -------------------------------------------------------- -----------------------------------------
Term to Rate
Term to Maturity Book Value Adjustment Book Value
<S> <C> <S> <C>
1 month to 1 year $ 1,299,406 1 month to 1 year $ 6,473,678
1 year to 3 years 2,728,995 1 year to 3 years 4,097,912
3 years to 5 years 5,455,375
5 years to 10 years 29,133,617
10 years to 20 years 32,673,120
Over 20 years 26,577,600
------------ -----------
$ 97,868,113 $10,571,590
============ ===========
</TABLE>
The adjustable-rate loans have interest rate adjustment limitations and
are generally indexed to prime rate or U.S. Treasury rates. Future market
factors may affect the correlation of the interest rate adjustment with
the rates the Association pays on the short-term deposits that have been
primarily utilized to fund these loans.
F-9
<PAGE>
At December 31, 1998 and 1997, the Association had loan commitments
outstanding totaling $9,620,506 and $661,303, respectively, of which
$9,538,615 and $530,700, respectively, were fixed rate commitments with
interest rates ranging from 6.25% to 14.00% and 6.125% to 8.25%,
respectively. These loans are expected to be funded within three months.
At December 31, 1998, the Association had approximately $1,789,832 and
$46,282 in unfunded consumer and commercial lines of credit, respectively.
The total amount of loans being serviced for the benefit of others was
approximately $1,540,000 and $2,947,000 at December 31, 1998 and 1997,
respectively.
An analysis of activity in allowance for loan losses at December 31, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Balance, beginning of year $ 666,524 $ 1,186,235
Provision for loan losses 300,000 400,000
Charge-offs (32,296) (923,642)
Recoveries 5,509 3,931
--------- -----------
Balance, end of year $ 939,737 $ 666,524
========= ===========
</TABLE>
The provision for loan losses charged to expense is based upon past loan
and loss experiences and an evaluation of estimated losses in the current
loan portfolio, including the evaluation of impaired loans under SFAS Nos.
114 and 118. A loan is considered to be impaired when, based upon current
information and events, it is probable that the Association will be unable
to collect all amounts due according to the contractual terms of the loan.
An insignificant delay or insignificant shortfall in amount of payments
does not necessarily result in the loan being identified as impaired. For
this purpose, delays less than 90 days are considered to be insignificant.
As of December 31, 1998, 100% of the impaired loan balance was measured
for impairment based on the fair value of the loans' collateral.
Impairment losses are included in the provision for loan losses. SFAS Nos.
114 and 118 do not apply to large groups of smaller balance homogeneous
loans that are collectively evaluated for impairment, except for those
loans restructured under a troubled debt restructuring.
F-10
<PAGE>
The following table summarizes impaired loan information:
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
<S> <C> <C>
Total recorded investment in impaired loans
with allowance for loan losses
in accordance with SFAS No. 114 $ 76,235 $ 76,740
-------- --------
Total recorded investment in impaired loans $ 76,235 $ 76,740
======== ========
Total allowance related to impaired loans
in accordance with SFAS No. 114 $ 9,035 $ 9,540
======== ========
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Average investment in impaired loans $ 76,432 $362,430 $ 530,590
======== ======== =========
Cash basis interest income recognized on impaired loans $ 2,990 $ 4,375 $ 11,118
======== ======== =========
Interest income recognized on impaired loans $ 2,990 $ 4,375 $ 11,118
======== ======== =========
</TABLE>
Interest payments on impaired loans are typically applied to principal
unless collectibility of the principal amount is fully assured, in which
case interest is recognized on the cash basis.
Commercial loans and commercial real estate loans are placed on nonaccrual
at the time the loan is 60 days delinquent unless the credit is well
secured and in the process of collection. Generally, commercial loans are
charged off no later than after they become 120 days delinquent unless the
loan is well secured and in the process of collection, or other
extenuating circumstances support collection. Residential real estate
loans are typically placed on nonaccrual at the time the loan is 90 days
delinquent. Other consumer loans are typically charged off at 120 days
delinquent. In all cases, loans must be placed on nonaccrual or charged
off at an earlier date if collection of principal or interest is
considered doubtful.
6. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at December 31, 1998 and 1997 consists of the
following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Investments and interest-bearing deposits $1,294,683 $1,339,058
Mortgage-backed securities 325,234 322,874
Loans receivable 599,391 596,937
---------- ----------
Total $2,219,308 $2,258,869
========== ==========
</TABLE>
F-11
<PAGE>
7. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at December 31, 1998 and 1997 are
summarized by major classifications as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land and buildings $3,370,192 $3,330,992
Furniture and equipment 2,304,876 2,237,654
---------- ----------
Total 5,675,068 5,568,646
Accumulated depreciation (2,510,777) (2,244,792)
---------- ----------
Net $3,164,291 $3,323,854
========== ==========
</TABLE>
8. DEPOSITS
Deposits consist of the following major classifications:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
1998 1997
--------------------------------------------------------------
Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Passbook and clubs $ 34,920,464 14.8 % $ 34,492,761 15.4 %
Checking accounts 36,433,248 15.4 33,771,748 15.1
Money market demand 42,672,381 18.1 43,656,674 19.6
------------ ------ ------------ -----
Subtotal 114,026,093 48.3 111,921,183 50.1
Certificates:
Less than $100,000 111,853,055 47.3 102,514,226 45.9
$100,000 or more 10,368,880 4.4 8,770,109 4.0
------------ ------ ------------ -----
Subtotal 122,221,935 51.7 111,284,335 49.9
------------ ------ ------------ -----
Total $236,248,028 100.0 % $223,205,518 100.0 %
============ ====== ============ =====
</TABLE>
The weighted average cost of funds was 4.3% at December 31, 1998 and 1997.
The Association had no brokered deposits at December 31, 1998 or 1997.
A summary of certificates by maturities is as follows:
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------
Amount Percent
<S> <C> <C>
One year or less $ 58,979,385 48.3 %
One through three years 28,951,578 23.7
Three through five years 21,548,900 17.6
Over five years 12,742,072 10.4
------------ ------
Total $122,221,935 100.00 %
============ ======
</TABLE>
F-12
<PAGE>
Interest expense on deposits consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1998 1997
<S> <C> <C>
Passbook and clubs $ 964,753 $ 978,191
Checking accounts 625,469 645,550
Money market demand 1,489,547 1,527,429
Certificates 6,795,907 6,202,950
Early withdrawal penalties (36,834) (35,447)
---------- ----------
Total $9,838,842 $9,318,673
========== ==========
</TABLE>
Deposits in amounts in excess of $100,000 are not federally insured.
9. ADVANCES FROM FEDERAL HOME LOAN BANK
The Association had outstanding advances from the FHLB which are
collateralized by Federal Home Loan Bank stock, first mortgage loans and
securities. At December 31, 1998 and 1997, the maturity and weighted
average interest rate of each advance was as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------- --------------------------
Weighted Weighted
Average Average
Interest Interest
Amount Rate Amount Rate
------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
FHLB Advances maturing during:
1999 $ 1,000,000 4.760 %
2001 132,000 6.615 $ 132,000 6.615 %
2002 44,000 6.615 44,000 6.615
2003 5,000,000 4.950
2005 2,000,000 5.080
2008 12,400,000 5.098
------------ ---------
Total $ 20,576,000 5.057 % $ 176,000 6.615 %
============ ===== ========= =====
</TABLE>
F-13
<PAGE>
10. INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $ 1,225,928 $1,038,627 $ 673,487
State 101,900 106,200 54,600
----------- ---------- ---------
Total current 1,327,828 1,144,827 728,087
Deferred - federal income taxes (benefit) (105,628) 128,473 (74,287)
----------- ---------- ---------
Total income taxes $ 1,222,200 $1,273,300 $ 653,800
=========== ========== =========
</TABLE>
The Association's provision for income taxes differs from the amounts
determined by applying the statutory federal income tax rate to income
taxes for the following reasons:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1998 1997 1996
-----------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
At statutory rate $ 1,188,873 35.0 % $ 1,238,582 35.0 % $ 633,574 35.0 %
Surtax exemption (33,968) (1.0) (35,388) (1.0) (18,102) (1.0)
Adjustments resulting in:
State tax - net of federal
tax provision 66,235 2.0 69,030 2.0 35,490 2.0
Tax exempt interest
Other, net 1,060 1,076 2,838 0.2
------------ ------ ------------ ------ ---------- ------
Total $ 1,222,200 36.0 % $ 1,273,300 36.0 % $ 653,800 36.2 %
============ ====== ============ ====== ========== ======
</TABLE>
F-14
<PAGE>
Items that gave rise to significant portions of the deferred tax accounts
at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1998 1997
<S> <C> <C>
Deferred tax assets:
Deferred loan costs $ 56,929 $ 58,289
Deferred loan fees 78,383 121,020
Allowance for loan loss 98,831
--------- --------
Total 234,143 179,309
--------- --------
Deferred tax liabilities:
Property (112,045) (83,608)
Allowance for loan loss (79,231)
--------- --------
Total (112,045) (162,839)
--------- --------
Total $122,098 $ 16,470
========= ========
</TABLE>
As of January 1, 1996, the Association changed its method of computing
reserves for bad debt to the experience method. The bad debt deduction
allowable under this method is available to small banks with assets less
than $500 million. Generally, this method allows the Association to deduct
an annual addition to the reserve for bad debts equal to the increase in
the balance of the Association's reserve for bad debts at the end of the
year to an amount equal to the percentage of total loans at the end of the
year, computed using the ratio of the previous six years' net charge-offs
divided by the sum of the previous six years' total outstanding loans at
year-end.
A thrift institution required to change its method of computing reserve
for bad debts treats such change as a change in a method of accounting
determined solely with respect to the "applicable excess reserves" of the
institution. The amount of the applicable excess reserves is taken into
account ratably over a six-taxable year period, beginning with the first
taxable year beginning after December 31, 1995. For financial reporting
purposes, the Association has not incurred any additional tax expense. At
December 31, 1998, deferred taxes were provided on the difference between
the book reserve at December 31, 1998 and the applicable excess reserve in
the amount equal to the Association's increase in the tax reserve from
December 31, 1987 to December 31, 1998. Retained earnings at December 31,
1998 and 1997 includes approximately $3,100,000 of income for which no
deferred income taxes will need to be provided.
11. DEFINED CONTRIBUTION PLAN
The Association has a noncontributory, defined contribution plan for all
regular full-time employees meeting certain eligibility requirements.
Expense related to the plan, which is based on a percentage of the
participants' salaries as provided by the plan, was $276,850 and $266,234
for the years ended December 31, 1998 and 1997, respectively.
F-15
<PAGE>
12. REGULATORY CAPITAL REQUIREMENTS
The Association is 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 Association's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Association must meet specific capital guidelines
that involve quantitative measures of the Association's assets,
liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Association'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 Association to maintain minimum amounts and ratios (set forth
in the table below) of tangible and core capital (as defined in the
regulations) to total adjusted assets (as defined), and tier 1 risk-based
and risk-based capital (as defined) to risk-weighted assets (as defined).
Management believes, as of December 31, 1998, that the Association meets
all capital adequacy requirements to which it is subject.
As of December 31, 1998, the most recent notification from the Office of
Thrift Supervision (OTS) categorized the Association as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Association must maintain minimum
core and risk-based ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the Association's category.
The Association's actual tangible, core and tier risk-based capital equals
its retained earnings as of December 31, 1998 and 1997. Included in the
Association's actual risk-based capital are permitted amounts of the
allowance for loan losses of $930,702 and $653,278 as of December 31, 1998
and 1997, respectively.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
Required for Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------------------------------------- --------------------------
Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Tangible Capital $ 26,863,895 9.40 % $ 4,284,554 1.50 % N/A NA
Core Capital 26,863,895 9.40 8,569,109 3.00 $ 14,281,848 5.00 %
Tier 1 Risk-Based Capital 26,863,895 26.60 N/A NA 6,058,980 6.00
Risk Based Capital 27,794,597 27.52 8,078,640 8.00 10,098,300 10.00
As of December 31, 1997:
Tangible Capital $ 24,689,315 9.88 % $ 3,747,067 1.50 % N/A N/A
Core Capital 24,689,315 9.88 7,494,135 3.00 $ 12,490,224 5.00 %
Tier 1 Risk-Based Capital 24,689,315 26.56 N/A N/A 5,576,940 6.00
Risk Based Capital 25,342,593 27.27 7,435,920 8.00 9,294,900 10.00
</TABLE>
F-16
<PAGE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. The estimated fair
value amounts have been determined by the Association using available
market information and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts the Association could
realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
(In Thousands) (In Thousands)
------------------------------- --------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 49,987 $ 49,987 $ 19,200 $ 19,200
Investment securities 69,970 70,711 79,034 79,602
Mortgage-backed securities 50,783 51,872 45,231 45,663
Loans receivable, net 107,177 109,813 98,966 100,694
Liabilities:
Deposits 236,248 239,726 223,206 224,372
Advances from Federal Home
Loan Bank 20,576 20,323 176 176
</TABLE>
The estimated fair value of marketable securities is based on quoted
market prices, dealer quotes and prices obtained from independent pricing
services. The fair value of mortgage-backed securities and loans is
estimated based on the pricing tables published by the OTS as of December
31, 1998 and 1997.
The fair value of demand deposits and savings accounts is the amount
reported in the financial statements. The fair value of time deposits and
advances is based on the pricing tables published by the OTS.
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the present creditworthiness of
the counterparties. The deferred income amounts of approximately $4,200
and $1,300 at December 31, 1998 and 1997, respectively, on such
off-balance sheet financial instruments approximates their fair values.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1998 and 1997.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since
December 31, 1998 and 1997 and, therefore, current estimates of fair value
may differ significantly from the amounts presented herein.
F-17
<PAGE>
14. INTEREST RATE RISK
The Association is principally engaged in the business of attracting
deposits from the general public and using these deposits, together with
borrowings and other funds, to make loans secured by real estate and other
consumer loans and to purchase certain investments. The potential for
interest rate risk exists as a result of the shorter repricing period of
the Association's interest-sensitive liabilities compared to the generally
longer repricing period of interest-sensitive assets. In a rising rate
environment liabilities will reprice faster than assets, thereby reducing
the market value of long-term assets and net interest income. For this
reason, management regularly monitors the maturity structure of the
Association's assets and liabilities in order to measure this risk and
enacts measures to manage volatility of future interest rate movements.
15. SAIF ASSESSMENT
On September 30, 1996, an omnibus appropriations bill was enacted which
included the recapitalization of the Savings Association Insurance Fund
(SAIF). Accordingly, all SAIF insured depository institutions were charged
a one-time special assessment on the SAIF-assessable deposits as of March
31, 1995 at a rate of 65.7 basis points. As such, the Association incurred
a pre-tax expense of $1,313,798 in 1996.
16. CONVERSION TO CAPITAL STOCK FORM OF OWNERSHIP
On July 28, 1998, the Board of Directors of the Association adopted a Plan
of Conversion (the "Plan") to convert from a state chartered mutual
savings and loan association to a state chartered capital stock savings
and loan association (the "Conversion") with the concurrent formation of a
holding company, South Jersey Financial Corporation, Inc. (the "Company").
The Association received approval of the Conversion by regulatory
authorities and members of the Association.
On February 12, 1999, the Association completed its Conversion through the
sale of 3,208,961 shares of common stock (par value $.01) of the Company.
Total proceeds of $32,089,610 were reduced by Conversion expenses of
approximately $1,700,000 and the excess of proceeds over the par value of
the stock was credited to paid-in capital in excess of par. As a result of
this Conversion, approximately $15,200,000 of capital was contributed to
the Association from the Company in exchange for all of the outstanding
capital stock of the Association.
The Association established an ESOP for the benefit of eligible employees,
effective upon the Conversion. The ESOP purchased 303,474 shares of the
common stock issued in the Conversion utilizing proceeds of a loan from
the Company. The loan will be repaid over a period of 15 years and is
collateralized by the common stock purchased by the ESOP.
The Company established a charitable foundation ("Foundation") in
connection with the Conversion and donated 280,995 shares of the Company's
common stock to the Foundation. The Foundation has been dedicated to
charitable purposes within the communities in which the Association
operates and to complement the Association's existing community
activities.
F-18
<PAGE>
At the time of the Conversion, the Association established a liquidation
account in an amount of approximately $26,000,000, its equity as reflected
in the latest balance sheet used in the final conversion prospectus. The
liquidation account will be maintained for the benefit of eligible account
holders and supplemental eligible account holders who continue to maintain
their accounts at the Association after the Conversion. In the event of a
complete liquidation of the Association, each eligible account holder and
supplemental eligible account holder will be entitled to receive a
distribution from the liquidation account in an amount proportionate to
the current adjusted qualifying balances for accounts then held.
******
F-19
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE.
- --------------------
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
- ----------------------------------------------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
- -------------------------------------------------
MANAGEMENT OF THE COMPANY
The Board of Directors of the Company is divided into three classes, each
of which contains approximately one-third of the Board. The directors shall be
elected by the stockholders of the Company for staggered three year terms, or
until their successors are elected and qualified. One class of directors,
consisting of Arthur E. Armitage, Jr., Gregory M. DiPaolo and John V. Field, has
a term of office expiring at the first annual meeting of stockholders, a second
class, consisting of Robert J. Colacicco, Richard G. Mohrfeld and Martin Rosner,
has a term of office expiring at the second annual meeting of stockholders, and
a third class, consisting of Richard W. Culbertson, Jr. and Ronald L. Woods, has
a term of office expiring at the third annual meeting of stockholders.
Information concerning the principal occupations, employment and other
information concerning the directors and officers of the Company during the past
five years is set forth under "Management of the Association."
EXECUTIVE OFFICERS OF THE COMPANY
The following individuals are the executive officers of the Company and
hold the offices set forth below opposite their names.
<TABLE>
<CAPTION>
EXECUTIVE POSITION(S) HELD WITH COMPANY
- --------- -----------------------------
<S> <C>
Robert J. Colacicco President and Chief Executive Officer
Gregory M. DiPaolo Executive Vice President, Treasurer and Chief Operating Officer
Joseph M. Sidebotham Corporate Secretary and Chief Accounting Officer
</TABLE>
The executive officers of the Company are elected annually and hold office
until their respective successors have been elected and qualified or until
death, resignation or removal at the discretion of the Board of Directors.
41
<PAGE>
MANAGEMENT OF THE ASSOCIATION
DIRECTORS OF THE ASSOCIATION
The following table sets forth information regarding the Board of Directors
of the Association.
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AGE(1) POSITION(S) HELD WITH THE ASSOCIATION SINCE EXPIRES
- ---- ------ ------------------------------------- -------- ---------
<S> <C> <C> <C> <C>
Arthur E. Armitage, Jr. 78 Director 1969 2002
Robert J. Colacicco 64 Director, President and Chief Executive Officer 1976 2000
Richard W. Culbertson, Jr. 54 Director and Chairman of the Board 1992 2001
Gregory M. DiPaolo 50 Director, Executive Vice President, Treasurer and Chief 1982 2002
Operating Officer
John V. Field 54 Director 1998 2002
Richard G. Mohrfeld 53 Director 1983 2000
Martin Rosner 91 Director 1943 2000
Ronald L. Woods 40 Director 1998 2001
</TABLE>
___________________
(1) As of December 31, 1998.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following table sets forth information regarding the executive officers
of the Association who are not also directors.
<TABLE>
<CAPTION>
NAME AGE (1) POSITION(S) HELD WITH ASSOCIATION
- ---- ------- -------------------------------------
<S> <C> <C>
Jane E. Brode 49 Senior Vice President - Savings
Joseph M. Sidebotham 43 Senior Vice President and Controller
Paul D. Wampler 39 Senior Vice President - Lending
</TABLE>
___________________
(1) As of December 31, 1998.
Each of the executive officers of the Association will retain his/her
office until their re-election at the annual meeting of the Board of Directors
of the Association and until their successors are elected and qualified or until
they are removed or replaced. Officers are subject to re-election by the Board
of Directors annually.
BIOGRAPHICAL INFORMATION
DIRECTORS
Arthur E. Armitage, Jr. is the former President and owner of Arthur E.
Armitage Agency, Inc., a general insurance firm. He has been a member of the
Association's Board of Directors since 1969 and served as Chairman of the Board
from 1995 to July, 1998.
Robert J. Colacicco has been employed with the Association since 1967 and
has served as President and Chief Executive Officer of the Association since
1971. Mr. Colacicco has been a member of the Board of Directors since 1976.
Richard W. Culbertson, Jr. is a certified public accountant and a partner
in the firm of Bowman & Company LLP, Voorhees, New Jersey. Mr. Culbertson has
been a member of the Board of Directors since 1992 and has served a Chairman of
the Board since July, 1998.
42
<PAGE>
Gregory M. DiPaolo is Executive Vice President, Treasurer and Chief
Operating Officer of the Association. Mr. DiPaolo has been employed by the
Association since 1973 and has been a member of the Board of Directors since
1982.
John V. Field has been a practicing attorney for the past 29 years. He is
sole shareholder in the firm of John V. Field, PA. In 1977, Mr. Field became
General Counsel of the Association. Mr. Field has been a director of the
Association since May, 1998.
Richard G. Mohrfeld is President of Mohrfeld, Inc., a heating oil
distributor located in Collingswood, New Jersey. Mr. Mohrfeld has been a member
of the Board of Directors since 1983.
Martin Rosner has served on the Association's Board of Directors since
1943. Mr. Rosner is a former retailer in Collingswood, New Jersey. Mr. Rosner
is now retired.
Ronald L. Woods is a representative of Lenny, Vermaat and Leonard, a real
estate brokerage firm located in Haddonfield, New Jersey. Mr. Woods has been a
member of the Board of Directors since May, 1998.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Jane E. Brode joined the Association in 1972 and has served in various
positions since that time. In 1992, Ms. Brode became Senior Vice President.
Ms. Brode is responsible for the Association's retail savings department.
Joseph M. Sidebotham joined the Association in 1979 and has been Controller
since 1980. In 1992, Mr. Sidebotham was promoted to Senior Vice President. Mr.
Sidebotham is responsible for regulatory reporting, monitoring investments, MIS
and the accounting and internal auditing functions of the Association.
Paul D. Wampler joined the Association in 1997 and is Senior Vice
President. Mr. Wampler is the Association's Chief Lending Officer and oversees
all mortgage and consumer lending activities.
ITEM 10. EXECUTIVE COMPENSATION.
- -------------------------------
DIRECTOR COMPENSATION OF THE ASSOCIATION AND THE COMPANY
All non-employee directors of the Association receive an annual retainer of
$7,000 a year, except that the Chairman of the Board receives an annual retainer
of $8,000. All non-employee directors of the Association also receive $450 for
each Board meeting attended and $200 for each Committee meeting attended. Non-
employee directors of the Company receive an annual retainer of $3,500 and do
not receive additional fees for meetings of the Board of Directors of the
Company.
43
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the cash
compensation paid by the Association for services rendered in all capacities
during the years ended December 31, 1998 and 1997, to the Chief Executive
Officer and to executive officers of the Association who received salary and
bonus in excess of $100,000 ("Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION/(2)/
-----------------------------------
ANNUAL COMPENSATION/(1)/ AWARDS PAYOUTS
------------------------------------ ------------------------- ---------
OTHER RESTRICTED SECURITIES
NAME AND FISCAL ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION/(2)/ AWARDS OPTIONS/SARS PAYOUTS COMPENSATION/(3)/
- ------------------- -------- -------- ------- ----------------- ---------- ------------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert J. Colacicco 1998 $170,435 $31,044 -- -- -- -- $39,821
President and Chief 1997 $141,107 $29,529 -- -- -- -- $38,275
Executive Officer 1996 $139,385 $28,120 -- -- -- -- $31,846
Gregory M. DiPaolo
Executive Vice President, 1998 $142,730 $25,982 -- -- -- -- $25,729
Treasurer and 1997 $118,102 $24,733 -- -- -- -- $24,937
Chief Operating Officer 1996 $116,748 $23,324 -- -- -- -- $22,588
</TABLE>
_______________________
(1) Under Annual Compensation, the column titled "Bonus" consists of Board
approved discretionary bonus.
(2) For 1998, there were no (a) perquisites over the lesser of $50,000 or 10%
of the individual's total salary and bonus for the year; (b) payments of
above-market preferential earnings on deferred compensation; (c) payments
of earnings with respect to long-term incentive plans prior to settlement
or maturation; (d) tax payment reimbursements; or (e) preferential
discounts on stock. For 1998, the Association had no restricted stock or
stock related plans in existence.
(3) Other compensation consists of employer contributions of $26,992 and
$24,577, to the Association's money purchase pension plan on behalf of
Messrs. Colacicco and DiPaolo, respectively, and $10,723 credited by the
Association on behalf of Mr. Colacicco to the Association's non-qualified
deferred compensation plan. Also includes the value of life insurance
premiums of $2,106 and $1,152 paid by the Association on behalf of
Messrs. Colacicco and DiPaolo, respectively.
44
<PAGE>
EMPLOYMENT AGREEMENTS
Effective as of the consummation of the Conversion, the Association entered
into employment agreements (collectively, the "Association Employment
Agreements") with Messrs. Colacicco, DiPaolo, Sidebotham and Wampler and Ms.
Brode, and the Company entered into employment agreements with Messrs.
Colacicco, DiPaolo and Sidebotham (collectively, the "Company Employment
Agreements") (individually, the "Executive" and, collectively, the
"Executives"). The employment agreements were subject to the review and
approval of the OTS. Review of compensation arrangements by the OTS does not
indicate, and should not be construed to indicate, that the OTS has passed upon
the merits of such arrangements. The employment agreements are intended to
ensure that the Association and the Company will be able to maintain a stable
and competent management base after the Conversion. The continued success of
the Association and the Company depends to a significant degree on the skills
and competence of the Executives.
The Association Employment Agreements provide for a three-year term for
Messrs. Colacicco and DiPaolo and a two-year term for Messrs. Sidebotham and
Wampler and Ms. Brode. The Association Employment Agreements provide that
commencing on the first anniversary date and continuing each anniversary date
thereafter the Board of Directors may extend the agreement for an additional
year so that the remaining term shall be three years, in the case of Messrs.
Colacicco and DiPaolo, and two years, in the case of Messrs. Sidebotham and
Wampler and Ms. Brode, unless written notice of non-renewal is given by the
Board of Directors after conducting a performance evaluation of the Executive.
The Company Employment Agreements provide for a three-year term for Messrs.
Colacicco and DiPaolo and a two-year term for Mr. Sidebotham. The terms of the
Company Employment Agreements shall be extended on a daily basis, unless written
notice of non-renewal is given by the Board of the Company. The Association and
Company Employment Agreements provide that the Executive's base salary will be
reviewed annually. The base salaries which will be effective for such
employment agreements for Messrs. Colacicco, DiPaolo, Sidebotham and Wampler
and Ms. Brode will be $170,430, $142,731, $87,403, $86,256 and $94,316,
respectively. In addition to the base salary, the employment agreements provide
for, among other things, participation in various employee benefit plans and
stock-based compensation programs, as well as furnishing fringe benefits
available to similarly situated executive personnel. The employment agreements
provide for termination by the Association or the Company for cause (as defined
in the agreements) at any time. In the event the Association or the Company
chooses to terminate the Executive's employment for reasons other than for cause
or, in the event of the Executive's resignation from the Association and the
Company upon: (i) failure to re-elect the Executive to his current offices;
(ii) a material change in the Executive's functions, duties or responsibilities;
(iii) a relocation of the Executive's principal place of employment by more than
25 miles; (iv) liquidation or dissolution of the Association or the Company; or
(v) a breach of the Employment Agreements by the Association or the Company, the
Executive or, in the event of death, the Executive's beneficiary would be
entitled to receive an amount generally equal to the remaining base salary and
bonus payments that would have been paid to the Executive during the remaining
term of the employment agreements. In addition, the Executive would receive a
payment attributable to the contribution that would have been made on the
Executive's behalf to any employee benefit plans of the Association or the
Company during the remaining term of the employment agreements, together with
the value of stock-based incentives previously awarded to the Executive. The
Association and the Company would also continue and pay for the Executive's
life, health and disability coverage for the remaining term of the employment
agreement. Upon any termination of the Executive, the Executive is subject to a
covenant not to compete with the Company or the Association for one year.
Under the agreements, if involuntary termination or voluntary termination
follows a change in control of the Association or the Company, the Executive or,
in the event of the Executive's death, the Executive's beneficiary, would
receive a severance payment generally equal to the greater of: (i) the payments
due for the remaining terms of the agreement, including the value of stock-based
incentives previously awarded to the Executive; or (ii) three times the average
of the five preceding taxable years' annual compensation. The Association and
the Company would also continue the Executive's life, health, and disability
coverage for thirty-six months, in the case of Messrs. Colacicco and DiPaolo,
and twenty-four months in the case of Messrs. Sidebotham and Wampler and Ms.
Brode. Notwithstanding that both agreements provide for a severance payment in
the event of a change in control, the Executive may receive a severance payment
under only one agreement. In the event of a change in control of the Association
or Company,
45
<PAGE>
the total amount of payments due under the Employment Agreements, based solely
on the base salaries paid to the Executives, and excluding any benefits under
any employee benefit plan which may otherwise become payable, would equal
approximately $1.7 million.
Payments to the Executive under the Association Employment Agreements are
guaranteed by the Company in the event that payments or benefits are not paid by
the Association. Payment under the Company Employment Agreements would be made
by the Company. All reasonable costs and legal fees paid or incurred by the
Executive pursuant to any dispute or question of interpretation relating to the
employment agreements will be paid by the Company, if the Executive is
successful on the merits pursuant to a legal judgment, arbitration or
settlement. The employment agreements also provide that the Association and
Company shall indemnify the Executive to the fullest extent allowable under
federal, New Jersey and Delaware law, respectively.
CHANGE IN CONTROL AGREEMENTS
Effective as of the consummation of the Conversion, the Association entered
into two-year Change in Control Agreements with six employees of the Association
and a one-year Change in Control Agreement with one employee of the Association
(the "CIC Agreements"), none of whom are covered by an employment agreement.
Commencing on the first anniversary date and continuing on each anniversary
thereafter, the CIC Agreements may be renewed by the Board of Directors of the
Association for an additional year. The CIC Agreements provide that in the
event involuntary termination or, under certain circumstances, voluntary
termination follows a change in control of the Association or the Company, the
covered employee would be entitled to receive a severance payment equal to
either one or two times the covered employee's average annual compensation for
the five most recent taxable years preceding termination, depending on the
particular agreement. The Association would also continue and pay for the
covered employee's life, health and disability coverage for 24 months under the
two-year CIC Agreements and 12 months under the one-year CIC Agreement following
termination. Payments to the covered employee under the CIC Agreements are
guaranteed by the Company in the event that payments or benefits are not paid by
the Association. In the event of a change in control of the Association or
Company, the total payments that would be due under the CIC Agreements, based
solely on the current annual compensation paid to the seven employees covered by
the CIC Agreements and excluding any benefits under any employee benefit plan
which may be payable, would be approximately $542,000.
EMPLOYEE SEVERANCE COMPENSATION PLAN
Upon regulatory approval, the Association's Board of Directors intends to
establish the South Jersey Savings and Loan Association Employee Severance
Compensation Plan (the "Severance Plan") which will provide eligible employees
with severance pay benefits in the event of a change in control of the
Association or the Company. Management personnel with employment agreements or
change in control agreements will not participate in the Severance Plan.
Generally, all full-time employees are eligible to participate in the Severance
Plan if they have completed at least one year of service with the Association.
Under the Severance Plan, in the event of a change in control of the Association
or the Company, eligible employees who terminate employment within one year of
the change in control (for reasons specified under the Severance Plan), will
receive a severance payment equal to one-twelfth of their current annual
compensation for each year of service completed with the Association, up to a
maximum of 199% of their current annual compensation. In the event the
provisions of the Severance Plan were triggered, the total amount of payments
that would be due thereunder, based solely upon current salary levels, would
equal approximately $696,000.
INSURANCE PLANS
The Association makes available to all full-time employees medical plan
benefits, life and accidental death insurance, long term disability insurance
and travel insurance.
46
<PAGE>
OTHER BENEFIT PLANS
PENSION PLAN. The Association sponsors the South Jersey Savings and Loan
Association Money Purchase Pension Plan (the "Pension Plan"). Generally,
employees of the Association become members of the Pension Plan upon the
completion of two years of service with the Association (as described in the
plan document) and the attainment of age twenty-one. The Association makes
annual contributions to the Association sufficient to fund retirement benefits
for participant's employees, as determined in accordance with a formula set
forth in the plan document. Specifically, the Pension Plan currently provides
that, subject to applicable limitations, the Association will make annual
contributions to the plan on behalf of each participant equal to 5.7% of the
participant's compensation in excess of the social security taxable wage base
(as described in the plan documents) and 13.5% of the participant's compensation
without regard to the social security taxable wage base. Participants are
always fully vested in benefits allocated to their accounts under the Pension
Plan. In general, benefits allocated to participant's accounts under the
Pension Plan, plus earnings thereon become distributable in the event of the
death, attainment of normal retirement age (as described in the plan document),
or termination of employment.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. The Association has established a
tax-qualified employee stock ownership plan (the "ESOP") in connection with the
Conversion. Generally, employees become participants in the ESOP upon the
completion of two years of service with the Association (with credit given for
service with the Association prior to adoption of the plan) and attainment of
age 21. With the consent of the Association, an affiliate of the Association
may also adopt the ESOP for the benefit of its employees.
The Association has established a committee of the Board of Directors to
serve as the administrative committee of the ESOP (the ''ESOP Committee''). The
ESOP Committee has appointed an unrelated corporate trustee for the ESOP. Among
other matters, the ESOP Committee may generally instruct the trustee regarding
the investment of funds contributed to the ESOP, subject to the terms of the
plan document and the trust agreement. The ESOP purchased 8% of the Common
Stock sold in the Conversion and issued to the Foundation in the Conversion, or
303,474 shares. In order to fund the ESOP's purchase of the Common Stock, the
ESOP borrowed 100% of the aggregate purchase price of the Common Stock from the
Company.
Participants will always be fully vested in amounts allocated to their
accounts under the ESOP. Benefits will generally become distributable under the
ESOP, and potentially become subject to income tax, upon a participant's death
or other separation from service.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Code limits the amount of
compensation the Association may consider in providing benefits under its tax-
qualified retirement plans, such as the Pension Plan and the ESOP. The Code
further limits the amount of contributions and benefit accruals under such plans
on behalf of any employee. To provide benefits to make up for the reduction in
benefits flowing from these limits in connection with the Pension Plan, the
Association has adopted a non-qualified deferred compensation arrangement,
sometimes referred to as a "Supplemental Executive Retirement Plan" ("SERP").
In connection with the Conversion, the Association amended the deferral
compensation plan to provide for benefits related to the ESOP. The SERP will
generally provide benefits to eligible individuals (designated by the Board of
Directors of the Association or its affiliates) that cannot be provided under
the Pension Plan and/or ESOP as a result of the limitations imposed by the Code,
but that would have been provided under the Pension Plan and/or ESOP but for
such limitations. In addition to providing for benefits lost under tax-
qualified plans as a result of limitations imposed by the Code, the SERP will
also make up lost ESOP benefits to designated individuals who retire, who
terminate employment in connection with a change in control, or whose
participation in the ESOP ends due to termination of the ESOP in connection with
a change in control (regardless of whether the individual terminates employment)
prior to the complete scheduled repayment of the ESOP loan. Generally, upon the
retirement of an eligible individual or upon a change in control of the
Association or the Company prior to complete repayment of the ESOP Loan, the
SERP will provide the individual with a benefit equal to what the individual
would have received under the ESOP had he remained employed throughout the term
of the ESOP or had the ESOP not been terminated prior to the scheduled repayment
of the ESOP loan. An individual's benefits under the SERP will become payable
upon the participant's retirement (in accordance with the standard retirement
policies of the
47
<PAGE>
Association), upon the change in control of the Association or the Company, or
as determined under the ESOP and Pension Plan.
STOCK-BASED INCENTIVE PLAN. The Board of Directors of the Company intends
to adopt a stock-based incentive plan (the "Stock-Based Incentive Plan") which
will provide for the granting of options to purchase Common Stock ("Stock
Options") and the award of restricted shares of Common Stock ("Stock Awards") to
eligible officers, employees, and directors of the Company and Association. The
plan may also provide for certain rights related to the grant of Stock Options
and Stock Awards. The Company may provide such stock-based benefits under the
Stock-Based Incentive Plan or may establish one or more separate plans to
provide for the benefits described in the following paragraphs.
In the event the Company adopts the Stock-Based Incentive Plan (or any
separate plan(s)) within one year after the Conversion, OTS regulations require
a majority of the Company's stockholders to approve the plan at a meeting of
stockholders held no earlier than six months after the completion of the
Conversion. Under the Stock-Based Incentive Plan, the Company intends to grant
Stock Options in an amount up to 10% of the shares of Common Stock sold in the
Conversion and issued to the Foundation (379,343 shares) and intends to grant
Stock Awards in an amount up to 4% of the shares of Common Stock sold in the
Conversion and issued to the Foundation (151,737 shares). Any Common Stock
awarded under the Stock-Based Incentive Plan (Stock Awards) will be awarded at
no cost to the recipients. The Company may fund the plan through the purchase
of Common Stock by a trust established in connection with the Stock-Based
Incentive Plan (or any separate plan(s)) or from authorized but unissued shares.
The Board of Directors of the Company intends to appoint an independent
fiduciary to serve as trustee of any trust established in connection with the
Stock-Based Incentive Plan. In the event that additional authorized but
unissued shares are acquired by the Stock-Based Incentive Plan or its
participants after the Conversion, the interests of existing shareholders would
be diluted.
The grants of Stock Options and Stock Awards will be designed to attract
and retain qualified personnel in key positions, provide officers and key
employees with a propriety interest in the Company as an incentive to contribute
to the success of the Company, and reward employees for outstanding performance.
All employees of the Company and its subsidiaries, including the Association,
will be eligible to participate in the Stock-Based Incentive Plan. The
committee administering the plan will determine the terms of awards granted to
officers and employees. The committee will also determine whether Stock Options
will qualify as Incentive Stock Options or Non-Statutory Stock Options, as
described below, the number of shares subject to each Stock Option and Stock
Award, the exercise price of each Stock Option, the method of exercising Stock
Options, and the time when Stock Options become exercisable or Stock Awards
vest. Only employees may receive grants of Incentive Stock Options. Therefore,
under the Stock-Based Incentive Plan, outside directors may receive only grants
of Non-Statutory Stock Options. If the Company adopts the Stock-Based Incentive
Plan within one year after conversion, OTS regulations provide that no
individual officer or employee of the Association may receive more than 25% of
the Stock Options available under the Stock-Based Incentive Plan (or any
separate plan for officers and employees) and non-employee directors may not
receive more than 5% individually, or 30% in the aggregate, of the Stock Options
available under the Stock-Based Incentive Plan (or any separate plan for
directors). OTS regulations also provide that no individual officer or employee
of the Association may receive more than 25% of the restricted stock awards
available under the Stock-Based Incentive Plan (or any separate plan for
officers and employees) and non-employee directors may not receive more than 5%
individually, or 30% in the aggregate, of the restricted stock awards available
under the Stock-Based Incentive Plan (or any separate plan for outside
directors).
The Stock-Based Incentive Plan will provide for the grant of: (i) Stock
Options intended to qualify as Incentive Stock Options under Section 422 of the
Code ("Incentive Stock Options") and (ii) Stock Options that do not so qualify
("Non-Statutory Stock Options"). The plan may also provide for certain limited
rights that become exercisable only upon a change in control of the Association
or the Company ("limited rights"). Unless sooner terminated, the Stock-Based
Incentive Plan will remain in effect for a period of ten years from the earlier
of adoption by the Board of Directors of the Company or approval by the
Company's stockholders. Subject to stockholder approval, the Company anticipates
granting Stock Options under the plan at an exercise price equal to at least the
fair market value of the underlying Common Stock on the date of grant.
48
<PAGE>
An individual generally will not recognize taxable income upon the grant of
a Non-Statutory Stock Option or Incentive Stock Option or upon the exercise of
an Incentive Stock Option, provided the individual does not dispose of the
shares received through the exercise of the Incentive Stock Option for at least
one year after the date the individual receives the shares in connection with
the option exercise and two years after the date of grant of the Stock Option (a
"disqualifying disposition"). No compensation deduction will generally be
available to the Company as a result of the exercise of Incentive Stock Options
unless there has been a disqualifying disposition. In the case of a Non-
Statutory Stock Option and in the case of a disqualifying disposition of shares
received in connection with the exercise of an Incentive Stock Option, an
individual will recognize ordinary income upon exercise of the Stock Option (or
upon the disqualifying disposition) in an amount equal to the amount by which
the fair market value of the Common Stock exceeds the exercise price of the
Stock Option. The amount of any ordinary income recognized by an optionee upon
the exercise of a Non-Statutory Stock Option or due to a disqualifying
disposition will be a deductible expense to the Company for tax purposes. In
the case of limited rights, the holder will recognize any amount paid to him or
her upon exercise in the year in which the payment is made and the Company will
be entitled to a deduction for federal income tax purposes of the amount paid.
The Stock-Based Incentive Plan will provide for the granting of Stock
Awards and, possibly, related limited rights. Limited rights would be
exercisable only in connection with a change in control of the Company or
Association. Subject to OTS regulations, upon the exercise of a limited right,
the recipient would receive a cash payment equal to the fair market value of
Stock Awards in exchange for any rights to such Stock Awards. Grants of Stock
Awards may be made in the form of base grants and/or performance grants (the
vesting of which would be contingent upon performance goals established by the
committee administering the plan). In establishing any performance goals, the
committee may utilize the annual financial results of the Company, actual
performance of the Company as compared to targeted goals such as the ratio of
the Association's net worth to total assets, the Company's return on average
assets, or such other performance standards as determined by the committee with
the approval of the Board of Directors of the Company.
When a participant becomes vested with respect to Stock Award, the
participant will recognize ordinary income equal to the fair market value of the
Common Stock at the time of vesting (unless the participant made an election
pursuant to Section 83(b) of the Code). The amount of income recognized by the
participant will be a deductible expense for tax purposes for the Company. When
restricted Stock Awards become vested and shares of Common Stock are actually
distributed to participants, the participants receive amounts equal to any
accrued dividends with respect thereto, if not earlier received. Prior to
vesting, recipients of Stock Awards may direct the voting of the shares awarded
to them. Shares not subject to grants and shares allocated subject to the
achievement of performance goals will be voted by the trustee in proportion to
the directions provided with respect to shares subject to grants. Vested shares
will be distributed to recipients as soon as practicable following the day on
which they vest.
The vesting periods for awards under the Stock-Based Incentive Plan will be
determined by the committee administering the Plan. If the Company adopts the
Stock-Based Incentive Plan (or any separate plans for employees and directors)
within one year after conversion, awards would become vested and exercisable
subject to applicable OTS regulations, which such regulations require that any
awards begin vesting no earlier than one year from the date of shareholder
approval of the plan and, thereafter, vest at a rate of no more than 20% per
year and may not be accelerated except in the case of death or disability.
Stock Options could be exercisable for a period of time (likely three months)
following the date on which the employee or director ceases to perform services
for the Association or the Company, except that in the event of death or
disability, options accelerate and become fully vested and could be exercisable
for up to one year thereafter or such other period of time as determined by the
Company. In the case of death or disability, Stock Options may be exercised for
a period of 12 months or such other period of time as determined by the
committee. However, any Incentive Stock Options exercised more than three months
following the date the employee ceases to perform services as an employee would
be treated essentially as a Non-Statutory Stock Option. In the event of
retirement, if the optionee continues to perform services as a director or
consultant on behalf of the Association, the Company or an affiliate, unvested
options and awards would continue to vest in accordance with their original
vesting schedule until the optionee ceases to serve as a consultant or director.
In the event of death, disability or normal retirement, the Company, if
requested by the optionee, or the optionee's beneficiary, could elect, in
exchange for vested
49
<PAGE>
options, to pay the optionee, or the optionee's beneficiary in the event of
death, the amount by which the fair market value of the Common Stock exceeds the
exercise price of the options on the date of the employee's termination of
employment.
Subject to any applicable regulatory requirements, the Stock-Based
Incentive Plan (or any separate plans for employees and outside directors) may
be amended subsequent to the expiration of the one-year period to provide for
accelerated vesting of previously granted Stock Options or Stock Awards in the
event of a change in control of the Company or the Association. A change in
control would generally be considered to occur when a person or group of persons
acting in concert acquires beneficial ownership of 20% or more of any class of
equity security of the Company or the Association or in the event of a tender or
exchange offer, merger or other form of business combination, sale of all or
substantially all of the assets of the Company or the Association or contested
election of directors which resulted in the replacement of a majority of the
Board of Directors by persons not nominated by the directors in office prior to
the contested election.
50
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------------------------------------------------------------------------
SECURITY OWNERSHIP OF BENEFICIAL OWNERS. The following table sets forth
information as to those persons believed by management to be beneficial owners
of more than 5% of the Company's outstanding shares of Common Stock as of March
31, 1999 or as disclosed in certain reports received to date regarding such
ownership filed by such persons with the Company and with the SEC, in accordance
with Sections 13(d) and 13(g) of the Exchange Act. Other than those persons
listed below, the Company is not aware of any person, as such term is defined in
the Exchange Act, that owns more than 5% of the Company's Common Stock as of
March 31, 1999.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
TITLE OF CLASS BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
- -------------------- ----------------------------------------------- ---------------- ----------------
<S> <C> <C> <C>
Common Stock South Jersey Savings and Loan Association 303,474(1) 8.0%
Employee Stock Ownership Plan
4651 Route 42
Turnersville, New Jersey 08012
Common Stock The South Jersey Savings Charitable Foundation 280,995(2) 7.4%
4651 Route 42
Turnersville, New Jersey 08012
</TABLE>
(1) Shares of Common Stock were acquired by the ESOP in the Association's
conversion. The ESOP Committee administers the ESOP. First Bankers Trust
Company, N.A. has been appointed as the corporate trustee for the ESOP
("ESOP Trustee"). The ESOP Trustee, subject to its fiduciary duty, must
vote all allocated shares held in the ESOP in accordance with the
instructions of the participants. As of March 31, 1999, no shares have been
allocated to ESOP participants' accounts. Under the ESOP, unallocated
shares held in a suspense account will be voted by the ESOP Trustee in a
manner calculated to most accurately reflect the instructions received from
participants regarding the allocated stock so long as such vote is in
accordance with the provisions of ERISA.
(2) The Foundation was established and funded by the Company in connection with
the Association's Conversion with an amount of the Company's Common Stock
equal to 8.0% of the total amount of Common Stock sold in the Conversion.
The Foundation is a Delaware non-stock corporation and is dedicated to the
promotion of charitable purposes within the communities in which the
Association operates. The Foundation is governed by a board of directors
with four members, three of whom are directors or officers of the Company
or the Association. Pursuant to the terms of the contribution of Common
Stock, as mandated by the OTS, all shares of Common Stock held by the
Foundation must be voted in the same ratio as all other shares of the
Company's Common Stock on all proposals considered by shareholders of the
Company.
51
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth the
number of shares of Common Stock beneficially owned by the Company's and
Association's officers and directors. The table also sets forth the beneficial
ownership of Common Stock as to all directors and officers as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
TITLE OF CLASS NAME SHARES CLASS
- -------------- ----------------------------- ----------- ------------
<S> <C> <C> <C>
Common Stock Arthur E. Armitage, Jr. 10,000 0.26%
Common Stock Robert J. Colacicco 10,000 0.26
Common Stock Richard W. Culbertston, Jr. 5,000 0.13
Common Stock Gregory M. DiPaolo 20,000 0.52
Common Stock John V. Field 20,000 0.52
Common Stock Richard G. Mohrfeld 5,000 0.13
Common Stock Martin Rosner 1,000 0.03
Common Stock Ronald L. Woods 27,400 0.72
Common Stock Jane E. Brode 10,000 0.26
Common Stock Joseph M. Sidebotham 6,000 0.16
Common Stock Paul D. Wampler 2,500 0.07
------- ----
Common Stock All Directors and Executive
Officers as a Group (11
persons) 116,900 3.08%
======= ====
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
Federal regulations require that all loans or extensions of credit to
executive officers and directors must be made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with the general public and must not involve more than
the normal risk of repayment or present other unfavorable features. In
addition, loans made to a director or executive officer in excess of the greater
of $25,000 or 5% of the Association's capital and surplus (up to a maximum of
$500,000) must be approved in advance by a majority of the disinterested members
of the Board of Directors.
The Association currently makes loans to its executive officers and
directors on the same terms and conditions offered to the general public. The
Association's policy provides that all loans made by the Association to its
executive officers and directors be made in the ordinary course of business, on
substantially the same terms, including collateral, as those prevailing at the
time for comparable transactions with other persons and may not involve more
than the normal risk of collectibility or present other unfavorable features.
As of December 31, 1998, one of the Association's directors, Mr. Mohrfeld, had a
residential first mortgage loan with the Association which had an outstanding
balance totaling $211,000. Such loan was made by the Association in the
ordinary course of business, with no favorable terms and such loan does not
involve more than the normal risk of collectibility or present unfavorable
features.
The Company intends that all transactions in the future between the Company
and its executive officers, directors, holders of 10% or more of the shares of
any class of its common stock and affiliates thereof, will contain terms no less
favorable to the Company than could have been obtained by it in arm's length
negotiations with unaffiliated persons and will be approved by a majority of
independent outside directors of the Company not having any interest in the
transaction.
OTHER TRANSACTIONS WITH AFFILIATES
The Company and the Association utilize the services of the law offices of
John V. Field, PA, of which Mr. Field, a director of the Company and the
Association, is the sole shareholder, for a variety of legal work relating to
the
52
<PAGE>
ordinary course of the Company's and Association's business. During 1998, the
Company and the Bank made payments to Mr. Field's firm for legal services
totalling $21,000.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
- ------------------------------------------
(A) THE FOLLOWING EXHIBITS ARE FILED AS A PART OF THIS REPORT:
Exhibit
Number
------
2.1 Amended Plan of Conversion of South Jersey Savings and Loan
Association (1)
3.1 Certificate of Incorporation of South Jersey Financial Corporation,
Inc. (1)
3.2 By-Laws of South Jersey Financial Corporation, Inc. (1)
4.0 Stock Certificate of South Jersey Financial Corporation, Inc. (1)
10.1 South Jersey Savings and Loan Association Employee Stock Ownership
Plan Trust (1)
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents (1)
10.3 Employment Agreement between South Jersey Savings and Loan
Association and Robert J. Colacicco
10.4 Employment Agreement between South Jersey Savings and Loan
Association and Gregory M. DiPaolo
10.5 Employment Agreement between South Jersey Savings and Loan
Association and Joseph M. Sidebotham
10.6 Employment Agreement between South Jersey Savings and Loan
Association and Jane E. Brode
10.7 Employment Agreement between South Jersey Savings and Loan
Association and Paul D. Wampler
10.8 Employment Agreement between South Jersey Financial Corporation,
Inc. and Robert J. Colacicco
10.9 Employment Agreement between South Jersey Financial Corporation,
Inc. and Gregory M. DiPaolo
10.10 Employment Agreement between South Jersey Financial Corporation,
Inc. and Joseph M. Sidebotham
10.11 Form of Change in Control Agreement between South Jersey
Savings and Loan Association and certain individuals (1)
10.12 Form of South Jersey Savings and Loan Association Supplemental
Executive Retirement Plan (1)
10.13 Form of South Jersey Savings and Loan Association Employee
Severance Compensation Plan (1)
11.0 Statement re: Computation of Per Share Earnings (2)
27.0 Financial Data Schedule
99.0 Return on Equity and Asset Ratios
__________________________
(1) Incorporated by reference into this document from the Exhibits filed
with the Registration Statement on Form SB-2, and any amendments
thereto, Registration No. 333-65519.
(2) Not applicable as the Company did not have earnings in 1998.
(B) REPORTS ON FORM 8-K.
None.
53
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
South Jersey Financial Corporation, Inc.
By: /s/ Robert J. Colacicco Date: March 30, 1999
-------------------------------
Robert J. Colacicco
President, Chief Executive Officer and Director
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Robert J. Colacicco President, Chief Executive March 30, 1999
- -------------------------------------
Robert J. Colacicco Officer and Director
(principal executive
officer)
/s/ Gregory M. DiPaolo Executive Vice President, March 30, 1999
- -------------------------------------
Gregory M. DiPaolo Treasurer, Chief Operating
Officer and Director (principal
financial officer)
/s/ Joseph M. Sidebotham Corporate Secretary and March 30, 1999
- -------------------------------------
Joseph M. Sidebotham Chief Accounting Officer
(principal accounting officer)
/s/ Richard W. Culbertson, Jr. Director and Chairman of March 30, 1999
- -----------------------------------------
Richard W. Culbertson, Jr. the Board
/s/ Arthur E. Armitage, Jr. Director March 30, 1999
- -----------------------------------------
Arthur E. Armitage, Jr.
/s/ John V. Field Director March 30, 1999
- -----------------------------------------
John V. Field
/s/ Richard G. Mohrfeld Director March 30, 1999
- -----------------------------------------
Richard G. Mohrfeld
/s/ Martin Rosner Director March 30, 1999
- -----------------------------------------
Martin Rosner
/s/ Ronald L. Woods Director March 30, 1999
- -----------------------------------------
Ronald L. Woods
</TABLE>
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT BETWEEN SOUTH JERSEY SAVINGS
AND LOAN ASSOCIATION AND ROBERT J. COLACICCO
<PAGE>
Exhibit 10.3
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of February 12, 1999, by
and among South Jersey Savings and Loan Association (the "Association"), a New
Jersey State-chartered savings and loan association, with its principal
administrative office at 4651 Route 42, Turnersville, New Jersey 08012-1708,
South Jersey Financial Corporation, Inc. a corporation organized under the laws
of the State of Delaware, the holding company for the Association (the "Holding
Company"), and Robert J. Colacicco ("Executive").
WHEREAS, the Association wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Association on
a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
President and Chief Executive Officer of the Association. Executive shall
render administrative and management services to the Association such as are
customarily performed by persons situated in a similar executive capacity.
During said period, Executive also agrees to serve, if elected, as an officer
and director of the Holding Company or any subsidiary of the Association.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the first anniversary date of this Agreement, and continuing on each anniversary
thereafter, the disinterested members of the board of directors of the
Association ("Board") may extend the Agreement an additional year such that the
remaining term of the Agreement shall be three (3) years unless the Executive
elects not to extend the term of this Agreement by giving written notice in
accordance with Section 8 of this Agreement. The Board will review the
Agreement and Executive's performance annually for purposes of determining
whether to extend the Agreement and the rationale and results thereof shall be
included in the minutes of the Board's meeting. The Board shall give notice to
the Executive as soon as possible after such review as to whether the Agreement
is to be extended.
<PAGE>
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Association and participation in community and
civic organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Association, or materially
affect the performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's employment
with the Association may be terminated by the Association's board of directors
or the Executive during the term of this Agreement, subject to the terms and
conditions of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Association shall pay Executive as compensation a salary of
$170,435 per year ("Base Salary"). Base Salary shall include any amounts of
compensation deferred by Executive under any tax-qualified retirement or welfare
benefit plan or any other deferred compensation arrangement maintained by the
Association. Such Base Salary shall be payable bi-weekly. During the period of
this Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or by a Committee of the
Board, delegated such responsibility by the Board. The Committee or the Board
may increase Executive's Base Salary. Any increase in Base Salary shall become
the "Base Salary" for purposes of this Agreement. In addition to the Base
Salary provided in this Section 3(a), the Association shall also provide
Executive, at no premium cost to Executive, with all such other benefits as are
provided uniformly to permanent full-time employees of the Association. In
addition, Executive shall be entitled to incentive compensation and bonuses as
provided in any plan or arrangement of the Association in which Executive is
eligible to participate.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Association will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder; except to the extent such changes are made
applicable to all Association employees on a non-discriminatory basis. Without
limiting the generality of the foregoing provisions of this Subsection (b),
Executive shall be entitled to participate in or receive benefits under all
plans relating to stock options, restricted stock awards, stock purchases,
pension, thrift, supplemental retirement, profit-sharing, employee stock
ownership, group life insurance, medical and other health and welfare coverage,
education, cash or stock bonuses that are now or hereafter made available by the
Association in the future to its senior executives and
-2-
<PAGE>
key management employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements. Nothing
paid to the Executive under any such plan or arrangement will be deemed to be in
lieu of other compensation to which the Executive is entitled under this
Agreement.
(c) The Association shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing his
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Association of Executive's full-time employment hereunder for
any reason other than a termination governed by Section 5(a) hereof, or
Termination for Cause, as defined in Section 7 hereof; (ii) Executive's
resignation from the Association's employ upon any (A) failure to elect or
reelect or to appoint or reappoint Executive as President and Chief Executive
Officer unless consented to by the Executive, (B) a material change in
Executive's function, duties, or responsibilities, which change would cause
Executive's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Section 1, above,
unless consented to by Executive, (C) a relocation of Executive's principal
place of employment by more than 25 miles from its location at the effective
date of this Agreement, unless consented to by the Executive, (D) a material
reduction in the benefits and perquisites to the Executive from those being
provided as of the effective date of this Agreement, unless consented to by the
Executive, (E) a liquidation or dissolution of the Association or Holding
Company, or (F) breach of this Agreement by the Association. Upon the
occurrence of any event described in clauses (A), (B), (C), (D), (E) or (F),
above, Executive shall have the right to elect to terminate his employment under
this Agreement by resignation upon not less than sixty (60) days prior written
notice given within six full months after the event giving rise to said right to
elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Association shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of:
(i) the Base Salary and bonuses in accordance with Section 3(a) of this
Agreement that would have been paid to Executive for the remaining term of this
Agreement had the Event of Termination not occurred; and (ii) all benefits,
including health insurance in accordance with Section 3(b) that would have been
provided to Executive for the remaining term of the this Agreement had an Event
of Termination not occurred; provided, however, that any payments pursuant to
this subsection and subsection 4(c) below shall not, in the aggregate, exceed
three times Executive's average annual compensation for the five most recent
taxable years that Executive has been employed by the Association or such lesser
number of years in the event that
-3-
<PAGE>
Executive shall have been employed by the Association for less than five years.
In the event the Association is not in compliance with its minimum capital
requirements or if such payments pursuant to this subsection (b) would cause the
Association's capital to be reduced below its minimum regulatory capital
requirements, such payments shall be deferred until such time as the Association
or successor thereto is in capital compliance. At the election of the Executive,
which election is to be made prior to an Event of Termination, such payments
shall be made in a lump sum as of the Executive's Date of Termination. In the
event that no election is made, payment to Executive will be made on a monthly
basis in approximately equal installments during the remaining term of the
Agreement. Such payments shall not be reduced in the event the Executive obtains
other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Association will
cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Association or the
Holding Company for Executive prior to his termination at no premium cost to the
Executive, except to the extent such coverage may be changed in its application
to all Association or Holding Company employees. Such coverage shall cease upon
the expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Association or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1 of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Association or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal
Deposit Insurance Act and the Rules and Regulations promulgated by the Office of
Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date
hereof (provided, that in applying the definition of change in control as set
forth under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Association or the Holding
Company representing 25% or more of the Association's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Association purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Association or
the Holding Company, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board, or (C)
a plan of reorganization, merger, consolidation, sale of
-4-
<PAGE>
all or substantially all the assets of the Association or the Holding Company or
similar transaction occurs in which the Association or Holding Company is not
the resulting entity; provided, however, that such an event listed above will be
deemed to have occurred or to have been effectuated upon the receipt of all
required regulatory approvals not including the lapse of any statutory waiting
periods.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death, disability, retirement or termination for
Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Association shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of: (1) the Base Salary and bonuses in accordance with Section 3(a)
of this Agreement that would have been paid to Executive for the remaining term
of this Agreement had the event described in Subsection (b) of this Section 5
not occurred; or 2) three (3) times Executive's Average Annual Compensation (as
defined herein) for the five (5) most recent taxable years that Executive has
been employed by the Association or such lesser number of years in the event
that Executive shall have been employed by the Association for less than five
(5) years. Such "Average Annual Compensation" shall include all taxable income
paid by the Association, including but not limited to, Base Salary, commissions,
and bonuses, as well as contributions on Executive's behalf to any pension
and/or profit sharing plan, retirement payments, directors or committee fees and
fringe benefits paid or to be paid to the Executive in any such year and payment
of any expense items without accountability or business purpose or that do not
meet the Internal Revenue Service requirements for deductibility by the
Association; provided, however, that any payment under this provision and
subsection 5(d) below shall not exceed three (3) times the Executive's average
annual compensation. In the event the Association is not in compliance with its
minimum capital requirements or if such payments would cause the Association's
capital to be reduced below its minimum regulatory capital requirements, such
payments shall be deferred until such time as the Association or successor
thereto is in capital compliance. At the election of the Executive, which
election is to be made prior to a Change in Control, such payment shall be made
in a lump sum as of the Executive's Date of Termination. In the event that no
election is made, payment to the Executive will be made in approximately equal
installments on a monthly basis over a period of thirty-six (36) months
following the Executive's termination. Such payments shall not be reduced in
the event Executive obtains other employment following termination of
employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Association will cause to be continued life, medical, dental and disability
coverage substantially
-5-
<PAGE>
identical to the coverage maintained by the Association for Executive prior to
his severance at no premium cost to the Executive, except to the extent that
such coverage may be changed in its application for all Association employees on
a non-discriminatory basis. Such coverage and payments shall cease upon the
expiration of thirty-six (36) months following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one dollar ($1.00) less than an amount equal to three (3)
times Executive's "base amount," as determined in accordance with said Section
280G. The allocation of the reduction required hereby among the Termination
Benefits provided by Section 5 shall be determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination for Cause, stock options granted to Executive
under any stock option plan shall not be exercisable nor shall any unvested
stock awards granted to Executive under any stock benefit plan of the
Association, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination for Cause, such stock options and any unvested stock
awards shall become null and void and shall not be exercisable by or delivered
to Executive at any time subsequent to such Termination for Cause.
-6-
<PAGE>
8. NOTICE.
(a) Any purported termination by the Association or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and,
provided further, that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event the Executive is
terminated for reasons other than Termination for Cause, the Association will
continue to pay Executive his Base Salary in effect when the notice giving rise
to the dispute was given until the earlier of: 1) the resolution of the dispute
in accordance with this Agreement or 2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. Amounts paid under
this Section are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Association. Executive shall, upon reasonable
notice, furnish such information and assistance to the Association as may
reasonably be required by the Association in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE OF ASSOCIATION BUSINESS.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Association for a
period of one (1) year following such termination in any city, town or county in
which the Executive's normal business office is located and the Association has
an office or has filed an application for regulatory
-7-
<PAGE>
approval to establish an office, determined as of the effective date of such
termination, except as agreed to pursuant to a resolution duly adopted by the
Board. Executive agrees that during such period and within said cities, towns
and counties, Executive shall not work for or advise, consult or otherwise serve
with, directly or indirectly, any entity whose business materially competes with
the depository, lending or other business activities of the Association. The
parties hereto, recognizing that irreparable injury will result to the
Association, its business and property in the event of Executive's breach of
this Subsection 10(a) agree that in the event of any such breach by Executive,
the Association, will be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation hereof by Executive,
Executive's partners, agents, servants, employees and all persons acting for or
under the direction of Executive. Nothing herein will be construed as
prohibiting the Association from pursuing any other remedies available to the
Association for such breach or threatened breach, including the recovery of
damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Association and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Association. Executive will not, during
or after the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the Association or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever. Notwithstanding the foregoing, Executive may
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Association. Further, Executive may disclose
information regarding the business activities of the Association to the OTS and
the Federal Deposit Insurance Corporation ("FDIC") pursuant to a formal
regulatory request. In the event of a breach or threatened breach by Executive
of the provisions of this Section, the Association will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Association or affiliates thereof, or from rendering any services to any person,
firm, corporation, other entity to whom such knowledge, in whole or in part, has
been disclosed or is threatened to be disclosed. Nothing herein will be
construed as prohibiting the Association from pursuing any other remedies
available to the Association for such breach or threatened breach, including the
recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Association. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the
Association are not timely paid or provided by the Association, such amounts and
benefits shall be paid or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the
-8-
<PAGE>
Employment Agreement dated February 12, 1999, between Executive and the Holding
Company, such compensation payments and benefits paid by the Holding Company
will be subtracted from any amounts due simultaneously to Executive under
similar provisions of this Agreement. Payments pursuant to this Agreement and
the Holding Company Agreement shall be allocated in proportion to the services
rendered and time expended on such activities by Executive as determined by the
Holding Company and the Association on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Association or any
predecessor of the Association and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Association and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
-9-
<PAGE>
15. REQUIRED PROVISIONS.
(a) The Association's board of directors may terminate Executive's
employment at any time, but any termination by the Association's board of
directors, other than Termination for Cause, shall not prejudice Executive's
right to compensation or other benefits under this Agreement. Executive shall
not have the right to receive compensation or other benefits for any period
after Termination for Cause as defined in Section 7 hereinabove.
(b) If Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice served
under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1); the Association's obligations under this contract shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Association may in
its discretion: (i) pay Executive all or part of the compensation withheld
while it's contract obligations were suspended; and (ii) reinstate (in whole or
in part) any of its obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Association under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Association is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1) all obligations under
this contract shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
(e) All obligations under this contract shall be terminated, except to the
extent determined that continuation of the contract is necessary for the
continued operation of the Association: (i) by the Director or his or her
designee, at the time the Federal Deposit Insurance Corporation enters into an
agreement to provide assistance to or on behalf of the Association under the
authority contained in Section 13(c) of the Federal Deposit Insurance Act; or
(ii) by the Director or his or her designee at the time the Director or his or
her designee approves a supervisory merger to resolve problems related to the
operation of the Association or when the Association is determined by the
Director to be in an unsafe or unsound condition. Any rights of the parties
that have already vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C. Section
1828(k), 12 C.F.R. Part 359 and 12 C.F.R. Section 545.121 and any rules and
regulations promulgated thereunder.
-10-
<PAGE>
16. REINSTATEMENT OF BENEFITS UNDER SECTION 15(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice described
in Section 15(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Association will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Association's receipt of a dismissal of charges in the Notice.
17. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
18. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
19. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of New Jersey without regards to
principles of conflicts of law of this state, but only to the extent not
superseded by federal law.
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Association, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
-11-
<PAGE>
21. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Association if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
22. INDEMNIFICATION.
(a) The Association shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) as permitted under federal law against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been a director or officer of the Association (whether or
not he continues to be a director or officer at the time of incurring such
expenses or liabilities), such expenses and liabilities to include, but not be
limited to, judgments, court costs and attorneys' fees and the cost of
reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k), 12 C.F.R. Part
359 and 12 C.F.R. Section 545.121 and any rules or regulations promulgated
thereunder.
23. SUCCESSOR TO THE ASSOCIATION.
The Association shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Association or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Association's obligations under this Agreement, in the same manner and to the
same extent that the Association would be required to perform if no such
succession or assignment had taken place.
-12-
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, South Jersey Savings and Loan Association and South
Jersey Financial Corporation have caused this Agreement to be executed and their
seals to be affixed hereunto by their duly authorized officers and directors,
and Executive has signed this Agreement, on the 29th day of March, 1999.
ATTEST: SOUTH JERSEY SAVINGS AND LOAN
ASSOCIATION
/s/ Janet P. Ambrose By: /s/ Gregory M. DiPaolo
- -------------------------- -------------------------------------
For the Entire Board of Directors
[SEAL]
ATTEST: SOUTH JERSEY FINANCIAL CORPORATION,
INC.
(Guarantor)
/s/ Janet P. Ambrose By: /s/ Gregory M. DiPaolo
- -------------------------- -------------------------------------
For the Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
/s/ Jennifer A. Bailey /s/ Robert J. Colacicco
- -------------------------- -------------------------------------
Robert J. Colacicco
-13-
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT BETWEEN SOUTH JERSEY SAVINGS
AND LOAN ASSOCIATION AND GREGORY M. DIPAOLO
<PAGE>
Exhibit 10.4
Mr. DiPaolo's Employment Agreement is the same as the Employment Agreement
in Exhibit 10.3, which is incorporated herein by reference except as to: (i) the
name of the signatory, which is Gregory M. DiPaolo; (ii) the position in Section
1, which is Executive Vice President, Treasurer and Chief Operating Officer;
(iii) the signatory for the Company, which is Robert J. Colacicco; (iv) the
guarantor for the Company, which is Robert J. Colacicco; and (v) the amount of
the base salary in Section 3(a), which is $142,730.
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT BETWEEN SOUTH JERSEY SAVINGS
AND LOAN ASSOCIATION AND JOSEPH M. SIDEBOTHAM
<PAGE>
Exhibit 10.5
SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of February 12,1999, by
and among South Jersey Savings and Loan Association (the "Association"), a New
Jersey State-chartered savings and loan association, with its principal
administrative office at 4651 Route 42, Turnersville, New Jersey 08012-1708,
South Jersey Financial Corporation, Inc. a corporation organized under the laws
of the State of Delaware, the holding company for the Association (the "Holding
Company"), and Joseph M. Sidebotham ("Executive").
WHEREAS, the Association wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Association on
a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
Senior Vice President and Controller of the Association. Executive shall render
administrative and management services to the Association such as are
customarily performed by persons situated in a similar executive capacity.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of twenty-four (24) full calendar months thereafter. Commencing on
the first anniversary date of this Agreement, and continuing on each anniversary
thereafter, the disinterested members of the board of directors of the
Association ("Board") may extend the Agreement an additional year such that the
remaining term of the Agreement shall be two (2) years unless the Executive
elects not to extend the term of this Agreement by giving written notice in
accordance with Section 8 of this Agreement. The Board will review the
Agreement and Executive's performance annually for purposes of determining
whether to extend the Agreement and the rationale and results thereof shall be
included in the minutes of the Board's meeting. The Board shall give notice to
the Executive as soon as possible after such review as to whether the Agreement
is to be extended.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the
<PAGE>
faithful performance of his duties hereunder including activities and services
related to the organization, operation and management of the Association and
participation in community and civic organizations; provided, however, that,
with the approval of the Board, as evidenced by a resolution of such Board, from
time to time, Executive may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict of
interest with the Association, or materially affect the performance of
Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's employment
with the Association may be terminated by the Association's board of directors
or the Executive during the term of this Agreement, subject to the terms and
conditions of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Association shall pay Executive as compensation a salary of $87,422
per year ("Base Salary"). Base Salary shall include any amounts of compensation
deferred by Executive under any tax-qualified retirement or welfare benefit plan
or any other deferred compensation arrangement maintained by the Association.
Such Base Salary shall be payable bi-weekly. During the period of this
Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or by a Committee of the
Board, delegated such responsibility by the Board. The Committee or the Board
may increase Executive's Base Salary. Any increase in Base Salary shall become
the "Base Salary" for purposes of this Agreement. In addition to the Base
Salary provided in this Section 3(a), the Association shall also provide
Executive, at no premium cost to Executive, with all such other benefits as are
provided uniformly to permanent full-time employees of the Association. In
addition, Executive shall be entitled to incentive compensation and bonuses as
provided in any plan or arrangement of the Association in which Executive is
eligible to participate.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Association will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder; except to the extent such changes are made
applicable to all Association employees on a non-discriminatory basis. Without
limiting the generality of the foregoing provisions of this Subsection (b),
Executive shall be entitled to participate in or receive benefits under all
plans relating to stock options, restricted stock awards, stock purchases,
pension, thrift, supplemental retirement, profit-sharing, employee stock
ownership, group life insurance, medical and other health and welfare coverage,
education, cash or stock bonuses that are now or hereafter made available by the
Association in the future to its senior executives and key management employees,
subject to and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements. Nothing paid to the Executive
under any
-2-
<PAGE>
such plan or arrangement will be deemed to be in lieu of other compensation to
which the Executive is entitled under this Agreement.
(c) The Association shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing his
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Association of Executive's full-time employment hereunder for
any reason other than a termination governed by Section 5(a) hereof, or
Termination for Cause, as defined in Section 7 hereof; (ii) Executive's
resignation from the Association's employ upon any (A) failure to elect or
reelect or to appoint or reappoint Executive as Senior Vice President and
Controller, unless consented to by the Executive, (B) a material change in
Executive's function, duties, or responsibilities, which change would cause
Executive's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Section 1, above,
unless consented to by Executive, (C) a relocation of Executive's principal
place of employment by more than 25 miles from its location at the effective
date of this Agreement, unless consented to by the Executive, (D) a material
reduction in the benefits and perquisites to the Executive from those being
provided as of the effective date of this Agreement, unless consented to by the
Executive, (E) a liquidation or dissolution of the Association or Holding
Company, or (F) breach of this Agreement by the Association. Upon the
occurrence of any event described in clauses (A), (B), (C), (D), (E) or (F),
above, Executive shall have the right to elect to terminate his employment under
this Agreement by resignation upon not less than sixty (60) days prior written
notice given within six full months after the event giving rise to said right to
elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Association shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of:
(i) the Base Salary and bonuses in accordance with Section 3(a) of this
Agreement that would have been paid to Executive for the remaining term of this
Agreement had the Event of Termination not occurred; and (ii) all benefits,
including health insurance in accordance with Section 3(b) that would have been
provided to Executive for the remaining term of the this Agreement had an Event
of Termination not occurred; provided, however, that any payments pursuant to
this subsection and subsection 4(c) below shall not, in the aggregate, exceed
three times Executive's average annual compensation for the five most recent
taxable years that Executive has been employed by the Association or such lesser
number of years in the event that Executive shall have been employed by the
Association for less than five years. In the event the Association is not in
compliance with its minimum capital requirements or if such payments
-3-
<PAGE>
pursuant to this subsection (b) would cause the Association's capital to be
reduced below its minimum regulatory capital requirements, such payments shall
be deferred until such time as the Association or successor thereto is in
capital compliance. At the election of the Executive, which election is to be
made prior to an Event of Termination, such payments shall be made in a lump sum
as of the Executive's Date of Termination. In the event that no election is
made, payment to Executive will be made on a monthly basis in approximately
equal installments during the remaining term of the Agreement. Such payments
shall not be reduced in the event the Executive obtains other employment
following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Association will
cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Association or the
Holding Company for Executive prior to his termination at no premium cost to the
Executive, except to the extent such coverage may be changed in its application
to all Association or Holding Company employees. Such coverage shall cease upon
the expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Association or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1 of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Association or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal
Deposit Insurance Act and the Rules and Regulations promulgated by the Office of
Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date
hereof (provided, that in applying the definition of change in control as set
forth under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Association or the Holding
Company representing 25% or more of the Association's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Association purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Association or
the Holding Company, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board, or (C)
a plan of reorganization, merger, consolidation, sale of all or substantially
all the assets of the Association or the Holding Company or similar transaction
occurs in which the Association or Holding Company is not the resulting entity;
-4-
<PAGE>
provided, however, that such an event listed above will be deemed to have
occurred or to have been effectuated upon the receipt of all required regulatory
approvals not including the lapse of any statutory waiting periods.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death, disability, retirement or termination for
Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Association shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of: (1) the Base Salary and bonuses in accordance with Section 3(a)
of this Agreement that would have been paid to Executive for the remaining term
of this Agreement had the event described in Subsection (b) of this Section 5
not occurred; or (2) three (3) times Executive's Average Annual Compensation (as
defined herein) for the five (5) most recent taxable years that Executive has
been employed by the Association or such lesser number of years in the event
that Executive shall have been employed by the Association for less than five
(5) years. Such "Average Annual Compensation" shall include all taxable income
paid by the Association, including but not limited to, Base Salary, commissions,
and bonuses, as well as contributions on Executive's behalf to any pension
and/or profit sharing plan, retirement payments, directors or committee fees and
fringe benefits paid or to be paid to the Executive in any such year and payment
of any expense items without accountability or business purpose or that do not
meet the Internal Revenue Service requirements for deductibility by the
Association; provided, however, that any payment under this provision and
subsection 5(d) below shall not exceed three (3) times the Executive's average
annual compensation. In the event the Association is not in compliance with its
minimum capital requirements or if such payments would cause the Association's
capital to be reduced below its minimum regulatory capital requirements, such
payments shall be deferred until such time as the Association or successor
thereto is in capital compliance. At the election of the Executive, which
election is to be made prior to a Change in Control, such payment shall be made
in a lump sum as of the Executive's Date of Termination. In the event that no
election is made, payment to the Executive will be made in approximately equal
installments on a monthly basis over a period of twenty-four (24) months
following the Executive's termination. Such payments shall not be reduced in
the event Executive obtains other employment following termination of
employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Association will cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the Association
for Executive prior to his severance at no premium cost to the Executive, except
to the extent that such coverage may be changed in its
-5-
<PAGE>
application for all Association employees on a non-discriminatory basis. Such
coverage and payments shall cease upon the expiration of twenty-four (24) months
following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one dollar ($1.00) less than an amount equal to three (3)
times Executive's "base amount," as determined in accordance with said Section
280G. The allocation of the reduction required hereby among the Termination
Benefits provided by Section 5 shall be determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. Notwithstanding the foregoing,
Executive shall not be deemed to have been Terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination for Cause, stock options granted to Executive
under any stock option plan shall not be exercisable nor shall any unvested
stock awards granted to Executive under any stock benefit plan of the
Association, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination for Cause, such stock options and any unvested stock
awards shall become null and void and shall not be exercisable by or delivered
to Executive at any time subsequent to such Termination for Cause.
-6-
<PAGE>
8. NOTICE.
(a) Any purported termination by the Association or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and,
provided further, that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event the Executive is
terminated for reasons other than Termination for Cause, the Association will
continue to pay Executive his Base Salary in effect when the notice giving rise
to the dispute was given until the earlier of: 1) the resolution of the dispute
in accordance with this Agreement or 2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. Amounts paid under
this Section are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Association. Executive shall, upon reasonable
notice, furnish such information and assistance to the Association as may
reasonably be required by the Association in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE OF ASSOCIATION BUSINESS.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Association for a
period of one (1) year following such termination in any city, town or county in
which the Executive's normal business office is located and the Association has
an office or has filed an application for regulatory
-7-
<PAGE>
approval to establish an office, determined as of the effective date of such
termination, except as agreed to pursuant to a resolution duly adopted by the
Board. Executive agrees that during such period and within said cities, towns
and counties, Executive shall not work for or advise, consult or otherwise serve
with, directly or indirectly, any entity whose business materially competes with
the depository, lending or other business activities of the Association. The
parties hereto, recognizing that irreparable injury will result to the
Association, its business and property in the event of Executive's breach of
this Subsection 10(a) agree that in the event of any such breach by Executive,
the Association, will be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation hereof by Executive,
Executive's partners, agents, servants, employees and all persons acting for or
under the direction of Executive. Nothing herein will be construed as
prohibiting the Association from pursuing any other remedies available to the
Association for such breach or threatened breach, including the recovery of
damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Association and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Association. Executive will not, during
or after the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the Association or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever. Notwithstanding the foregoing, Executive may
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Association. Further, Executive may disclose
information regarding the business activities of the Association to the OTS and
the Federal Deposit Insurance Corporation ("FDIC") pursuant to a formal
regulatory request. In the event of a breach or threatened breach by Executive
of the provisions of this Section, the Association will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Association or affiliates thereof, or from rendering any services to any person,
firm, corporation, other entity to whom such knowledge, in whole or in part, has
been disclosed or is threatened to be disclosed. Nothing herein will be
construed as prohibiting the Association from pursuing any other remedies
available to the Association for such breach or threatened breach, including the
recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Association. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the
Association are not timely paid or provided by the Association, such amounts and
benefits shall be paid or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the
-8-
<PAGE>
Employment Agreement dated February 12, 1999, between Executive and the Holding
Company, such compensation payments and benefits paid by the Holding Company
will be subtracted from any amounts due simultaneously to Executive under
similar provisions of this Agreement. Payments pursuant to this Agreement and
the Holding Company Agreement shall be allocated in proportion to the services
rendered and time expended on such activities by Executive as determined by the
Holding Company and the Association on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Association or any
predecessor of the Association and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Association and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
-9-
<PAGE>
15. REQUIRED PROVISIONS.
(a) The Association's board of directors may terminate Executive's
employment at any time, but any termination by the Association's board of
directors, other than Termination for Cause, shall not prejudice Executive's
right to compensation or other benefits under this Agreement. Executive shall
not have the right to receive compensation or other benefits for any period
after Termination for Cause as defined in Section 7 hereinabove.
(b) If Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice served
under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1); the Association's obligations under this contract shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Association may in
its discretion: (i) pay Executive all or part of the compensation withheld
while it's contract obligations were suspended; and (ii) reinstate (in whole or
in part) any of its obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Association under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Association is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1) all obligations under
this contract shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
(e) All obligations under this contract shall be terminated, except to the
extent determined that continuation of the contract is necessary for the
continued operation of the Association: (i) by the Director or his or her
designee, at the time the Federal Deposit Insurance Corporation enters into an
agreement to provide assistance to or on behalf of the Association under the
authority contained in Section 13(c) of the Federal Deposit Insurance Act; or
(ii) by the Director or his or her designee at the time the Director or his or
her designee approves a supervisory merger to resolve problems related to the
operation of the Association or when the Association is determined by the
Director to be in an unsafe or unsound condition. Any rights of the parties
that have already vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C. Section
1828(k), 12 C.F.R. Part 359 and 12 C.F.R. Section 545.121 and any rules and
regulations promulgated thereunder.
-10-
<PAGE>
16. REINSTATEMENT OF BENEFITS UNDER SECTION 15(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice described
in Section 15(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Association will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Association's receipt of a dismissal of charges in the Notice.
17. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
18. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
19. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of New Jersey without regards to
principles of conflicts of law of this state, but only to the extent not
superseded by federal law.
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Association, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
-11-
<PAGE>
21. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and legal fees paid or incurred by Executive pursuant
to any dispute or question of interpretation relating to this Agreement shall be
paid or reimbursed by the Association if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
22. INDEMNIFICATION.
(a) The Association shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) as permitted under federal law against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been a director or officer of the Association (whether or
not he continues to be a director or officer at the time of incurring such
expenses or liabilities), such expenses and liabilities to include, but not be
limited to, judgments, court costs and attorneys' fees and the cost of
reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k), 12 C.F.R. Part
359 and 12 C.F.R. Section 545.121 and any rules or regulations promulgated
thereunder.
23. SUCCESSOR TO THE ASSOCIATION.
The Association shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Association or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Association's obligations under this Agreement, in the same manner and to the
same extent that the Association would be required to perform if no such
succession or assignment had taken place.
-12-
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, South Jersey Savings and Loan Association and South
Jersey Financial Corporation have caused this Agreement to be executed and their
seals to be affixed hereunto by their duly authorized officers and directors,
and Executive has signed this Agreement, on the 29th day of March, 1999.
ATTEST: SOUTH JERSEY SAVINGS AND LOAN
ASSOCIATION
/s/ Janet P. Ambrose By: /s/ Gregory M. DiPaolo
- ---------------------- -------------------------------------
For the Entire Board of Directors
[SEAL]
ATTEST: SOUTH JERSEY FINANCIAL CORPORATION,
INC.
(Guarantor)
/s/ Janet P. Ambrose By: /s/ Robert J. Colacicco
- ---------------------- -------------------------------------
For the Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
/s/ Jennifer A. Bailey /s/ Joseph M. Sidebotham
- ---------------------- -------------------------------------
Joseph M. Sidebotham
-13-
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT BETWEEN SOUTH JERSEY SAVINGS
AND LOAN ASSOCIATION AND JANE E. BRODE
<PAGE>
Exhibit 10.6
Ms. Brode's Employment Agreement is the same as the Employment Agreement in
Exhibit 10.5, which is incorporated herein by reference except as to: (i) the
name of the signatory, which is Jane E. Brode; (ii) the position in Section 1,
which is Senior Vice President-Savings; and (iii) the amount of the base salary
in Section 3(a), which is $94,328.
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT BETWEEN SOUTH JERSEY SAVINGS
AND LOAN ASSOCIATION AND PAUL D. WAMPLER
<PAGE>
Exhibit 10.7
Mr. Wampler's Employment Agreement is the same as the Employment Agreement
in Exhibit 10.5, which is incorporated herein by reference except as to: (i) the
name of the signatory, which is Paul D. Wampler; (ii) the position in Section 1,
which is Senior Vice President of Lending; and (iii) the amount of the base
salary in Section 3(a), which is $86,258.
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT BETWEEN SOUTH JERSEY FINANCIAL
CORPORATION, INC. AND ROBERT J. COLACICCO
<PAGE>
Exhibit 10.8
SOUTH JERSEY FINANCIAL CORPORATION, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of February 12, 1999, by
and between South Jersey Financial Corporation, Inc. (the "Holding Company"), a
corporation organized under the laws of Delaware with its principal offices at
4651 Route 42, Turnersville, New Jersey 08012-1708 and Robert J. Colacicco
("Executive"). Any reference to "Institution" herein shall mean South Jersey
Savings and Loan Association or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as President and Chief Executive Officer of the Holding Company. The
Executive shall render administrative and management services to the Holding
Company such as are customarily performed by persons in a similar executive
capacity. During said period, Executive also agrees to serve, if elected, as an
officer or director of any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the date of the execution of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the board of directors of the
Holding Company (the "Board") or Executive elects not to extend the term of the
Agreement by giving written notice to the other party in accordance with Section
8 of this Agreement, in which case the term of this Agreement shall be fixed and
shall end on the third anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder, including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries ("Subsidiaries") and participation in community, professional and
civic
<PAGE>
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement. However, Executive shall not perform, in any respect,
directly or indirectly, during the pendency of his temporary or permanent
suspension or termination from the Institution, duties and responsibilities
formerly performed at the Institution as part of his duties and responsibilities
as President and Chief Executive Officer of the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding Company or
its Subsidiaries of $170,435 per year ("Base Salary"). Base Salary shall
include any amounts of compensation deferred by Executive under any tax-
qualified retirement or welfare benefit plan or any other deferred compensation
arrangement maintained by the Holding Company and its Subsidiaries. Such Base
Salary shall be payable bi-weekly. During the period of this Agreement,
Executive's Base Salary shall be reviewed at least annually; the first such
review will be made no later than one year from the date of this Agreement.
Such review shall be conducted by the Board or by a Committee of the Board
delegated such responsibility by the Board. The Committee or the Board may
increase Executive's Base Salary. Any increase in Base Salary shall become the
"Base Salary" for purposes of this Agreement. In addition to the Base Salary
provided in this Section 3(a), the Holding Company shall also provide Executive,
at no premium cost to Executive, with all such other benefits as provided
uniformly to permanent full-time employees of the Holding Company and its
Subsidiaries. In addition, Executive shall be entitled to incentive
compensation and bonuses as provided in any plan or arrangement of the Holding
Company or its Subsidiaries in which Executive is eligible to participate.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Holding Company and its
Subsidiaries will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Institution
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under all plans relating to stock options, restricted stock
awards, stock purchases, pension, thrift, supplemental retirement, profit-
sharing, employee
2
<PAGE>
stock ownership, group life insurance, medical and other health and welfare
coverage, education, cash or stock bonuses that are now or hereafter made
available by the Holding Company or its Subsidiaries to its senior executives
and key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
Executive shall be entitled to incentive compensation and bonuses as provided in
any plan of the Holding Company and its Subsidiaries in which Executive is
eligible to participate. Nothing paid to the Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement.
(c) The Holding Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred in the performance of Executive's
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than termination governed by Section 5(a) hereof, or for
Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Holding Company's employ, upon, any (A) failure to elect or reelect or to
appoint or reappoint Executive as President and Chief Executive Officer, unless
consented to by the Executive, (B) a material change in Executive's function,
duties, or responsibilities with the Holding Company or its Subsidiaries, which
change would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, unless consented to by the Executive, (C) a relocation of
Executive's principal place of employment by more than 25 miles from its
location at the effective date of this Agreement, unless consented to by the
Executive, (D) a material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (E) a liquidation or dissolution of the
Holding Company or the Institution, or (F) breach of this Agreement by the
Holding Company. Upon the occurrence of any event described in clauses (A),
(B), (C), (D), (E) or (F), above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
sixty (60) days prior written notice given within six full calendar months after
the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of:
(i) the Base Salary and bonuses in accordance with Section 3(a) of this
Agreement that would have been paid to Executive for the remaining term of this
Agreement had the Event of Termination not occurred, plus the value as
calculated by a recognized firm
3
<PAGE>
customarily performing such valuation, of any stock options or related rights
which as of the Date of Termination have been granted to Executive but are not
exercisable by Executive and the value of any restricted stock or related rights
which have been granted to Executive; but in which Executive does not have a
non-forfeitable or fully-vested interest as of the Date of Termination; and (ii)
all benefits, including health insurance in accordance with Section 3(b) that
would have been provided to Executive for the remaining term of this Agreement
had an Event of Termination not occurred. At the election of the Executive,
which election is to be made prior to an Event of Termination, such payments
shall be made in a lump sum. In the event that no election is made, payment to
the Executive will be made on a monthly basis in approximately equal
installments during the remaining term of the Agreement. Such payments shall not
be reduced in the event the Executive obtains other employment following
termination of employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance
Act, and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof
(provided, that in applying the definition of change in control as set forth
under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Institution or the Holding
Company representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he
4
<PAGE>
were a member of the Incumbent Board, or (C) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the Institution or
the Holding Company or similar transaction occurs or is effectuated in which the
Institution or Holding Company is not the resulting entity; provided, however,
that such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required federal regulatory approvals not
including the lapse of any statutory waiting periods, or (D) a proxy statement
has been distributed soliciting proxies from stockholders of the Holding
Company, by someone other than the current management of the Holding Company,
seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Institution with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Institution or
the Holding Company shall be distributed, or (E) a tender offer is made for 20%
or more of the voting securities of the Institution or Holding Company then
outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or reduction
in benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the change in control, unless such
termination is because of his death or termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of:
(i) the Base Salary and bonuses in accordance with Section 3(a) of this
Agreement that would have been paid to Executive for the remaining term of this
Agreement had the event described in Subsection (b) of this Section 5 not
occurred, plus the value, as calculated by a recognized firm customarily
performing such valuation, of any stock option or related rights which as of the
Date of Termination have been granted to Executive, but are not exercisable by
Executive and the value of restricted stock awards or related rights which have
been granted to Executive, but which Executive does not have a non-forfeitable
or fully vested interest as of the Date of Termination and all benefits,
including health insurance, in accordance with Section 3(b) that would have been
provided to Executive for the remaining term of this Agreement had the event
described in Subsection (b) of this Section 5 not occurred; or (ii) three (3)
times Executive's "Average Annual Compensation" (as defined herein) for the five
(5) preceding taxable years that Executive has been employed by the Holding
Company or its Subsidiaries or such lesser number of years in the event
Executive shall have been employed with the Holding Company or its Subsidiaries
less than five (5) years. Such "Average Annual Compensation" shall include all
taxable income paid by the Holding Company or its Subsidiaries, including but
not limited to, Base Salary, commissions and bonuses, as well as
5
<PAGE>
contributions on behalf of Executive to any pension and profit sharing plan,
severance payments, directors or committee fees and fringe benefits paid or to
be paid to the Executive during such years. At the election of the Executive,
which election is to be made prior to a Change in Control, such payment shall be
made in a lump sum. In the event that no election is made, payment to the
Executive will be made on a monthly basis in approximately equal installments
during the remaining term of the Agreement. Such payments shall not be reduced
in the event Executive obtains other employment following termination of
employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Institution
for Executive at no premium cost to Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of thirty-six (36) months
following the Change in Control.
6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) Notwithstanding the provisions of Section 5, in the event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as defined
in Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code") or any successor thereof, (the "Termination
Benefits") would be deemed to include an "excess parachute
payment" under Section 280G of the Code; and
(ii) if such Termination Benefits were reduced to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00)
less than an amount equal to three (3) times Executive's "base
amount," as determined in accordance with said Section 280G and
the Non-Triggering Amount less the product of the marginal rate
of any applicable state and federal income tax and the Non-
Triggering Amount would be greater than the aggregate value of
the Termination Benefits (without such reduction) minus (i) the
amount of tax required to be paid by the Executive thereon by
Section 4999 of the Code and further minus (ii) the product of
the Termination Benefits and the marginal rate of any applicable
state and federal income tax,
then the Termination Benefits shall be reduced to the Non-Triggering Amount.
The allocation of the reduction required hereby among the Termination Benefits
shall be determined by the Executive.
6
<PAGE>
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the
date of the Notice of Termination for Cause pursuant to Section 8 hereof through
the Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the
Institution, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination, such stock options and related limited rights and
any such unvested awards shall become null and void and shall not be exercisable
by or delivered to Executive at any time subsequent to such Termination for
Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be
7
<PAGE>
extended by a notice of dispute only if such notice is given in good faith and
the party giving such notice pursues the resolution of such dispute with
reasonable diligence. Notwithstanding the pendency of any such dispute, the
Holding Company will continue to pay Executive his full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to, Base Salary) and continue him as a participant in all compensation, benefit
and insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
8
<PAGE>
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. In the event of a
breach or threatened breach by the Executive of the provisions of this Section,
the Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated February 12, 1999,
between Executive and the Institution, such compensation payments and benefits
paid by the Institution will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Institution Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by the Executive as
determined by the Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
9
<PAGE>
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware
without regards to principles of conflicts of law of this state.
10
<PAGE>
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to
11
<PAGE>
perform the Holding Company's obligations under this Agreement, in the same
manner and to the same extent that the Holding Company would be required to
perform if no such succession or assignment had taken place.
SIGNATURES
IN WITNESS WHEREOF, South Jersey Financial Corporation, Inc. has caused
this Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this Agreement,
on the 29th day of March, 1999.
ATTEST: SOUTH JERSEY FINANCIAL
CORPORATION, INC.
/s/ Janet P. Ambrose By: /s/ Gregory M. DiPaolo
- ---------------------- ------------------------------------
For the Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
/s/ Jennifer A. Bailey By: /s/ Robert J. Colacicco
- ---------------------- ------------------------------------
Robert J. Colacicco
12
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT BETWEEN SOUTH JERSEY FINANCIAL
CORPORATION, INC. AND GREGORY M. DIPAOLO
<PAGE>
Exhibit 10.9
Mr. DiPaolo's Employment Agreement is the same as the Employment Agreement
in Exhibit 10.8, which is incorporated herein by reference except as to: (i) the
name of the signatory, which is Gregory M. DiPaolo; (ii) the signatory for the
Company, which is Robert J. Colacicco; (iii) the position in Section 1, which is
Executive Vice President, Treasurer and Chief Operating Officer; and (iv) the
amount of the base salary in Section 3(a), which is $142,730.
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT BETWEEN SOUTH JERSEY FINANCIAL
CORPORATION, INC. AND JOSEPH M. SIDEBOTHAM
<PAGE>
Exhibit 10.10
SOUTH JERSEY FINANCIAL CORPORATION, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of February 12, 1999, by
and between South Jersey Financial Corporation, Inc. (the "Holding Company"), a
corporation organized under the laws of Delaware with its principal offices at
4651 Route 42, Turnersville, New Jersey 08012-1708 and Joseph M. Sidebotham
("Executive"). Any reference to "Institution" herein shall mean South Jersey
Savings and Loan Association or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as Corporate Secretary and Chief Accounting Officer of the Holding
Company. The Executive shall render administrative and management services to
the Holding Company such as are customarily performed by persons in a similar
executive capacity.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of twenty-four (24) full calendar months thereafter. Commencing on
the date of the execution of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the board of directors of the
Holding Company (the "Board") or Executive elects not to extend the term of the
Agreement by giving written notice to the other party in accordance with Section
8 of this Agreement, in which case the term of this Agreement shall be fixed and
shall end on the second anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder, including activities and services related to the organization,
operation and management of the Holding Company and its direct or indirect
subsidiaries ("Subsidiaries") and participation in community, professional and
civic
<PAGE>
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement. However, Executive shall not perform, in any respect,
directly or indirectly, during the pendency of his temporary or permanent
suspension or termination from the Institution, duties and responsibilities
formerly performed at the Institution as part of his duties and responsibilities
as Corporate Secretary and Chief Accounting Officer of the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding Company or
its Subsidiaries of $87,422 per year ("Base Salary"). Base Salary shall include
any amounts of compensation deferred by Executive under any tax-qualified
retirement or welfare benefit plan or any other deferred compensation
arrangement maintained by the Holding Company and its Subsidiaries. Such Base
Salary shall be payable bi-weekly. During the period of this Agreement,
Executive's Base Salary shall be reviewed at least annually; the first such
review will be made no later than one year from the date of this Agreement.
Such review shall be conducted by the Board or by a Committee of the Board
delegated such responsibility by the Board. The Committee or the Board may
increase Executive's Base Salary. Any increase in Base Salary shall become the
"Base Salary" for purposes of this Agreement. In addition to the Base Salary
provided in this Section 3(a), the Holding Company shall also provide Executive,
at no premium cost to Executive, with all such other benefits as provided
uniformly to permanent full-time employees of the Holding Company and its
Subsidiaries. In addition, Executive shall be entitled to incentive
compensation and bonuses as provided in any plan or arrangement of the Holding
Company or its Subsidiaries in which Executive is eligible to participate.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Holding Company and its
Subsidiaries will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Institution
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under all plans relating to stock options, restricted stock
awards, stock purchases, pension, thrift, supplemental retirement, profit-
sharing, employee
2
<PAGE>
stock ownership, group life insurance, medical and other health and welfare
coverage, education, cash or stock bonuses that are now or hereafter made
available by the Holding Company or its Subsidiaries to its senior executives
and key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
Executive shall be entitled to incentive compensation and bonuses as provided in
any plan of the Holding Company and its Subsidiaries in which Executive is
eligible to participate. Nothing paid to the Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement.
(c) The Holding Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred in the performance of Executive's
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than termination governed by Section 5(a) hereof, or for
Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Holding Company's employ, upon, any (A) failure to elect or reelect or to
appoint or reappoint Executive as President and Chief Executive Officer, unless
consented to by the Executive, (B) a material change in Executive's function,
duties, or responsibilities with the Holding Company or its Subsidiaries, which
change would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, unless consented to by the Executive, (C) a relocation of
Executive's principal place of employment by more than 25 miles from its
location at the effective date of this Agreement, unless consented to by the
Executive, (D) a material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (E) a liquidation or dissolution of the
Holding Company or the Institution, or (F) breach of this Agreement by the
Holding Company. Upon the occurrence of any event described in clauses (A),
(B), (C), (D), (E) or (F), above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
sixty (60) days prior written notice given within six full calendar months after
the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of:
(i) the Base Salary and bonuses in accordance with Section 3(a) of this
Agreement that would have been paid to Executive for the remaining term of this
Agreement had the Event of Termination not occurred, plus the value as
calculated by a recognized firm
3
<PAGE>
customarily performing such valuation, of any stock options or related rights
which as of the Date of Termination have been granted to Executive but are not
exercisable by Executive and the value of any restricted stock or related rights
which have been granted to Executive; but in which Executive does not have a
non-forfeitable or fully-vested interest as of the Date of Termination; and (ii)
all benefits, including health insurance in accordance with Section 3(b) that
would have been provided to Executive for the remaining term of this Agreement
had an Event of Termination not occurred. At the election of the Executive,
which election is to be made prior to an Event of Termination, such payments
shall be made in a lump sum. In the event that no election is made, payment to
the Executive will be made on a monthly basis in approximately equal
installments during the remaining term of the Agreement. Such payments shall not
be reduced in the event the Executive obtains other employment following
termination of employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance
Act, and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof
(provided, that in applying the definition of change in control as set forth
under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Institution or the Holding
Company representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he
4
<PAGE>
were a member of the Incumbent Board, or (C) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the Institution or
the Holding Company or similar transaction occurs or is effectuated in which the
Institution or Holding Company is not the resulting entity; provided, however,
that such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required federal regulatory approvals not
including the lapse of any statutory waiting periods, or (D) a proxy statement
has been distributed soliciting proxies from stockholders of the Holding
Company, by someone other than the current management of the Holding Company,
seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Institution with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Institution or
the Holding Company shall be distributed, or (E) a tender offer is made for 20%
or more of the voting securities of the Institution or Holding Company then
outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or reduction
in benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the change in control, unless such
termination is because of his death or termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of:
(i) the Base Salary and bonuses in accordance with Section 3(a) of this
Agreement that would have been paid to Executive for the remaining term of this
Agreement had the event described in Subsection (b) of this Section 5 not
occurred, plus the value, as calculated by a recognized firm customarily
performing such valuation, of any stock option or related rights which as of the
Date of Termination have been granted to Executive, but are not exercisable by
Executive and the value of restricted stock awards or related rights which have
been granted to Executive, but which Executive does not have a non-forfeitable
or fully vested interest as of the Date of Termination and all benefits,
including health insurance, in accordance with Section 3(b) that would have been
provided to Executive for the remaining term of this Agreement had the event
described in Subsection (b) of this Section 5 not occurred; or (ii) two (2)
times Executive's "Average Annual Compensation" (as defined herein) for the five
(5) preceding taxable years that Executive has been employed by the Holding
Company or its Subsidiaries or such lesser number of years in the event
Executive shall have been employed with the Holding Company or its Subsidiaries
less than five (5) years. Such "Average Annual Compensation" shall include all
taxable income paid by the Holding Company or its Subsidiaries, including but
not limited to, Base Salary, commissions and bonuses, as well as
5
<PAGE>
contributions on behalf of Executive to any pension and profit sharing plan,
severance payments, directors or committee fees and fringe benefits paid or to
be paid to the Executive during such years. At the election of the Executive,
which election is to be made prior to a Change in Control, such payment shall be
made in a lump sum. In the event that no election is made, payment to the
Executive will be made on a monthly basis in approximately equal installments
during the remaining term of the Agreement. Such payments shall not be reduced
in the event Executive obtains other employment following termination of
employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical, dental and disability
coverage substantially equivalent to the coverage maintained by the Institution
for Executive at no premium cost to Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of twenty-four (24) months
following the Change in Control.
6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) Notwithstanding the provisions of Section 5, in the event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as defined
in Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code") or any successor thereof, (the "Termination
Benefits") would be deemed to include an "excess parachute
payment" under Section 280G of the Code; and
(ii) if such Termination Benefits were reduced to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00)
less than an amount equal to three (3) times Executive's "base
amount," as determined in accordance with said Section 280G and
the Non-Triggering Amount less the product of the marginal rate
of any applicable state and federal income tax and the Non-
Triggering Amount would be greater than the aggregate value of
the Termination Benefits (without such reduction) minus (i) the
amount of tax required to be paid by the Executive thereon by
Section 4999 of the Code and further minus (ii) the product of
the Termination Benefits and the marginal rate of any applicable
state and federal income tax,
then the Termination Benefits shall be reduced to the Non-Triggering Amount.
The allocation of the reduction required hereby among the Termination Benefits
shall be determined by the Executive.
6
<PAGE>
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the
date of the Notice of Termination for Cause pursuant to Section 8 hereof through
the Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the
Institution, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination, such stock options and related limited rights and
any such unvested awards shall become null and void and shall not be exercisable
by or delivered to Executive at any time subsequent to such Termination for
Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be
7
<PAGE>
extended by a notice of dispute only if such notice is given in good faith and
the party giving such notice pursues the resolution of such dispute with
reasonable diligence. Notwithstanding the pendency of any such dispute, the
Holding Company will continue to pay Executive his full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to, Base Salary) and continue him as a participant in all compensation, benefit
and insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
8
<PAGE>
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. In the event of a
breach or threatened breach by the Executive of the provisions of this Section,
the Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated February 12, 1999,
between Executive and the Institution, such compensation payments and benefits
paid by the Institution will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Institution Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by the Executive as
determined by the Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
9
<PAGE>
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware
without regards to principles of conflicts of law of this state.
10
<PAGE>
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to
11
<PAGE>
perform the Holding Company's obligations under this Agreement, in the same
manner and to the same extent that the Holding Company would be required to
perform if no such succession or assignment had taken place.
12
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, South Jersey Financial Corporation, Inc. has caused
this Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this Agreement,
on the 29th day of March, 1999.
ATTEST: SOUTH JERSEY FINANCIAL
CORPORATION, INC.
/s/ Janey P. Ambrose By: /s/ Robert J. Colacicco
- -------------------------- -------------------------------------
For the Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
/s/ Jennifer A. Bailey By: /s/ Joseph M. Sidebotham
- --------------------------- -------------------------------------
Joseph M. Sidebotham
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOUTH JERSEY SAVINGS AND LOAN ASSOCIATION AT AND FOR THE
YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,241
<INT-BEARING-DEPOSITS> 396
<FED-FUNDS-SOLD> 45,350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 122,002
<INVESTMENTS-MARKET> 123,832
<LOANS> 108,440
<ALLOWANCE> 940
<TOTAL-ASSETS> 285,637
<DEPOSITS> 236,248
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,949
<LONG-TERM> 20,576
0
0
<COMMON> 0
<OTHER-SE> 26,864
<TOTAL-LIABILITIES-AND-EQUITY> 285,637
<INTEREST-LOAN> 8,042
<INTEREST-INVEST> 10,265
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 18,307
<INTEREST-DEPOSIT> 9,839
<INTEREST-EXPENSE> 10,005
<INTEREST-INCOME-NET> 8,302
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,235
<INCOME-PRETAX> 3,392
<INCOME-PRE-EXTRAORDINARY> 3,397
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,175
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.23
<LOANS-NON> 523
<LOANS-PAST> 52
<LOANS-TROUBLED> 67
<LOANS-PROBLEM> 385
<ALLOWANCE-OPEN> 667
<CHARGE-OFFS> 33
<RECOVERIES> 6
<ALLOWANCE-CLOSE> 940
<ALLOWANCE-DOMESTIC> 940
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 174
</TABLE>
<PAGE>
Exhibit 99.0
Return on Equity and Asset Ratios:
<TABLE>
<CAPTION>
At and for the year
ended December 31,
----------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Return on average assets 0.83% 0.93% 0.49%
Return on average equity 8.42% 9.62% 5.26%
Average equity to average assets 9.91% 9.65% 9.23%
</TABLE>
