<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission File Number 0-24997
<TABLE>
<S> <C>
SOUTH JERSEY FINANCIAL CORPORATION, INC.
- ------------------------------------------------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 22-3615289
- ------------------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
4651 Route 42, Turnersville, New Jersey 08012
- ------------------------------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(609) 629-6000
- ------------------------------------------------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
Not Applicable
- ------------------------------------------------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changes since last report)
</TABLE>
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: the Issuer had 3,793,430 shares
of common stock, par value $0.01 per share, outstanding as of May 10, 1999.
<PAGE>
SOUTH JERSEY FINANCIAL CORPORATION, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
March 31, 1999 (unaudited) and December 31, 1998..................................... 1
Consolidated Statements of Income for the Three
Months Ended March 31, 1999 and 1998 (unaudited)..................................... 2
Consolidated Statements of Changes in Shareholders' Equity
for the Three Months Ended March 31, 1999............................................ 3
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998........................................... 4
Notes to Consolidated Financial Statements........................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.................................................................... 22
Item 2. Changes in Securities and Use of Proceeds............................................ 22
Item 3. Defaults Upon Senior Securities...................................................... 22
Item 4. Submission of Matters to a Vote of Security Holders.................................. 22
Item 5. Other Information.................................................................... 22
Item 6. Exhibits and Reports on Form 8-K..................................................... 23
SIGNATURES.................................................................................... 24
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1.
South Jersey Financial Corporation, Inc. and Subsidiary
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
March 31, December
1999 31,
1998
------------- -------------
(Unaudited)
(In thousands)
ASSETS
- ------
<S> <C> <C>
Cash and cash equivalents $ 21,901 $ 49,987
Investment securities held to maturity (approximate fair values - 1999, $67,752; 1998,
$70,711) 67,700 69,970
Investment securities available for sale at fair value 32,903 -
Mortgage-backed securities held to maturity (approximate fair values - 1999, $66,037;
1998, $51,872) 65,371 50,783
Mortgage-backed securities available for sale at fair value 3,983 -
Loans receivable, net 117,692 107,177
Accrued interest receivable 2,506 2,220
Federal Home Loan Bank stock - at cost 1,397 1,249
Office properties and equipment 3,178 3,164
Real estate owned 141 -
Deferred income taxes 1,331 122
Prepaid expenses and other assets 347 965
------------- -------------
Total Assets $318,450 $285,637
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits $236,369 $236,248
Advances from Federal Home Loan Bank 21,076 20,576
Advances from borrowers for taxes and insurance 906 840
Accounts payable and accrued expenses 687 1,056
Income taxes payable 448 53
------------- -------------
Total Liabilities 259,486 258,773
Shareholders' equity:
Preferred stock - $0.01 per share; 1,000,000 authorized; none issued - -
Common stock - $0.01 per share; 14,000,000 authorized; 3,793,430 issued and
outstanding in 1999 38 -
Paid-in-capital in excess of par 36,239 -
Unearned ESOP shares (2,984) -
Retained Earnings - Partially restricted 25,718 26,864
Accumulated other comprehensive loss (47) -
------------- -------------
Total Shareholders' Equity 58,964 26,864
------------- -------------
Total Liabilities and Shareholders' Equity $318,450 $285,637
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
South Jersey Financial Corporation, Inc. and Subsidiary
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1999 1998
------------- -----------
(Unaudited)
(In thousands)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,097 $2,031
Interest on mortgage-backed securities 1,043 857
Interest on investment securities 1,897 1,635
------------- -----------
Total interest income 5,037 4,523
INTEREST EXPENSE
Interest on deposits 2,491 2,376
Interest on borrowed money 265 3
------------- -----------
Total interest expense 2,756 2,379
NET INTEREST INCOME 2,281 2,144
PROVISION FOR LOAN LOSSES 75 75
------------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,206 2,069
OTHER INCOME
Service charges and other fees 141 135
Gain on the sale of loans 2 -
Other - 3
------------- -----------
Total other income 143 138
OPERATING EXPENSES
Compensation and employee benefits 937 783
Fixed assets 179 183
Federal deposit insurance premiums 35 34
Data processing 95 83
Advertising 25 15
Other operating 198 176
Foundation contribution 2,811 -
------------- -----------
Total operating expenses 4,280 1,274
------------- -----------
INCOME BEFORE INCOME TAXES (1,931) 933
INCOME TAX (BENEFIT) EXPENSE (785) 336
------------- -----------
NET (LOSS) INCOME $(1,146) $ 597
============= ===========
Per share data:
Basic net loss per share (1) $(0.40) Na
Diluted net loss per share (1) $(0.40) Na
Average number of shares outstanding - basic 3,490,061 Na
Average number of shares outstanding - diluted 3,490,061 Na
</TABLE>
(1) Basic net income per share and diluted net income per share represent data
since becoming a public company on February 12, 1999. Earnings per share for
the period ended March 31, 1998 is not applicable since the company was not
a public company.
See accompanying notes to consolidated financial statements.
2
<PAGE>
South Jersey Financial Corporation, Inc. And Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Compre- Common Paid in Unearned Retained Accum- Total
hensive Stock at Capital in ESOP Earnings - ulated Share-
Income Par excess of Shares Partially Other holders'
Par Restricted Compre- Equity
hensive
Loss
---------- ---------- --------- ---------- ---------- ---------- ----------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $ - $ - $ - $ 26,864 $ - $ 26,864
Issuance of Common 38 36,239 - - - $ 36,277
Stock
Unearned ESOP - - (2,984) - - $ (2,984)
Shares
Comprehensive loss: - - - - -
Net loss $ (1,146) - - - (1,146) - $ (1,146)
---------
Unrealized loss on
available for sale
securities, net of
taxes (47) - - - - (47) $ (47)
---------
Sub-total other
comprehensive loss (47) - - - - - -
---------
Total comprehensive
loss $ (1,193) - - - - - -
========= ---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1999 $ 38 $ 36,239 $ (2,984) $ 25,718 $ (47) $ 58,964
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
South Jersey Financial Corporation, Inc and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1999 1998
------------ ---------------
(Unaudited)
(In thousands)
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (1,146) $ 597
Provision for loan losses 75 75
Provision for depreciation 71 74
Amortization of premium/discounts on mortgage-backed securities, net (6) (4)
Amortization of premium/discounts on investments, net 57 34
Amortization of deferred and prepaid loan fees (37) (33)
Changes in assets and liabilities which provided (used) cash:
Real estate acquired through foreclosure (141) (50)
Accrued interest receivable (287) 44
Prepaid expenses and other assets 617 195
Deferred income taxes (1,180) -
Deferred and prepaid loan fees (41) 3
Accounts payable and accrued expenses (369) (381)
Income taxes payable 396 83
------------ ---------------
Net cash (used in) provided by operating activities (1,991) 637
INVESTING ACTIVITIES
Purchase of:
Mortgage-backed securities (23,015) (4,010)
Investment securities (43,999) (14,026)
Federal Home Loan Bank Stock (148) (16)
Office properties and equipment (84) (20)
Proceeds from:
Sale of loans - 90
Maturing mortgage-backed securities 4,472 2,696
Maturing investment securities 13,212 13,500
Principal collected on long-term loans 5,733 5,408
Long-term loans originated or acquired (16,245) (6,245)
------------ ---------------
Net cash used in investing activities (60,074) (2,623)
</TABLE>
4
<PAGE>
South Jersey Financial Corporation, Inc and Subsidiary
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1999 1998
------------ ---------------
(Unaudited)
(In thousands)
<S> <C> <C>
FINANCING ACTIVITIES:
Net increase in deposits 121 3,406
Net increase in FHLB advances 500 -
Increase in advances from borrowers for taxes and insurance 65 69
Net proceeds from issuance of common stock 33,293 -
------------ ---------------
Net cash provided by financing activities 33,979 3,475
------------ ---------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (28,086) $ 1,489
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD $ 49,987 $ 19,200
============ ===============
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 21,901 $ 20,689
============ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
SOUTH JERSEY FINANCIAL CORPORATION, INC.
Notes to Consolidated Financial Statements
(1) Organization
------------
South Jersey Financial Corporation, Inc. (the" Company") was incorporated under
Delaware law in September 1998 for the purpose of serving as the holding company
of South Jersey Savings and Loan Association (the "Association") as part of the
Association's conversion from the mutual to stock form of organization (the
"Conversion"). The Company is a savings and loan holding company and is subject
to regulation by the Office of Thrift Supervision (the "OTS"), the Federal
Deposit Insurance Corporation and the Securities and Exchange Commission (the
"SEC"). The Conversion, completed on February 12, 1999 resulted in the Company
issuing an aggregate of 3,793,430 shares of its common stock, par value $.01 per
share, 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 South Jersey Savings Charitable Foundation. Prior to the Conversion, the
Company had not engaged in any material operations. The financial statements
for the periods prior to February 12, 1999 are the statements of the
Association.
(2) Accounting Principles
---------------------
The accompanying unaudited consolidated financial statements of South Jersey
Financial Corporation, Inc. have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
instructions to Form 10-QSB and Regulation S-B. Accordingly, the financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of a normal recurring
nature) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the current fiscal year.
For further information, refer to the financial statements included in the
Company's offering prospectus prepared in connection with the Conversion filed
with the SEC.
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 consolidated financial statements and the
reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
6
<PAGE>
Recent Accounting Pronoucements
Comprehensive Income - In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income". This statement established standards for reporting and
displaying comprehensive income and its components.
Segment Reporting - In June 1997, the FASB issued SFAS No. 131, "Disclosures
about Segment 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 Company has one reportable segment and the adoption of SFAS No. 131 did
not have any impact on the Company's financial statements.
Accounting Principles Issued But Not Yet Adopted - In June 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
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 Company is in the
process of evaluating the impact, if any, this statement will have on the
Company's results of operations or financial position when adopted.
7
<PAGE>
(3) Investment securities held to maturity
--------------------------------------
Investment securities held to maturity are summarized as follows:
<TABLE>
<CAPTION>
At March 31, 1999
---------------------------------------------------
Amortized Gross Gross Approximate
Cost Unrealized Unrealized Fair Value
Gains Losses
------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
U. S. Treasury and government agencies $29,347 $396 $ 2 $29,741
FHLB Notes 38,253 129 471 $37,911
Other 100 - - $ 100
------------ ------------ ------------ ------------
$67,700 $525 $473 $67,752
============ ============ ============ ============
<CAPTION>
At December 31, 1998
---------------------------------------------------
Amortized Gross Gross Approximate
Cost Unrealized Unrealized Fair Value
Gains Losses
------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
U. S. Treasury and government agencies $33,606 $667 $ - $34,273
FHLB Notes 36,264 224 150 $36,338
Other 100 - - $ 100
------------ ------------ ------------ ------------
$69,970 $891 $150 $70,711
============ ============ ============ ============
</TABLE>
8
<PAGE>
(4) Investment securities available for sale
----------------------------------------
Investment securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
At March 31, 1999
--------------------------------------------------
Amortized Gross Gross Approximate
Cost Unrealized Unrealized Fair Value
Gains Losses
------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
FHLB Notes $ 3,000 - $50 $ 2,950
Other 30,000 - 47 $29,953
------------ ------------ ------------ ------------
$33,000 $0 $97 $32,903
============ ============ ============ ============
</TABLE>
At December 31, 1998, the Company had no investment securities available for
sale.
(5) Mortgage-backed securities held to maturity
-------------------------------------------
Mortgage-backed securities held to maturity are summarized as follows:
<TABLE>
<CAPTION>
At March 31, 1999
---------------------------------------------------
Amortized Gross Gross Approximate
Cost Unrealized Unrealized Fair Value
Gains Losses
------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
GNMA pass-through certificates $ 638 $ 50 $ - $ 688
FNMA pass-through certificates 46,818 330 264 $46,884
FHLMC pass-through certificates 17,915 558 8 $18,465
------------ ------------ ------------ ------------
$65,371 $ 938 $272 $66,037
============ ============ ============ ============
<CAPTION>
At December 31, 1998
---------------------------------------------------
Amortized Gross Gross Approximate
Cost Unrealized Unrealized Fair Value
Gains Losses
------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
GNMA pass-through certificates $ 686 $ 54 $ - $ 740
FNMA pass-through certificates 29,763 475 73 $30,165
FHLMC pass-through certificates 20,334 633 - $20,967
------------ ------------ ------------ ------------
$50,783 $1,162 $ 73 $51,872
============ ============ ============ ============
</TABLE>
At March 31, 1999, the balance of mortgage-backed securities pledged for public
deposits was $811,289.
9
<PAGE>
(6) Mortgage-backed securities available for sale
---------------------------------------------
Mortgage-backed securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
At March 31, 1999
----------------------------------------------------
Amortized Gross Gross Approximate
Cost Unrealized Unrealized Fair Value
Gains Losses
------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C>
FNMA pass-through certificates $3,961 $22 $- $3,983
============ ============ ============ ============
</TABLE>
At December 31, 1998, the Company had no mortgage-backed securities available
for sale.
(7) Loans receivable
----------------
Loans receivable at March 31, 1999 and December 31, 1998 consist of the
following:
<TABLE>
<CAPTION>
At March 31, 1999 At December 31, 1998
------------------- ----------------------
(In thousands)
<S> <C> <C>
Residential mortgage loans (primarily single $ 98,772 $ 89,249
family)
Nonresidential mortgage loans 2,125 2,000
Home equity loans and equity lines of credit 15,367 14,403
Education loans 2,096 2,144
Other consumer loans 629 644
------------------ ------------------
118,989 108,440
Less:
Allowance for loan losses (1,053) (940)
Deferred fees and other credits (244) (323)
------------------ ------------------
Net loans receivable $117,692 $107,177
================== ==================
</TABLE>
The total amount of loans being serviced for the benefit of others was
approximately $0 and $1,540,000 at March 31, 1999 and December 31, 1998,
respectively.
An analysis of activity in allowance for loan losses at March 31, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
At March 31, 1999 At March 31, 1998
------------------- -------------------
(In thousands)
<S> <C> <C>
Balance, beginning of year $ 940 $ 667
Provision for loan losses 75 75
Charge-offs - (7)
Recoveries 38 2
------------------- -------------------
Balance, end of period $1,053 $ 737
=================== ===================
</TABLE>
10
<PAGE>
(8) Accrued interest receivable
---------------------------
Accrued interest receivable at March 31, 1999 and December 31, 1998 consists of
the following:
<TABLE>
<CAPTION>
At March 31, At December 31,
1999 1998
------------------- -------------------
(In thousands)
<S> <C> <C>
Investments and interest-bearing deposits $ 1,427 $ 1,295
Mortgage-backed securities 419 325
Loans receivable 660 600
------------------- -------------------
Total $ 2,506 $ 2,220
=================== ===================
</TABLE>
(9) Office properties and equipment
-------------------------------
Office properties and equipment at March 31, 1999 and December 31, 1998 are
summarized by major classifications as follows:
<TABLE>
<CAPTION>
At March 31, At December 31,
1999 1998
--------------- -----------------
(In thousands)
<S> <C> <C>
Land and buildings $ 3,384 $ 3,370
Furniture and equipment 2,355 2,305
--------------- -----------------
Total 5,739 5,675
Accumulated depreciation (2,561) (2,511)
--------------- -----------------
Net $ 3,178 $ 3,164
=============== =================
</TABLE>
11
<PAGE>
(10) Deposits
--------
Deposits consist of the following major classifications at March 31, 1999 and
December 31, 1998:
<TABLE>
<CAPTION>
At March 31, At December 31,
1999 1998
---------------- -----------------
(In thousands)
<S> <C> <C>
Passbook and clubs $ 35,590 $ 34,921
Checking accounts 34,619 36,433
Money market demand 43,573 42,672
---------------- -----------------
Core account total 113,782 114,026
Certificates:
Less than $100,000 111,514 111,853
$100,000 or more 11,073 10,369
---------------- -----------------
Certificate total 122,587 122,222
---------------- -----------------
Total $ 236,369 $ 236,248
================ =================
</TABLE>
(11) Borrowings
At March 31, 1999 and December 31, 1998, the Company had outstanding advances
from the Federal Home Loan Bank of $21,076,000 at a weighted average rate of
5.068% and $20,576,000 at a weighted average rate of 5.057%, respectively. The
advances are collateralized by Federal Home Loan Bank stock and first mortgage
loans and securities.
<TABLE>
<CAPTION>
At March 31, 1999 At December 31, 1998
------------------------- --------------------------
(In thousands)
<S> <C> <C> <C> <C>
Federal Home Loan Bank advances maturing in:
1999 $ 1,000 4.760% $ 1,000 4.760%
2001 132 6.615% 132 6.615%
2002 44 6.615% 44 6.615%
2003 5,000 4.950% 5,000 4.950%
2005 2,000 5.080% 2,000 5.080%
2006 500 5.530% - -
2008 12,400 5.098% 12,400 5.098%
------------ ---------- ------------ ----------
Total $ 21,076 5.068% $ 20,576 5.057%
============ ========== ============ ==========
</TABLE>
12
<PAGE>
(12) Commitments and contingencies
-----------------------------
Commitments at March 31, 1999 consist of the following:
At March 31, 1999
-------------------
(In thousands)
Fixed rate mortgages $ 2,970
Whole loan purchases 27,841
Consumer loans 251
Unused lines of credit 1,798
-------------------
Total $ 32,860
===================
At March 31, 1999, all commitments are expected to be funded within one year.
13
<PAGE>
2. Management's Discussion and Analysis or Plan of Operation.
----------------------------------------------------------
The following analysis discusses changes in the financial condition and results
of operations at and for the three months ended March 31, 1999, and should be
read in conjunction with the Company's Consolidated Financial Statements and the
notes thereto, appearing in Part I, Item 1 of this document.
Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such forward-
looking statements to be covered by the safe harbor provisions for forward-
looking statements contained in the Private Securities Reform Act of 1995, and
is including this statement for purposes of these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies and expectations of the Company, are generally
identified by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project," or similar expressions. The Company's ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse effect on the operations
of the Company and the subsidiaries include, but are not limited to, changes in:
interest rates, general economic conditions, legislative/regulatory changes,
monetary and fiscal policies of the U.S. Government, including policies of the
U.S. Treasury and the Federal Reserve Board, the quality or composition of the
loan or investment portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market area and
accounting principles and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning the Company and
its business, including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with the SEC.
The Company does not undertake - and specifically disclaims any obligation - to
publicly release the result of any revisions which may be made to any forward-
looking statements to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.
14
<PAGE>
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.
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.
Comparison of Financial Condition at March 31, 1999 and December 31, 1998
Total assets increased by $32.8 million, or 11.5%, to $318.5 million at
March 31, 1999 from $285.6 million at December 31, 1998. The increase in assets
was funded primarily by the proceeds of
15
<PAGE>
the Conversion and resulted in increases in the investment securities portfolio,
the mortgage-backed securities portfolio and the loan portfolio.
Cash and cash equivalents decreased $28.1 million, or 56.2%, to $21.9
million at March 31, 1999 from $50.0 million at December 31, 1998. The decrease
in cash and cash equivalent was primarily in federal funds. The investment
securities portfolio increased $30.6 million, or 43.8%, to $100.6 million at
March 31, 1999 from $70.0 million at December 31, 1998. The mortgage-backed
securities portfolio increased $18.6 million, or 36.6%, to $69.4 million at
March 31, 1999 from $50.8 million at December 31, 1998.
The net loan portfolio increased $10.5 million, or 9.8%, to $117.7 million
at March 31, 1999 from $107.2 million at December 31, 1998. Total real estate
loans increased $9.6 million, or 10.6%, to $100.9 million at March 31, 1999 from
$91.2 million at December 31, 1998. This increase was primarily a result of an
increase of $9.5 million, or 10.7%, in residential real estate loans to $98.8
million at March 31, 1999 from $89.2 million at December 31, 1998.
Nonresidential real estate loans remained constant. Consumer loans increased
$900 thousand, or 5.2%, to $18.1 million at March 31, 1999 from $17.2 million at
December 31, 1998.
Total nonaccrual loans decreased to $468 thousand at March 31, 1999 from
$523 thousand at December 31, 1998, representing 0.40% and 0.49%, respectively,
of net loans at such dates. Nonperforming assets increased to $609 thousand at
March 31, 1999 from $590 thousand at December 31, 1998, representing 0.19% and
0.21%, respectively, of total assets at such dates.
Total deposits increased $121 thousand, or .05%, to $236.4 million at March
31, 1999 from $236.2 million at December 31, 1998. Core accounts decreased $244
thousand, or .21%, to $113.8 million at March 31, 1999 from $114.0 million at
December 31, 1998. Certificates increased $365 thousand, or .30%, to $122.6
million at March 31, 1999 from $122.2 million at December 31, 1998.
Advances from the FHLB increased $500 thousand, or 2.4%, to $21.1 million
at March 31, 1999 from $20.6 million at December 31, 1998.
Shareholders' equity increased $32.1 million, or 119.5%, to $59.0 million
at March 31, 1999 from $26.9 million at December 31, 1998. This increase was
primarily a result of the stock sold in the Conversion.
Comparison of Operating Results For the Three Months Ended March 31, 1999 and
1998
General. Core operating earnings (net income excluding the foundation
contribution and the related tax effect) was $552 thousand for the quarter ended
March 31, 1999 compared to $597 thousand for the quarter ended March 31, 1998, a
decrease of $45 thousand, or 7.5%. Including a non-recurring charge resulting
from the $2.8 million contribution to establish the South Jersey Savings
Charitable Foundation and the related tax benefit of $1.1 million, the Company
experienced a net loss of $1.1 million for the quarter ended March 31, 1999
compared to net income of $597 thousand for the quarter ended March 31, 1998.
Interest Income. Total interest income increased $514 thousand, or 11.4%,
to $5.0 million for the quarter ended March 31, 1999 from $4.5 million for the
quarter ended March 31, 1998. This was
16
<PAGE>
primarily due to an increase in the average balance of earning assets of $57.6
million, or 23.6%, offset by a decrease of 72 basis points in the weighted
average yield on interest earning assets to 6.70% for the quarter ended March
31, 1999 from 7.42% for the quarter ended March 31, 1998. Interest income on
loans increased $66 thousand, or 3.3%, to $2.1 million for the quarter ended
March 31, 1999 from $2.0 million for the quarter ended March 31, 1998. This
increase was due to an increase of $10.5 million, or 10.5%, in the average
balance of loans partially offset by a decrease of 54 basis points in the
weighted average yield to 7.64% for the quarter ended March 31, 1999 from 8.18%
for the quarter ended March 31, 1998. Interest income on mortgage-backed
securities increased $186 thousand, or 21.8%, to $1.0 million for the quarter
ended March 31, 1999 from $856 thousand for the quarter ended March 31, 1998.
The increase was the result of an increase of $15.3 million, or 33.7%, in the
average balance of mortgage-backed securities offset by a 67 basis point
decrease in the weighted average yield to 6.85% for the quarter ended March 31,
1999 from 7.52% for the quarter ended March 31, 1998. Interest income on
investment securities and interest bearing deposits increased $262 thousand, or
16.0%, to $1.9 million for the quarter ended March 31, 1999 from $1.6 million
for the quarter ended March 31, 1998. This increase was due to an increase of
$31.8 million, or 32.1%, in the average balance of investment securities and
interest bearing deposits offset by a 79 basis point decrease in the weighted
average yield to 5.83% for the quarter ended March 31, 1999 from 6.62% for the
quarter ended March 31, 1998.
Interest Expense. Interest expense increased by $376 thousand, or 15.8%,
to $2.8 million for the quarter ended March 31, 1999 from $2.4 million for the
quarter ended March 31, 1998. Interest expense on deposits increased by $114
thousand, or 4.8%, to $2.5 million for the quarter ended March 31, 1999 from
$2.4 million for the quarter ended March 31, 1998. The increase was the result
of an increase of $10.8 million in the average balance of savings deposits.
Interest expense on advances increased to $265 thousand for the quarter ended
March 31, 1999 from $3 thousand for the quarter ended March 31, 1998. The
increase in interest expense on advances was attributed to an increase in the
average balance of advances to $21.0 million for the quarter ended March 31,
1999 from $176 thousand for the quarter ended March 31, 1998.
The following table sets forth information for the quarter ended March 31, 1999
and March 31, 1998 regarding the Company's (1) average balance of interest-
earning assets and the average yields; (2) average balance of interest-bearing
liabilities and average costs; (3) net interest income; (4) interest rate
spread; and (5) net yield earned on weighted average interest-earning assets.
<TABLE>
<CAPTION>
For the Three Months Ended
---------------------------------------------------------------------------------
March 31, 1999 March 31, 1998
------------------------------------- -------------------------------------
(Dollars in thousands)
Average Interest Avg Average Interest Avg
Balance Yield/Rate Balance Yield/Rate
------------- ---------- -------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 110,068 $ 2,097 7.64% $ 99,611 $ 2,031 8.18%
Mortgage-backed securities 60,869 1,043 6.85% 45,531 857 7.52%
Investment securities 88,652 1,400 6.34% 80,900 1,378 6.81%
Interest-bearing deposits 42,240 497 4.77% 18,171 257 6.51%
------------- ---------- ------------ ----------
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Total interest-earning assets 301,829 5,037 6.70% 244,213 4,523 7.42%
Non-interest-bearing
assets 7,867 7,375
------------- ------------
Total assets $ 309,696 $ 251,588
============= ============
Interest-bearing liabilities:
Deposits 235,519 2,491 4.29% 224,760 2,376 4.29%
Borrowings 21,043 265 5.11% 176 3 6.62%
------------- ---------- ------------ ----------
Total interest-bearing
liabilities 256,562 2,756 4.36% 224,936 2,379 4.29%
Non-interest bearing
liabilities 1,464 1,671
------------- ------------
Total liabilities 258,026 226,607
Shareholders' equity 51,670 24,981
------------- ------------
Total liabilities and
shareholders' equity $ 309,696 $ 251,588
============= ============
Net interest-earning assets $ 45,267 $ 19,277
============= ============
Net interest income/interest
rate spread $ 2,281 2.34% $ 2,144 3.13%
========== ==========
Net interest margin as a % of
average interest-earning assets 3.00% 3.47%
========== ==========
</TABLE>
Provision for Loan Losses. The provision for loan losses was $75 thousand
for the quarters ended March 31, 1999 and March 31, 1998. As of March 31, 1999,
the allowance for loan losses was $1.1 million or .89% of net loans compared to
$900 thousand, or .88% of net loans at March 31, 1998. Management periodically
analyzes the sufficiency of its allowance based upon portfolio composition,
asset classifications, loan-to-value ratios, potential impairments in the loan
portfolio, and other factors.
Noninterest income. Non interest income increased $5 thousand, or 3.3%, to
$143 thousand for the quarter ended March 31, 1999 from $138 thousand for the
quarter ended March 31, 1998.
Noninterest Expense. Operating expenses increased $3.0 million to $4.3
million for the quarter ended March 31, 1999 from $1.3 million for the quarter
ended March 31, 1998. The substantial increase in operating expenses was
primarily a result of a contribution to the South Jersey Savings Charitable
Foundation in the amount of $2.8 million. The South Jersey Charitable
Foundation is a charitable foundation established by the Company during the
Conversion and will be completely dedicated to community activities and the
promotion of charitable causes. Compensation and employee benefits increased
$154 thousand, or 19.7%, to $937 thousand for the quarter ended March 31, 1999
from $783 thousand for the quarter ended March 31, 1998, primarily due to normal
increases in salaries, increases in benefit costs and the establishment of an
ESOP. Data processing increased $12 thousand, or 15.1%, to $95 thousand for the
quarter ended March 31, 1999 from $83 thousand for the quarter ended March 31,
18
<PAGE>
1998. This increase was due to the introduction of a telephone banking service.
Other operating expenses increased $22 thousand, or 12.5%, to $198 thousand for
the quarter ended March 31, 1999 from $176 thousand for the quarter ended March
31, 1998. This increase was primarily the result of increased costs associated
with being a publicly owned company.
Income Taxes. Income taxes for the quarter ended March 31, 1999 totalled a
benefit of $785 thousand compared to an expense of $336 thousand for the quarter
ended March 31, 1998. The difference in taxes was the result of a tax benefit
of $1.1 million associated with the $2.8 million contribution to the charitable
foundation.
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 March 31, 1999, the Association's liquidity ratio
was 44.22%.
At March 31, 1999, the Association exceeded all of its regulatory capital
requirements with a tangible capital level of $42.6 million, or 14.1%, of total
adjusted assets, which is above the required level of $4.5 million, or 1.5%;
core capital of $42.6 million, or 14.1%, of total adjusted assets, which is
above the required level of $9.1 million, or 3.0%; and risk-based capital of
$43.5 million, or 39.7%, of risk-weighted assets, which is above the required
level of $11.0 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 March 31, 1999,
cash and cash equivalents totalled $21.9 million, or 6.9% of total assets.
The Association has other sources of liquidity if a need for additional
funds arises, including FHLB advances. At March 31, 1999, the Association had
$21.1 million in advances outstanding from the FHLB, and at March 31, 1999, had
an additional overall borrowing capacity from the FHLB of $95.5 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 totalled $32.9 million at March 31, 1999.
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 March 31, 1999 totalled $58.7
million. From March 31, 1998 to March 31, 1999, the Association experienced a
64% 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
19
<PAGE>
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.
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 their primary data processor
and the third party data processors for Automated Teller Machine ("ATM") and
Electronic Funds Transfer ("EFT") transactions. The Association also completed
testing of its check processing systems. The validation processes revealed no
material problems with any of these systems. 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
contacted its significant suppliers and other vendors requesting information
related to Year 2000 compliance. Based on their responses, the Association
anticipates that all of its significant suppliers and other vendors are or will
be Year 2000 compliant by June 30, 1999. 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. The business resumption contingency plan is expected
to be completed by June 30, 1999. 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.
20
<PAGE>
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 March 31, 1999, had expended approximately $55,000. 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 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.
21
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
Neither the Company nor its banking subsidiary, South Jersey
Savings and Loan Association, are a party to any material legal
proceedings at this time. From time to time, the Company and its
banking subsidiary are involved in various claims and legal
actions arising in the ordinary course of business.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
None.
Item 3. Defaults Upon Senior Securities.
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
Item 5. Other Information.
-----------------
None.
22
<PAGE>
Item 6. Exhibits and Reports on Form 8-K ((S)249.308 of this Chapter).
-------------------------------------------------------------
(a) Exhibits
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)
11.0 Statement re: Computation of Per Share Earnings
27.0 Financial Data Schedule
-----------------------------
(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.
(b) Reports on Form 8-K
None.
23
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned hereunto duly
authorized.
SOUTH JERSEY FINANCIAL CORPORATION, INC.
Dated: May 17, 1999 By: /s/ Robert J. Colacicco
---------------------------------------
Robert J. Colacicco
President and Chief Executive Officer
(principal executive officer)
Dated: May 17, 1999 By: /s/ Gregory M. DiPaolo
---------------------------------------
Gregory M. DiPaolo
Executive Vice President, Treasurer and
Chief Operating Officer
(principal financial officer)
Dated: May 17, 1999 By: /s/ Joseph M. Sidebotham
---------------------------------------
Joseph M. Sidebotham
Corporate Secretary and Chief
Accounting Officer
(principal accounting officer)
24
<PAGE>
Exhibit 11.0
Statement re: Computation of Per Share Earnings
South Jersey Financial Corporation, Inc.
Computation of Per Share Earnings
For the Three Months Ended
-------------------------------------
March 31, March 31,
1999 1998
------------- -------------------
(Dollars in thousands)
Net (loss) income $ (1,146) $ 597
============= ===================
Average shares outstanding 3,490,061 Na
============= ===================
Earnings per share (1) $(0.40) Na
============= ===================
(1) Earnings per share, basic and diluted, are the same for the three months
ended March 31, 1999 and represent data since becoming a public company on
February 12, 1999.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF SOUTH JERSEY FINANCIAL CORPORATION, INC. AT AND FOR THE THREE
MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,405
<INT-BEARING-DEPOSITS> 396
<FED-FUNDS-SOLD> 17,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36,886
<INVESTMENTS-CARRYING> 134,468
<INVESTMENTS-MARKET> 135,186
<LOANS> 118,989
<ALLOWANCE> 1,053
<TOTAL-ASSETS> 318,450
<DEPOSITS> 236,369
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 2,041
<LONG-TERM> 20,076
0
0
<COMMON> 38
<OTHER-SE> 58,926
<TOTAL-LIABILITIES-AND-EQUITY> 318,450
<INTEREST-LOAN> 2,097
<INTEREST-INVEST> 2,940
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,037
<INTEREST-DEPOSIT> 2,491
<INTEREST-EXPENSE> 2,756
<INTEREST-INCOME-NET> 2,281
<LOAN-LOSSES> 75
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,280
<INCOME-PRETAX> (1,931)
<INCOME-PRE-EXTRAORDINARY> (1,931)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,146)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
<YIELD-ACTUAL> 6.70
<LOANS-NON> 468
<LOANS-PAST> 29
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 594
<ALLOWANCE-OPEN> 940
<CHARGE-OFFS> 0
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 1,053
<ALLOWANCE-DOMESTIC> 1,053
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 173
</TABLE>
