<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, 2000
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>
<CAPTION>
SOUTH JERSEY FINANCIAL CORPORATION, INC.
- ----------------------------------------------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
<S> <C>
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)
(856) 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>
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 3,423,571 shares
of common stock, par value $0.01 per share, outstanding as of May 10, 2000.
Traditional Small Business Disclosure Format (Check One): Yes [ ] No [X]
<PAGE>
SOUTH JERSEY FINANCIAL CORPORATION, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
March 31, 2000 (unaudited) and December 31, 1999 ........................................... 1
Consolidated Statements of Income for the Three
Months Ended March 31, 2000 and 1999 (unaudited)............................................ 2
Consolidated Statements of Changes in Shareholders' Equity
for the Three Months Ended March 31, 2000................................................... 3
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2000 and 1999........................................................ 4
Notes to Consolidated Financial Statements.................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 19
Item 2. Changes in Securities....................................................................... 19
Item 3. Defaults Upon Senior Securities............................................................. 19
Item 4. Submission of Matters to a Vote of Security Holders......................................... 19
Item 5. Other Information........................................................................... 19
Item 6. Exhibits and Reports on Form 8-K............................................................ 19
SIGNATURES........................................................................................... 21
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1.
South Jersey Financial Corporation, Inc. and Subsidiary
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
-------------- -----------------
(Unaudited)
(In thousands)
ASSETS
- ------
<S> <C> <C>
Cash and cash equivalents $ 6,386 $ 5,800
Investment securities held to maturity (approximate fair values - 2000, 61,805 64,837
$58,789; 1999, $61,655)
Investment securities available for sale at fair value 22,670 23,515
Mortgage-backed securities held to maturity (approximate fair values - 2000, 55,963 57,508
$53,669; 1999, $55,530)
Mortgage-backed securities available for sale at fair value 27,024 25,483
Federal Home Loan Bank stock - at cost 2,138 2,138
Loans receivable, net 144,433 147,658
Accrued interest receivable 2,541 2,570
Office properties and equipment 2,855 2,922
Deferred income taxes 1,739 1,729
Prepaid expenses and other assets 536 313
------------ -----------------
Total Assets $328,090 $334,473
============ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits $240,545 $237,852
Advances from Federal Home Loan Bank 32,083 37,074
Advances from borrowers for taxes and insurance 958 907
Accounts payable and accrued expenses 833 1,260
Income taxes payable 466 132
------------ -----------------
Total liabilities 274,885 277,225
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 38 38
Paid-in-capital in excess of par 36,286 36,265
Unearned ESOP shares (2,782) (2,832)
Unearned Stock Awards (1,663) -
Treasury Stock (369,859 shares) (5,658) (2,831)
Retained Earnings - Partially restricted 27,909 27,481
Accumulated other comprehensive loss (925) (873)
------------ -----------------
Total shareholders' equity 53,205 57,248
------------ -----------------
Total Liabilities and Shareholders' Equity $328,090 $334,473
============ =================
</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
------------------------------------
2000 1999
--------------- -------------
(Unaudited)
(In thousands except for per share data)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,677 $ 2,097
Interest on mortgage-backed securities 1,459 1,043
Interest on investment securities 1,459 1,897
---------- ----------
Total interest income 5,595 5,037
INTEREST EXPENSE
Interest on deposits 2,437 2,491
Interest on borrowed money 477 265
---------- ----------
Total interest expense 2,914 2,756
---------- ----------
NET INTEREST INCOME 2,681 2,281
PROVISION FOR LOSSES 15 75
---------- ----------
NET INTEREST INCOME AFTER PROVISION 2,666 2,206
OTHER INCOME
Service charges and other fees 145 141
Gain on sale of loans 33 2
Net loss on sale of available for sale securities (36) -
---------- ----------
Total other income 142 143
OPERATING EXPENSES
Compensation and employee benefits 1,024 937
Fixed assets 198 179
Federal deposit 13 35
Data processing 99 95
Advertising 18 25
Other operating 311 212
Foundation contribution - 2,811
---------- ----------
Total operating expenses 1,663 4,294
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 1,145 (1,945)
INCOME TAX EXPENSE (BENEFIT) 418 (799)
---------- ----------
NET INCOME (LOSS) $ 727 $ (1,146)
========== ==========
Per share data:
Basic net income (loss) per share(1) $ 0.23 $ (0.40)
Diluted net income (loss) per share(1) $ 0.22 $ (0.40)
Avg number of shares outstanding - basic 3,180,839 3,490,061
Avg number of shares outstanding - diluted 3,246,508 3,490,061
</TABLE>
(1) Basic and diluted net income per share represent data since becoming a
public company on February 12, 1999.
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 Treasury Paid in Unearned Unearned Retained Accumulated Total
hensive Stock at Stock Capital in ESOP Stock Earnings - Other Share-
Income Par excess of Shares Awards Partially Compre- holders'
Par Restricted hensive Loss Equity
------- -------- -------- ---------- --------- --------- ---------- ------------ --------
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 $38 $(2,831) $36,265 $(2,832) $ - $27,481 (873) $57,248
Dividends paid - - - - (299) - (299)
ESOP shares committed to
be released - - 21 50 - - 71
Treasury stock acquired,
at cost - (2,827) - - - - (2,827)
Stock Awards $(1,663)
Comprehensive income: (1,663)
Net income $727 - - - - 727 - 727
---------
Unrealized loss
on available for
sale securities,
net of taxes (52) - - - - - (52) (52)
---------
Sub-total other
comprehensive loss (52) - - - - - - -
---------
Total
comprehensive income $675 - - - - - - -
========= ---- ----------- ---------- -------- -------- ------- ------ -------
Balance at March 31, 2000 $38 $(5,658) $36,286 $(2,782) $(1,663) $27,909 $(925) $53,205
==== =========== ========== ======== ======== ======= ====== =======
</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,
--------------------------------
2000 1999
---------- -----------
(Unaudited)
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 727 $ (1,146)
Provision for losses 15 75
Provision for depreciation 75 71
Amortization of premium/discounts on (16) (6)
mortgage-backed securities, net
Amortization of premium/discounts on 32 57
investments, net
Amortization of premium/discounts on 7 (37)
loans, net
ESOP expense 71 -
Loss on sale of investments 36 -
Gain on sale of loans (33) -
Changes in assets and liabilities which
provided (used) cash:
Accrued interest receivable 29 (287)
Prepaid expenses and other assets (223) 617
Deferred income taxes 20 (1,180)
Deferred and prepaid loan fees (4) (41)
Accounts payable and accrued (427) (369)
expenses
Income taxes payable 334 396
---------- -----------
Net cash provided by 643 (1,850)
(used in) operating
activities
INVESTING ACTIVITIES
Purchase of:
Mortgage-backed securities (1,962) (23,015)
Investment securities (379) (43,999)
Federal Home Loan Bank Stock - (148)
Office properties and equipment (8) (84)
</TABLE>
4
<PAGE>
South Jersey Financial Corporation, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------
2000 1999
---------- -----------
(Unaudited)
(In thousands)
<S> <C> <C>
INVESTING ACTIVITIES (Continued)
Proceeds from:
Maturing mortgage-backed securities 1,888 4,472
Maturing investment securities 3,000 13,212
Sale of available for sale securities 1,200 -
Sale of loans 1,971 -
Real estate acquired through foreclosure - (141)
Principal collected on long-term loans 4,118 5,733
Long-term loans originated or acquired (2,849) (16,245)
---------- -----------
Net cash provided by (used in)
(used in) investing activities 6,979 (60,215)
FINANCING ACTIVITIES:
Net increase in deposits 2,693 121
Net (decrease)/increase in FHLB advances (4,991) 500
Increase in advances from borrowers for 51 65
taxes and insurance
Dividends on Common Stock (299) -
Stock Awards (1,663) -
Purchase of treasury stock (2,827) -
Net proceeds from issuance of common stock - 33,293
---------- ----------
Net cash (used in) provided by financing
financing activities (7,036) 33,979
---------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 586 $ (28,086)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD $ 5,800 $ 49,987
---------- -----------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 6,386 $ 21,901
========== ===========
</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 (the "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, 2000 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 Annual Report on Form 10-KSB for the fiscal year ended December 31,
1999.
Recent Accounting Pronouncements
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, 2000 as amended by SFAS No. 137, 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.
6
<PAGE>
<PAGE>
(3) Investment securities
---------------------
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
At March 31, 2000
---------------------------------------------------
Amortized Gross Gross Approximate
Cost Unrealized Unrealized Fair Value
Gains Losses
----------- ---------- ---------- ------------
Investment securities (In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity
U. S. Treasury and government agencies $26,193 $41 $ 467 $25,767
FHLB Notes 35,512 - 2,590 32,922
Municipal Obligations 100 - - 100
--------- ----- ------ --------
Total $61,805 $41 $3,057 $58,789
========= ===== ====== ========
Investment securities
Available-for-sale
FHLB Notes $ 3,000 $ - $ 243 $ 2,757
Equity Securities 379 - 36 343
Mutual Funds 19,870 - 300 19,570
---------- ------ ------ -------
Total $23,249 $ 0 $ 579 $22,670
========== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1999
---------------------------------------------------
Amortized Gross Gross Approximate
Cost Unrealized Unrealized Fair Value
Gains Losses
---------- ---------- ---------- -------------
Investment securities (In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity
U. S. Treasury and government agencies $28,222 $42 $ 457 $27,807
FHLB Notes 36,515 - 2,767 33,748
Municipal Obligations 100 - - 100
-------- ----- ------ -------
Total $64,837 $42 $3,224 $61,655
======== ===== ====== =======
Investment securities
Available-for-sale
FHLB Notes $ 3,000 $ - $ 279 $ 2,721
Mutual Funds 21,106 - 312 20,794
-------- ------ ------ -------
Total $24,106 $ 0 $ 591 $23,515
======== ====== ====== =======
</TABLE>
7
<PAGE>
(4) Mortgage-backed securities
--------------------------
Mortgage-backed securities are summarized as
follows:
<TABLE>
<CAPTION>
At March 31, 2000
--------------------------------------------------
Amortized Gross Gross Approximate
Cost Unrealized Unrealized Fair Value
Gains Losses
----------- ---------- ----------- ------------
Mortgage-backed Securities (In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity
GNMA pass-through certificates $ 399 $ 15 $ - - $ 414
FNMA pass-through certificates 41,852 40 2,207 39,685
FHLMC pass-through certificates 13,712 68 210 13,570
-------- ---- ------ -------
Total $55,963 $123 $2,417 $53,669
======== ===== ====== =======
Mortgage-backed Securities
Available-for-sale
GNMA pass-through certificates $14,546 $--- $ 407 $14,139
FNMA pass-through certificates 11,452 - 455 10,997
FHLMC pass-through certificates 1,934 - 46 1,888
------- ----- ------ -------
Total $27,932 $ 0 $ 908 $27,024
======= ===== ====== =======
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1999
--------------------------------------------------
Amortized Gross Gross Approximate
Cost Unrealized Unrealized Fair Value
Gains Losses
----------- ---------- ----------- ------------
Mortgage-backed Securities (In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity
GNMA pass-through certificates $ 461 $ 25 $ - - $ 486
FNMA pass-through certificates 42,716 57 2,017 40,756
FHLMC pass-through certificates 14,331 112 155 14,288
------- ---- ------ -------
Total $57,508 $194 $2,172 $55,530
======= ==== ====== =======
Mortgage-backed Securities
Available-for-sale
GNMA pass-through certificates $14,636 $--- $ 397 $14,239
FNMA pass-through certificates 9,714 - 394 9,320
FHLMC pass-through certificates 1,949 - 25 1,924
------- ---- ------ -------
Total $26,299 $ 0 $ 816 $25,483
======= ==== ====== =======
</TABLE>
8
<PAGE>
At March 31, 2000, the amortized cost of mortgage-backed securities pledged for
public deposits was $502,000.
At March 31, 2000, the amortized cost of mortgage-backed securities pledged for
Federal Home Loan Bank ("FHLB") borrowings was $26,105,000.
(5) Loans receivable
----------------
Loans receivable at March 31, 2000 and December 31, 1999 consist of the
following:
<TABLE>
<CAPTION>
At March 31, 2000 At December 31, 1999
------------------ --------------------
(In thousands)
<S> <C> <C>
Residential mortgage loans (primarily single $126,095 $127,364
family)
Nonresidential mortgage loans 2,013 2,042
Home equity loans and equity lines of credit 16,796 16,691
Education loans 26 2,011
Other consumer loans 526 584
----------- -----------
145,456 148,692
Less:
Allowance for losses (1,030) (1,044)
Net deferred fees and other credits 7 10
----------- -----------
Net loans receivable $144,433 $147,658
=========== ===========
</TABLE>
An analysis of activity in allowance for losses at March 31, 2000 and 1999 is as
follows:
<TABLE>
<CAPTION>
At March 31, 2000 At March 31, 1999
----------------- -----------------
(In thousands)
<S> <C> <C>
Balance, beginning of $ 1,044 $ 940
year
Provision for losses 15 75
Charge-offs (29) -
Recoveries - 38
----------- -----------
Balance, end of period $ 1,030 $ 1,053
=========== ===========
</TABLE>
9
<PAGE>
(6) Accrued interest receivable
---------------------------
Accrued interest receivable at March 31, 2000 and December 31, 1999 consists of
the following:
<TABLE>
<CAPTION>
At March 31, 2000 At December 31, 1999
----------------- --------------------
(In thousands)
<S> <C> <C>
Investments and interest-bearing deposits $ 1,307 $ 1,298
Mortgage-backed securities 495 496
Loans receivable 739 776
-------- ---------
Total $ 2,541 $ 2,570
======== =========
</TABLE>
(7) Office properties and equipment
-------------------------------
Office properties and equipment at March 31, 2000 and December 31, 1999 are
summarized by major classifications as follows:
<TABLE>
<CAPTION>
At March 31, 2000 At December 31, 1999
----------------- --------------------
(In thousands)
<S> <C> <C>
Land and buildings $ 3,175 $ 3,179
Furniture and equipment 2,474 2,468
--------- -------
Total 5,649 5,647
Accumulated depreciation (2,794) (2,725)
--------- -------
Net $ 2,855 $ 2,922
========= =======
</TABLE>
10
<PAGE>
(8) Deposits
--------
Deposits consist of the following major classifications at March 31, 2000 and
December 31, 1999:
<TABLE>
<CAPTION>
At March 31, 2000 At December 31, 1999
----------------- --------------------
(In thousands)
<S> <C> <C>
Passbook and clubs $ 34,722 $ 34,114
Checking accounts 38,499 37,618
Money market demand 44,514 44,961
-------- --------
Core account total 117,735 116,693
Certificates:
Less than $100,000 112,157 110,250
$100,000 or more 10,653 10,909
-------- --------
Certificate total 122,810 121,159
-------- --------
Total $240,545 $237,852
======== ========
</TABLE>
(9) Borrowings
----------
The Company had outstanding advances from the FHLB as follows
<TABLE>
<CAPTION>
At March 31, 2000 At December 31, 1999
----------------- --------------------
(Dollars In thousands)
Federal Home Loan Bank advances
maturing in:
<S> <C> <C> <C> <C>
2000 $ 4,507 6.110% $ 9,498 5.694%
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% 500 5.530%
2008 12,400 5.098% 12,400 5.098%
2009 7,500 5.543% 7,500 5.543%
------- -------- ------- -------
Total $32,083 5.335% $37,074 5.232%
======= ======== ======= =======
</TABLE>
Included in the table above at March 31, 2000 and December 31, 1999 are advances
callable by the FHLB at various dates.
The advances were collateralized by FHLB stock and first mortgage loans and
securities.
11
<PAGE>
(10) Commitments and contingencies
-----------------------------
Commitments at March 31, 2000 consist of the following:
<TABLE>
<CAPTION>
At March 31, 2000
-------------------
(In thousands)
<S> <C>
Fixed rate mortgages $ 1,054
Consumer loans 176
Unused lines of credit 2,009
-------------------
Total $ 3,239
===================
</TABLE>
At March 31, 2000, all commitments are expected to be funded within one year.
(11) Acquisition by Richmond County Financial Corporation
----------------------------------------------------
Pursuant to an Agreement and Plan of Merger dated as of March 15, 2000, by
and among the Company, Richmond County Financial Corp. ("Richmond County") and a
wholly owned subsidiary of Richmond County, Richmond County Acquisition, Inc.
("Acquisition Sub"), the Company has agreed to merge with Acquisition Sub, with
the Company being the surviving corporation. Immediately after this merger, the
Association will merge with Richmond County Savings Bank ("Richmond County
Bank"), with Richmond County Bank being the surviving institution. Richmond
County intends to operate the Association's Collingswood, Glendora, and
Turnersville offices as a division of Richmond County Bank. Under the merger
agreement, each outstanding share of the Company's common stock will
automatically become exchangeable for $20.00 in cash. The merger is subject to
approval of the holders of a majority of the outstanding stock of the Company
and to regulatory approval. It is anticipated that the transaction will be
submitted to a vote of the Company's shareholders in the third quarter of the
year.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
The following analysis discusses changes in the financial condition and results
of operations at and for the three months ended March 31, 2000, 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 Litigation 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.
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
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 consumer-oriented 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
13
<PAGE>
. 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
The Company recognizes that its customer base focuses on convenience and access
to services. In this regard, the Company has addressed these customer desires
through the implementation of telephone banking, increased office hours and the
issuance of debit cards.
Comparison of Financial Condition at March 31, 2000 and December 31, 1999
Total assets decreased by $6.4 million, or 1.9%, to $328.1 million at March
31, 2000 from $334.5 million at December 31, 1999. The decrease in assets was
the result of using cash for a stock repurchase, stock acquired for the
Company's Restricted Stock Plan and a reduction of advances.
Cash and cash equivalents increased $586 thousand, or 10.1%, to $6.4
million at March 31, 2000 from $5.8 million at December 31, 1999. The
investment securities portfolio decreased $3.9 million, or 4.4%, to $84.5
million at March 31, 2000 from $88.4 million at December 31, 1999. The
mortgage-backed securities portfolio remained constant at $83.0 million at March
31, 2000 and December 31, 1999. The net loan portfolio decreased $3.2 million,
or 2.2%, to $144.4 million at March 31, 2000 from $147.7 million at December 31,
1999.
Non performing assets increased to $365 thousand at March 31, 2000 from
$131 thousand at December 31, 1999, representing 0.25% and 0.09%, respectively,
of net loans at such dates.
Total deposits increased $2.7 million, or 1.1%, to $240.5 million at March
31, 2000 from $237.9 million at December 31, 1999. Core accounts increased $1.0
million, or 0.9%, to $117.8 million at March 31, 2000 from $116.7 million at
December 31, 1999. Certificates increased $1.7 million, or 1.4%, to $122.8
million at March 31, 2000 from $121.2 million at December 31, 1999.
Advances from the FHLB decreased $5.0 million, or 13.5%, to $32.1 million
at March 31, 2000 from $37.1 million at December 31, 1999.
Shareholders' equity decreased $4.0 million, or 7.1%, to $53.2 million at
March 31, 2000 from $57.2 million at December 31, 1999. This decrease was
primarily a result of a stock repurchase in the amount of $2.8 million and stock
acquired for the Company's Restricted Stock Plan in the amount of $1.7 million.
Comparison of Operating Results For the Three Months Ended March 31, 2000 and
1999
General. Net income was $727 thousand, or $.23 basic and $.22 diluted
earnings per share, for the quarter ended March 31, 2000 compared to core
operating earnings (net income excluding the foundation contribution and the
related tax effect) of $552 thousand for the same period last year, representing
an increase of $175 thousand, or 31.7%. 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.
Interest Income. Total interest income increased $558 thousand, or 11.1%,
to $5.6 million for the quarter ended March 31, 2000 from $5.0 million for the
quarter ended March 31, 1999. This was primarily due to an increase in the
average balance of earning assets of $20.7 million, or 6.9%, and an increase of
24 basis points in the weighted average yield on interest-earning assets to
6.94% for the quarter ended March 31, 2000 from 6.70% for the quarter ended
March 31, 1999. Interest income on loans increased $580 thousand, or 27.7%, to
$2.7 million for the quarter ended March 31, 2000 from $2.1 million for the
quarter ended March 31, 1999. This increase was due to an increase of $37.6
million, or 34.2%, in the average balance of loans partially offset by a
decrease of 39 basis points in the weighted average yield to 7.25% for the
quarter ended March 31, 2000 from 7.64% for the
14
<PAGE>
quarter ended March 31, 1999. Interest income on mortgage-backed securities
increased $416 thousand, or 39.9%, to $1.5 million for the quarter ended March
31, 2000 from $1.0 million for the quarter ended March 31, 1999. The increase
was the result of an increase of $22.9 million, or 37.6%, in the average balance
of mortgage-backed securities and a 12 basis point increase in the weighted
average yield to 6.97% for the quarter ended March 31, 2000 from 6.85% for the
quarter ended March 31, 1999. The increase in the average balance of earning
assets in the mortgage-backed securities and the loan portfolios was a result of
the deployment of the net proceeds of the conversion, and the continuation of a
leveraging strategy of using advances to fund asset growth. Interest income on
investment securities and interest-earning deposits decreased $438 thousand, or
23.1%, to $1.5 million for the quarter ended March 31, 2000 from $1.9 million
for the quarter ended March 31, 1999. This decrease was due to a decrease of
$39.8 million, or 30.4%, in the average balance of investment securities and
interest-earning deposits offset by a 58 basis point increase in the weighted
average yield to 6.41% for the quarter ended March 31, 2000 from 5.83% for the
quarter ended March 31, 1999.
Interest Expense. Interest expense increased by $158 thousand, or 5.7%, to
$2.9 million for the quarter ended March 31, 2000 from $2.8 million for the
quarter ended March 31, 1999. Interest expense on advances increased to $477
thousand for the quarter ended March 31, 2000 from $265 thousand for the quarter
ended March 31, 1999. The increase in interest expense on advances was
attributed to an increase in the average balance of advances to $35.4 million
for the quarter ended March 31, 2000 from $21.0 million for the quarter ended
March 31, 1999. A feature of the Company's business plan is to leverage the
balance sheet through the utilization of advances to fund asset growth.
Interest expense on deposits remained relatively stable.
15
<PAGE>
The following table sets forth information for the quarter ended March 31, 2000
and March 31, 1999 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, 2000 March 31, 1999
--------------------------------------- --------------------------------------
(Dollars in thousands)
Average Interest Avg Average Interest Avg
Balance Yield/Rate Balance Yield/Rate
-------- --------- ---------- ------- -------- ----------
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans $ 147,704 $ 2,677 7.25% $ 110,068 $ 2,097 7.64%
Mortgage-backed securities 83,728 1,459 6.97% 60,869 1,043 6.85%
Investment securities 88,716 1,425 6.43% 88,652 1,400 6.34%
Interest-earning deposits 2,419 34 5.58% 42,240 497 4.77%
--------- ------- --------- --------
Total interest-earning assets 322,567 5,595 6.94% 301,829 5,037 6.70%
Non-interest-bearing assets 6,731 7,867
--------- ---------
Total assets $ 329,298 $ 309,696
========= =========
Interest-bearing liabilities:
Deposits 237,508 2,437 4.13% 235,519 2,491 4.29%
Borrowings 35,380 477 5.43% 21,043 265 5.11%
--------- ------- --------- --------
Total interest-bearing liabilities 272,888 2,914 4.29% 256,562 2,756 4.36%
Non-interest bearing liabilities 775 1,464
--------- ---------
Total liabilities 273,663 258,026
Shareholders' equity 55,635 51,670
--------- ---------
Total liabilities and
shareholders' equity $ 329,298 $ 309,696
========= =========
Net interest-earning assets $ 49,679 $ 45,267
========= =========
Net interest income/interest
rate spread $ 2,681 2.65% $ 2,281 2.34%
======== ========
Net interest margin as a % of
average interest-earning assets 3.34% 3.00%
</TABLE>
16
<PAGE>
Provision for Losses. The provision for losses decreased $60 thousand to
$15 thousand for the quarter ended March 31, 2000 from $75 thousand for the
quarter ended March 31, 1999. The decrease in the provision for losses was a
result of a decrease of non-performing assets from $609 thousand at March 31,
1999 to $365 thousand at March 31, 2000. The ratio of allowance for losses as a
percentage of non-performing assets was 282.19% at March 31, 2000 and 172.91% at
March 31, 1999. Management regularly 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. While
management believes that the provision for losses and the allowance for losses
are currently reasonable and adequate to cover any probable losses reasonably
expected in the existing loan portfolio, 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 control.
Non-interest Income. Non-interest income was $142 thousand, which included
a net loss on the sale of loans and investments of $3 thousand, for the quarter
ended March 31, 2000 compared to $143 thousand, which included a net loss of $2
thousand on the sale of mortgage servicing, for the quarter ended March 31,
1999.
Non-interest Expense. Non-interest expense was $1.7 million, or 2.00% of
average monthly assets for the quarter ended March 31, 2000 compared to $1.5
million (excluding the foundation contribution), or 1.92% of average monthly
assets for the quarter ended March 31, 1999, an increase of $180 thousand, or
12.1%. The increase in non-interest expense was primarily attributed to an
increase in expenses related to the Employee Stock Ownership Plan ("ESOP") and
establishment of the Company's Restricted Stock Plan, an increase in fixed asset
expense and an increase in costs associated with being publicly owned.
Income Taxes. Income tax expense for the quarter ended March 31, 2000
totalled $418 thousand resulting in an effective tax rate of 36.5%. Income tax
benefit for the quarter ended March 31, 1999 totalled $799 thousand. The
difference in taxes was a result of a tax benefit of $1.1 million associated
with the $2.8 million contribution to the Foundation.
Liquidity and Capital Resources
The Company'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 Company 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 Company has other sources of liquidity if a need for additional funds
arises, including FHLB advances. At March 31, 2000, the Company had $32.1
million in advances outstanding from the FHLB, and at March 31, 2000, had an
additional overall borrowing capacity of up to 30% of assets from the FHLB.
Depending on market conditions, the pricing of deposit products and FHLB
advances, the Company may continue to rely on FHLB borrowings to fund asset
growth. The Company may also use repurchase agreements collateralized by
securities.
Outstanding commitments totalled $3.2 million at March 31, 2000.
Management of the Company 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, 2000 totalled $54.8
million. It has been and will continue to be a priority of management to retain
time deposits. The Company relies primarily on competitive rates, customer
service, and long-standing relationships with customers to retain deposits.
From time to time, the Company may offer competitive special products to its
customers to increase retention. Based upon the Company's
17
<PAGE>
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 portion of such deposits will remain with the
Company.
The Company's most liquid assets are cash and cash equivalents. The
levels of these assets are dependent on the Company's operating, financing,
lending and investing activities during any given period. At March 31, 2000,
cash and cash equivalents totalled $6.4 million.
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,
2000, the Association's liquidity ratio was 48.71%.
At March 31, 2000, the Association exceeded all of its regulatory capital
requirements with a tangible capital level of $40.8 million, or 12.9%, of total
adjusted assets, which is above the required level of $4.7 million, or 1.5%;
core capital of $40.8 million, or 12.9%, of total adjusted assets, which is
above the required level of $9.5 million, or 3.0%; and risk-based capital of
$41.8 million, or 35.8%, of risk-weighted assets, which is above the required
level of $9.3 million, or 8.0%.
Year 2000 Compliance
The Company accomplished the objectives established in its Year 2000 Action
Plan. All internal software and hardware used in the Company's business made it
through the transaction from 1999 to 2000 without any abnormalities or
inaccurate results. In addition, the Company's critical vendors and suppliers
also made the transition successfully.
Other critical, future dates previously identified as being potentially
vulnerable to the Year 2000 problem were tested as part of the century rollover
testing. All critical applications thought to be impacted by future dates were
evaluated and further testing of various dates conducted as necessary. Any
potential problems identified during this testing have been corrected. The
Company does not anticipate any problems associated with these future dates.
The Company engaged 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, 2000,
had expended approximately $110,000.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
The Company is not a party to any material legal proceedings at this
time. From time to time the Company is involved in various claims and
legal actions arising in the ordinary course of business.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities.
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
On February 16, 2000, the Company held a Special Meeting of
Shareholders to vote on the approval of the South Jersey Financial Corporation,
Inc. 2000 Stock Option Plan, the approval of the South Jersey Financial
Corporation, Inc. 2000 Restricted Stock Plan, and the ratification of the
appointment of Deloitte & Touche LLP as independent auditors of South Jersey
Financial Corporation, Inc. for the year ending December 31, 2000. The results
of the vote were as follows:
<TABLE>
<CAPTION>
Withheld/ Broker
Proposal Votes For Against Abstain Non-Votes
- ------------------------ --------- -------- --------- ---------
<S> <C> <C> <C> <C>
Stock Option Plan 2,237,425 269,494 13,443 710,939
Restricted Stock Plan 2,175,555 328,123 16,684 710,939
Ratification of Auditors 3,209,453 15,934 5,914 --
</TABLE>
Item 5. Other Information.
-----------------
None.
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)
10.1 South Jersey Financial Corporation, Inc. 2000 Stock Option
Plan(2)
10.2 South Jersey Financial Corporation, Inc. 2000 Restricted Stock
Plan(2)
11.0 Statement re: Computation of Per Share Earnings
27.0 Financial Data Schedule
_____________________________
19
<PAGE>
(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) Incorporated by reference into this document from Appendices A and B to
the Proxy Statement for the Special Meeting of Shareholders held on
February 16, 2000, as filed with the Securities and Exchange Commission
on January 4, 2000.
(b) Reports on Form 8-K
On January 31, 2000, the Company filed an 8-K to announce that its
Board of Directors declared a dividend of $.09 per share. The dividend
was paid to shareholders of record as of February 10, 2000. It was
paid on February 25, 2000.
On February 22, 2000, the Company filed an 8-K to announce it had
received regulatory approval to repurchase 5% of its outstanding
shares. The press release announcing the receipt of regulatory
approval was filed by exhibit.
On February 23, 2000, the Company filed an 8-K to announce it had
completed its repurchase of 5% of its outstanding shares. The press
release announcing the completion of the stock repurchase was filed
by exhibit.
On March 22, 2000, the Company filed an 8-K to announce it had
entered into an Agreement and Plan of Merger with Richmond County
Financial Corporation. For additional information see footnote
number 11 in the Notes to the consolidated financial statements.
20
<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 thereunto duly
authorized.
SOUTH JERSEY FINANCIAL CORPORATION, INC.
<TABLE>
<CAPTION>
<S> <C>
Dated: May 12, 2000 By: /s/ Robert J. Colacicco
---------------------------------------
Robert J. Colacicco
President and Chief Executive Officer
(principal executive officer)
Dated: May 12, 2000 By: /s/ Gregory M. DiPaolo
---------------------------------------
Gregory M. DiPaolo
Executive Vice President, Treasurer and
Chief Operating Officer
(principal financial officer)
Dated: May 12, 2000 By: /s/ Joseph M. Sidebotham
---------------------------------------
Joseph M. Sidebotham
Corporate Secretary and Chief
Accounting Officer
(principal accounting officer)
</TABLE>
21
<PAGE>
South Jersey Financial Corporation, Inc.
Computation of Per Share Earnings
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------------------------
<S> <C> <C>
2000 1999(2)
---------------- ----------------
(unaudited)
(In thousands, except per share data)
Basic:
Net income (loss) $ 727 $ (1,146)
================ ================
Weighted average shares issued (1) 3,437,346 3,489,956
Less: Weighted Treasury shares (276,795) -
Plus: ESOP shares released or
committed to be released 20,288 105
---------------- ----------------
3,180,839 3,490,061
Basic net income (loss) per share $0.23 $ (0.40)
================ ================
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------------------------
<S> <C> <C>
2000 1999(2)
---------------- ----------------
(unaudited)
(In thousands, except per share data)
Diluted:
Net income (loss) $ 727 $ (1,146)
================ ================
Basic weighted shares outstanding 3,180,839 3,490,061
Dilutive Instruments:
Dilutive effect of outstanding stock 11,833 -
options
Dilutive effect of stock awards 53,836 -
---------------- ----------------
3,246,508 3,490,061
Diluted net income (loss) per share $0.22 $ (0.40)
================ ================
</TABLE>
(1) Weighted average shares is net of ESOP shares and average weighted shares
purchased for stock awards of 303,474 and 52,610 at March 31, 2000
and 303,474 and 0 at March 31, 1999, respectively.
(2) Basic and diluted earnings per share for 1999 represent data since becoming
a public company on February 12, 1999.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS 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, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,839
<INT-BEARING-DEPOSITS> 297
<FED-FUNDS-SOLD> 1,250
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 49,694
<INVESTMENTS-CARRYING> 119,906
<INVESTMENTS-MARKET> 114,596
<LOANS> 145,463
<ALLOWANCE> 1,030
<TOTAL-ASSETS> 328,090
<DEPOSITS> 240,545
<SHORT-TERM> 4,507
<LIABILITIES-OTHER> 2,257
<LONG-TERM> 27,576
0
0
<COMMON> 38
<OTHER-SE> 53,167
<TOTAL-LIABILITIES-AND-EQUITY> 328,090
<INTEREST-LOAN> 2,677
<INTEREST-INVEST> 2,918
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,595
<INTEREST-DEPOSIT> 2,437
<INTEREST-EXPENSE> 2,914
<INTEREST-INCOME-NET> 2,681
<LOAN-LOSSES> 15
<SECURITIES-GAINS> (36)
<EXPENSE-OTHER> 1,663
<INCOME-PRETAX> 1,145
<INCOME-PRE-EXTRAORDINARY> 1,145
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 727
<EPS-BASIC> 0.23
<EPS-DILUTED> 0.22
<YIELD-ACTUAL> 6.94
<LOANS-NON> 365
<LOANS-PAST> 23
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 399
<ALLOWANCE-OPEN> 1,044
<CHARGE-OFFS> 29
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,030
<ALLOWANCE-DOMESTIC> 1,030
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 226
</TABLE>
