UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,1998
Commission File Number 0-12635
SOUTHERN JERSEY BANCORP OF DELAWARE, INC.
(Exact Name of Registrant as specified in Charter)
Delaware 22-2983654
(State of Other Jurisdiction (IRS Employer
Of Incorporation or Organization) Identification Number)
53 South Laurel Street
Bridgeton, New Jersey 08302
(Address of Principal Executive Offices)
(609) 453-3000
(Registrant's Area Code and Telephone Number)
Registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities and Exchange Act of 1934 during the period it
has been subject to such filing requirements.
[X] YES [] NO
Common Stock outstanding as of September 30, 1998 1,095,038
<PAGE>
<TABLE>
PART I - Financial Information
This is the consolidated balance sheet for Southern Jersey Bancorp.
All dollar amounts are in thousands.
9/30/98 9/30/97 12/31/97
<S> <C> <C> <C>
ASSET
Cash and due from banks 24,867 19,112 18,565
Interest Bearing Deposits 2,000 0 4,000
Investment Securities Held to Maturity
0 53,092 55,415
Investment Securities Available for Sale
113,549 35,387 37,278
Fair Value: Securities Held-to-Maturity
9/30/98 0
9/30/97 53,454
12/31/97 55,956
Loan: Net of Unearned Income 284,324 308,346 305,556
Less: Allowance for loan losses 10,697 3,711 5,236
------ ------- -----
Net Loans 273,627 304,635 300,320
------ ------- -----
Federal Funds Sold 22,000 43,950 40,950
Bank Premises and Equipment - Net
7,232 6,041 6,353
Other Assets 23,982 18,740 20,473
----- ------ -----
Total Assets 467,257 480,957 483,354
======= ======= ======
LIABILITIES 9/30/98 9/30/97 12/31/97
Deposits - Interest Bearing 362,493 378,342 377,364
Non-Interest Bearing Deposits 64,299 55,154 61,100
------- ------- ------
Total Deposits 426,792 443,496 438,464
Funds Purchased - - -
Other Liabilities 5,290 5,322 5,331
------ ------- ------
Total Liabilities 432,082 438,818 443,795
Shareholder's Equity
Common Stock Par Value $1.67 per share
Authorized 5,000,000 shares;
Issued 1,275,000 shares 2,129 2,129 2,129
Surplus 2,260 2,260 2,260
Undivided Profits 34,119 41,391 38,767
------ ------- ------
38,508 45,780 43,156
Less: Treasury Stock at cost
179,962 Common Shares 9-30-98
185,123 Common Shares 9-30-97
183,927 Common Shares 12-31-97
3,829 3,764 3,756
----- ------- ------
34,679 42,016 39,400
Allowance for unrealized gain/losses
on Available for Sale Securities 496 123 159
----- ------- ------
Total Shareholder's Equity 35,175 42,139 39,559
----- ------- -----
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
467,257 480,957 483,354
======= ======= =======
</TABLE>
<PAGE>
<TABLE>
This is the consolidated balance sheet for Southern Jersey Bancorp of
Delaware, Inc. All dollar amounts are shown in thousands except for
the per share data.
<CAPTION>
Nine Months Third Quarter
<S> <C> <C> <C> <C>
INTEREST INCOME
Int. on Securities:
Taxable int. income 3,117 3,235 1,006 993
Tax-Exempt int. inc. 1,069 1,073 359 348
Interest and Fees on Loans 19,030 19,488 5,904 6,726
Interest on Interest Bearing Deposits
167 - 53 -
Federal Funds Sold 2,023 1,190 839 640
Lease Income 0 0 0 0
---- ---- ---- -----
Total Int. Income 25,406 24,986 8,161 8,707
INTEREST EXPENSE
Interest on Deposit Savings 4,222 4,247 1,465 1,499
Certificates of Deposit $100,000 and over
3,145 2,685 982 938
Federal Funds Purchased - - - -
Other Time Deposits 6,257 5,555 2,022 2,149
----- ----- ---- -----
Total Int. Expense 13,624 12,487 4,469 4,586
NET INTEREST INCOME 11,782 12,499 3,692 4,121
Provision for Loan Losses 7,874 2,408 4,974 1,748
----- ----- ---- ---
Net Interest Income after Provision for Loan Loss
3,908 10,091 (1,282) 2,373
OTHER OPERATING INCOME
Service charges on deposit accounts
1,287 1,245 453 418
Trust Department Income 608 550 209 191
Comm., collection
Charges and fees 777 486 253 294
Investment Security gains/(losses)
0 0 0 0
Other Non-Interest Income 0 2 0 0
----- ----- ---- ----
Total Other Operating Income 2,672 2,283 915 903
OTHER OPERATING EXPENSES
Salaries and Wages 3,612 3,584 1,155 1,085
Pension and other benefits 899 865 202 285
Occupancy and Equipment 1,485 1,375 516 485
FDIC Assessment 165 105 71 38
Postage, stationary and supplies
375 362 110 120
Professional Fees 1,119 363 382 148
Other Oper. Expen. 3,246 1,413 666 605
----- ----- ----- -----
Total Other Oper. Expenses 10,901 8,067 3,102 2,766
Income Before Income Taxes (4,321) 4,307 (3,469) 510
Applicable Income Taxes 0 1,500 0 360
---- ----- ---- -----
NET INCOME (4,321) 2,807 (3,469) 150
=== ===== ==== =====
Earnings Per Common Share (3.95) 2.58 (3.17) 0.14
</TABLE>
<PAGE>
<TABLE>
SOUTHERN JERSEY BANCORP OF DELAWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in Thousands)
Nine Months Ended
September 30
1998 1997
<S> <C> <C>
Cash Flows from Operating Activities
Net Income (4,321) 2,807
Adjustments to reconcile net income to
net cash provided by operating activities
Amortization of Organization Expenses 0 0
Depreciation of Premises and Equipment 443 319
Net Loan Charge-Offs (2,413) (1,887)
Provision for Loan Losses 5,461 2,408
Premium Amortization net of discount accretion
0 102
Gain or (Loss) on Sale of Securities 0 (2)
Gain on Other Real Estate (3) 0
Gain on Sale of Bank Premises & Equipment 0 0
(Increase)/decrease in Other Assets (3,481) (10,258)
Increase/(decrease) in Other Liabilities (41) 133
Increase/(decrease) in Borrowed Funds 0 0
------ -----
Net Cash Provided by Operating Activities (4,355) (6,378)
Cash Flows from Investing Activities
Interest Bearing deposits 2,000 0
Purchase of Investment Securities (56,508) (13,897)
Proceeds from Sale of Invest. Securities 0 8,373
Proceeds from Maturities of Invest. Securities
35,034 12,779
(Increase)/Decease in Loans 21,232 (17,461)
Bank Premises and Equipment (436) 146
Proceeds from Sale of Bank Premises and Equipment
0 0
Proceeds from Sale of Other Real Estate 155 661
----- ----
Net Cash Used for Investing Activities 1,477 (9,399)
Cash Flows from Financing Activities
(Decrease)/Increase in Total Deposits (11,672) 48,112
Cash Dividends (329) (652)
Purchase of Treasury Stock (174) (107)
Sale of Treasury Stock 225 239
----- ----
Net Cash Provided by Financing Activities (11,950) 47,592
Net Increase/(Decrease) in Cash and Cash Equivalents
(14,828) 31,815
Cash and Equivalents at the Beginning of the Year
63,515 31,247
------ -----
Cash and Equivalents at End of the Quarter 48,687 63,062
===== =====
Supplementary Schedule of Non-Cash Investing and
Financing Activities
Loans, Net of Charge-Offs transferred to
Other Real Estate Owned: 100 101
</TABLE>
<PAGE>
SOUTHERN JERSEY BANCORP OF DELAWARE, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998
1. Principals of Consolidation: The consolidated financial statements
reflect the account of Southern Jersey Bancorp of Delaware, Inc. and its
subsidiary The Farmers and Merchants National Bank of Bridgeton, after
the elimination of all inter-company balances and transactions.
2. There have been no significant changes in the accounting policies of
the Registrant the date the most recent annual report to security holders,
nor have there occurred events, which have material impact on the disclosures
herein.
3. The interim financial statements contained herein reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim period presented.
4. In accordance with Rule 10-01(b)(8), the unaudited interim financial
statements filed under cover of Form 10-Q for September 30, 1998, reflect
adjustments that are of a normal recurring nature which are, in the
opinion of Management, necessary to a fair statement of the results
for the interim periods presented.
SOUTHERN JERSEY BANCORP OF DELAWARE, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
SOUTHERN JERSEY BANCORP OF DELAWARE, INC.
(Registrant)
Paul J. Ritter, III
Treasurer
Clarence D. McCormick
Chairman/CEO
DATE: November 16, 1998
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
RESULTS IN OPERATIONS
Nine Months Ended September 30, 1998
The net operating loss of ($4,321,000) for the first nine months of
1998 is a $7,191,000 reduction from the net operating income of $2,870,000
for the same period for the prior year. Net income after taxes for 1998
is projected to be approximately ($4,300,000) or approximately $5,137,000
less than the $837,000 net income after taxes in 1997.
The decrease in net income through the first nine months of 1998 is
primarily due to the increase in the loan loss provision expense to
$7,513,000 in the first nine months of 1998 as compared to $2,408,000 for
the first nine months of 1997. This large increase of 312% in the loan loss
provision expense is attributable to the substantial amount of marine
installment loans required to be charged off and a substantial increase in
commercial and industrial loans that have been placed on a non-accrual status
in the first nine months of 1998. This large increase in non-accrual loans
required the Company to increase its allowance for loan losses to comply
with regulatory requirements. The provision for loan losses increased
the Company's loan loss reserve account to $10,967,000 at September 30,
1998 from $5,236,000 at December 31, 1997. The Company had a total of
approximately $2,379,000 of repossessed marine collateral at the end of
the first nine months of 1998. The establishment of a reserve in the
amount of $1,437,000 for repossessed marine collateral apart from the
$10,336,000 in the loan loss reserve account was necessitated to cover
liquidation expenses. A provision for other marine assets of $1,437,000
was expensed in the first nine months of 1998 as compared to no such
expense in the first nine months of 1997, which is reflected in the other
operating expense category. The current balance of the reserve for
repossessed collateral as of September 30, 1998 is $547,000. The substantial
increase in legal and professional fees of approximately $310,000 and the
increase of $447,000 in repossession and liquidation fees as of September
30, 1998 as compared to September 30, 1997 are primarily due to the
collection of delinquent marine collateral.
There have been the following significant changes in chareg-offs,
recoveries, non-accruing or non-performing loans in the first nine
months of 1998:
An increase from the second to the third quarter of 1998 of
approximately $205,000 for loans secured by real estate past due 30
through 89 days and still accruing, an increase of approximately
$501,000 for the loans secured by real estate that are non-accrual,
an increase of approximately $215,000 in commercial and industrial
loans past due 90 days or more and still accruing, an increase of
approximately $4,328,000 in commercial and industrial loans that
are non-accrual, an increase of approximately $777,000 in loans to
individuals for household, family and other personal expenditures
that are non-accrual. Real estate and other collateral secure a
portion of these delinquent loans. The increase in commercial and
industrial loans that are non-accrual is primarily a result of the
continuing efforts of the Company to recognize impaired assets as
quickly and accurately as possible. Included in this amount are
three fully collateralized loans, which constitute approximately
2.2 million dollars.
Total charge offs for the first nine months of 1998 totaled
approximately $3,957,000 while total recoveries during the same
period were $1,544,000. These charge offs included a total of
$2,858,000 in charge offs of loans to individuals for household,
family and other personal expenditures which includes installment
marine retail loans.
The Company has delinquent retail installment marine loans as follows:
approximately $2,085,000 30-59 days delinquent, approximately $989,000
60-89 days delinquent all of which are still accruing interest,
approximately $205,000 90 days to 119 days delinquent. There is
approximately $25,000,000 of retail installment marine loans that
are current and performing per their terms.
The Company has adopted FASB 133 effective September 30, 1998 and is
now carrying all of its investment securities at their market value and
these securities are all classified as "Available for Sale."
The Company has incurred an extraordinary expense of approximately 1.5
million dollars to replace its core data processing system in 1998 that will
be amortized over the next three to five years.
Year 2000
In the past, many computer systems were designed only to recognize
a six-digit date structure (i.e. two digits for each of the month, day, and
year). Many of these programs and systems may not be able to interpret and
process accurately a six-digit date ending with "00". To the extent these
systems are unable to process into the year 2000, inaccurate results may
be produced.
The Bank utilizes computer hardware and software programs to conduct
and support its ongoing operations. Management implemented a plan (the
"Plan") in January 1997 to address the Bank's Year 2000 situation. To
implement the Plan, management established a task force responsible for
overseeing the implementation of the Plan to completion. The Plan includes
the estimated costs of repairing or replacing computer systems or software
as necessary and is expected to cost between approximately $1.5 million
and $2.0 million. To date, the Bank has expended approximately $1.5 million
to effectuate the Plan.
The Plan is comprised of several phases. The first phase involved
the assessment of the Bank's current systems and vendors to determine
their Y2K compliance. The Bank reviewed all of its software vendors,
both banking specific and general software applications; hardware vendors;
Trust Department vendors; third party service providers; and infrastructure
issues. During this evaluation, the Bank made the determination of what
systems needed to be updated or replaced.
After the completion of this assessment, the Bank began the upgrade or
replacement of any systems that were identified as non-Y2K compliant in
the assessment phase. This included the replacement of the Bank's core
accounting system hardware and software. The Bank formed a committee to
monitor this process. The conversion was completed by the end of the third
quarter of 1998. The Bank also performed several other replacements and
upgrades to ensure year 2000 compliance. These upgrades are approximately
90% complete.
The Bank is preparing for the validation phase of the project. The Bank
is prioritizing its systems based on the critical nature of each. Those
of higher priorities will be tested and the results reviewed for accuracy.
A Y2K Test Committee will be formed to complete this phase of the project.
This committee will consist of members of the Bank's management representing
the various departments of the Bank. The testing of internal applications
is expected to be completed by March 31, 1999. The testing of external
vendor relationships is expected to be completed by June 30, 1999.
Although the Bank has developed and is implementing its Plan to address
the Year 2000 issue, no assurances can be made that the Plan will be
fully implemented within the estimated timeframe and cost; nor can any
assurances be given, regardless of whether the Plan is fully and timely
implemented, that the efforts of the Bank will be, either partially or
wholly, successful. Much of the Bank's success in implementing its Plan
will rely on third parties who are beyond the Bank's control. The complete
failure of the Bank's Plan to address the Year 2000 situation may have a
material adverse effect on the operations of the Bank. As of September 30,
1998, the Bank is uncertain of the magnitude of the impact the Year 2000
issue will have on its operations. The Bank anticipates that it will be
better able to evaluate such concerns upon the completion of the Validation
Phase of the Plan. Management is attempting to prepare contingency plans
to address the partial or complete failure of the Plan, and/or the failure
of third parties with whom the Bank does business to address timely and
successfully the Year 2000 issue.
The foregoing discussion contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements
as a result of certain factors, including the performance of the
Company's marine loan portfolio, the commercial and industrial loans
and the banking industry performance in general.
<PAGE>
PART II - OTHER INFORMATION
EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit 27. Financial Data Schedule
B. Reports on Form 8-K
No reports have been filed on Form 8-K during this quarter.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<S> <C>
<CASH> 24,867
<INT-BEARING-DEPOSITS> 2,000
<FED-FUNDS-SOLD> 22,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 112,785
<INVESTMENTS-MARKET> 113,549
<LOANS> 284,324
<ALLOWANCE> 10,697
<TOTAL-ASSETS> 467,257
<DEPOSITS> 426,792
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,290
<LONG-TERM> 0
<COMMON> 2,129
0
0
<OTHER-SE> 34,119
<TOTAL-LIABILITIES-AND-EQUITY> 467,257
<INTEREST-LOAN> 19,030
<INTEREST-INVEST> 4,186
<INTEREST-OTHER> 2,190
<INTEREST-TOTAL> 25,406
<INTEREST-DEPOSIT> 13,624
<INTEREST-EXPENSE> 13,624
<INTEREST-INCOME-NET> 11,782
<LOAN-LOSSES> 7,874
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,901
<INCOME-PRETAX> (4,321)
<INCOME-PRE-EXTRAORDINARY> (4,321)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,321)
<EPS-PRIMARY> (3.95)
<EPS-DILUTED> (3.69)
<YIELD-ACTUAL> (3.79)
<LOANS-NON> 14,360
<LOANS-PAST> 13,944
<LOANS-TROUBLED> 2,782
<LOANS-PROBLEM> 12,670
<ALLOWANCE-OPEN> 5,236
<CHARGE-OFFS> 3,957
<RECOVERIES> 1,544
<ALLOWANCE-CLOSE> 10,697
<ALLOWANCE-DOMESTIC> 10,697
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
