UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from.................to..............
Commission file number 0-1263
SOUTHERN JERSEY BANCORP OF DELAWARE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 22-2983654
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
53 South Laurel Street, Bridgeton, New Jersey 08302-1293
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (609) 451-2222
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $1.67
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. (______)
As of March 26, 1999, Registrant has 5,000,000 shares of $1.67 par
Value common stock authorized, with 1,127,481 shares outstanding, which
is the only class of common stock or voting stock of the Registrant.
As of that date, the aggregate market value of the shares of common stock
held by non-affiliates of the Registrant (based on most recent sales prices
known to Management) was approximately $31,569,468.
DOCUMENTS INCORPORATED BY REFERENCE
PART III - The information called for by Part III is incorporated by
reference to the definitive Proxy Statement for the Annual Meeting of the
Shareholders of the Registrant to be held June 21, 1999, and which will be
filed with the Securities and Exchange Commission not later than 120 days
after December 31, 1998.
Page 1 of 65 pages
PART I
Item 1. Business
Background
Southern Jersey Bancorp of Delaware, Inc. (Registrant), a bank holding
company, was organized under the laws of the State of Delaware on June 9,
1989. On July 17, 1989, Registrant acquired all the outstanding common
shares of Southern Jersey Bancorp, a bank holding company organized under
the laws of the State of New Jersey (predecessor Registrant). As of this
same date, Southern Jersey Bancorp was merged into Registrant.
Registrant has two wholly-owned subsidiaries. Farmers and Merchants
National Bank of Bridgeton (the Bank) is a commercial bank which was first
organized under the laws of the State of New Jersey and the United States
Government in 1909,and all outstanding shares of the Bank were acquired by
the predecessor Registrant on May 22, 1984. AMFDCM, Inc. was organized
under the laws of the State of New Jersey in 1996 for the purpose of
holding and managing real estate and other repossessed assets.
The Bank has two wholly-owned subsidiaries. F&M Investment Company
(Investment Company) was organized under the laws of the State of Delaware
in 1984 for the purpose of holding and managing investment securities. Woulf
Asset Holdings, Inc. was organized under the laws of the State of New Jersey
in 1996 for the purpose of holding and managing real estate.
Description of Business
Registrant is engaged in the business of managing or controlling its
wholly-owned subsidiary bank and other such businesses related to banking
as may be authorized under federal and state banking laws.
The Bank provides traditional services that are standard to the commercial
banking industry and maintains a Trust Department that provides traditional
fiduciary and agency services standard to the banking industry.
The Bank operates in the Counties of Cumberland, Gloucester and Salem in
Southern New Jersey through branch offices with the main office situated in
Bridgeton, New Jersey. Within the market area in which the Bank operates,
there are numerous commercial banks, savings and loan associations, credit
unions, etc. The number of competitors cannot be reasonably estimated.
The Bank is one of the largest independently owned financial institutions
in the market area. The principal methods of competition are those that are
standard to the banking industry, such as interest rates and customer
services.
Environmental and Safety Regulations
In the opinion of Registrant, compliance with current laws and
Regulations pertaining to the environment, health and safety has not
materially affected its business or financial condition, and Registrant
believes that such matters will not have a material effect on its business
or financial condition in the foreseeable future. After giving effect to
pending programs for environmental compliance, the Registrant expects to
be in material compliance with currently applicable environmental, health
and safety laws and regulations.
General
Employees - Registrant employs approximately 214 people who are not
covered by collective bargaining agreements with any unions. In general,
relationships with employees have been satisfactory.
Customers - Registrant is not dependent upon any single customer or upon
Any single group of customers, the loss of which would have a material
adverse effect on Registrant.
Other - Registrant does not have research and development expenditures,
backlog of orders and inventory, patents or trademarks, any seasonality of
business, business under government contracts subject to renegotiation of
profits or contract termination or reportable industry segments as described
in SFAS 14, and does not use raw materials.
The banking business of Registrant and the Bank is subject to
comprehensive and detailed regulation by federal supervisory agencies; in
particular, the Office of the Comptroller of Currency, the Federal Deposit
Insurance Corporation, and the Federal Reserve Board, as well as the
Securities and Exchange Commission. These agencies have broad administrative
authority which includes, but is not limited to, dividends, expansion
of locations, acquisitions and mergers, interest rates, reserves against
deposits, terms, amounts and charges to borrowers, investments, and
ownership of certain companies by bank holding companies. The banking
business of Registrant and the Bank is also subject to the banking laws
of the States of New Jersey and Delaware.
The federal banking regulatory authorities (The Board of Governors
of the Federal Reserve System, the Office of the Comptroller of the Currency,
and the Federal Deposit Insurance Corporation) may take action against the
Registrant and the Bank for failure to maintain minimum levels of capital and
minimum leverage ratios and failure to comply with regulations promulgated
under the FDIC Improvement Act of 1991 (FDICIA) and the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). The Bank's
Tier 1 and risk weighted capital ratios at December 31, 1998 are 8.8% and
10.1%, respectively. This is well in excess of the minimum required of
4.0% and 8.0%.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of dividends) or paying any management
fee to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
growth limitations, prohibitions on the payment of interest rates in excess of
75 basis points above the average market yields for comparable deposits, and
are required to submit a capital restoration plan. The federal banking
agencies may not accept a capital plan without determining, among other
things, that the plan is based on realistic assumptions and is likely to
succeed in restoring the depository institution's capital. In addition,
for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution
will comply with such capital restoration plan.
The aggregate liability of the parent holding company is limited to the
lesser of (i) an amount equal to 5% of the depository institution's total
assets at the time it became undercapitalized and (ii) the amount which is
necessary or would have been necessary to bring the institution into
compliance with all capital standards applicable with respect to such
institution as of the time it fails to comply with the plan. If a
depository institution that is required to submit a capital restoration
plan fails to submit an acceptable plan, it is treated as if it is
significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject
to a number of requirements and restrictions including orders to sell
sufficient voting stock to become adequately capitalized, requirements
to reduce total assets, or desist accepting deposits from correspondent
banks, and restrictions on senior executive compensation and on
interaffiliate transactions. Critical undercapitalization institutions
are subject to a number of additional restrictions including the
appointment of a receiver or conservator.
Regulations promulgated under FDICIA also require that an institution
monitor its capital levels closely and notify its appropriate federal
banking regulators within 15 days of any material events that affect the
capital position of the institution.
FDICIA directs that each federal banking agency prescribe the
standards for depository institutions and depository institution holding
companies relating to internal controls, information systems, internal
audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, and a maximum ratio of classified assets to
capital, minimum earnings sufficient to absorb losses, a minimum ratio
of market value to book value for publicly traded shares, and other such
standards as the agency deems appropriate. FDICIA also contains a
variety of other provisions that could affect the operations of the
Company including new reporting requirements, regulatory standards for
real estate lending, "truth-in-savings" provisions, the requirement
that a depository institution give 90 days prior notice to customers
and regulatory authorities before closing any branch, certain
restrictions on investments and activities of state chartered insured
banks and their subsidiaries, limitations on credit exposure between
banks, restrictions on loans to a bank's insiders, guidelines governing
regulatory examinations, and a prohibition on the acceptance or
renewal of brokerage deposits by depository institutions that
are not well capitalized or are adequately capitalized and have not
received a waiver from the FDIC. Based on the regulations existing in
perspective, none of the aforementioned requirements are expected
to impose a material cost on the Company or to result in significant
changes to the Company's operations.
Under FIRREA, a depository institution insured by the FDIC can be
held liable for any loss incurred by or reasonably expected to be incurred by
the FDIC after August 9, 1989, in connection with (i) the default of commonly
controlled FDIC insured depository institution or (ii) any assistance provided
by the FDIC to a commonly controlled FDIC insured depository institution in
danger of default. "Default" is defined generally as the appointment of a
conservator or receiver, and "in danger of default" is defined generally as
the existence of certain conditions indicating that a default is likely to
occur in the absence of regulatory assistance. FIRREA and the Crime Control
Act of 1990 expand the enforcement powers available to federal banking
regulators including providing greater flexibility to impose enforcement
action, expanding the category of persons dealing with a bank or subject
to enforcement action, increasing the potential civil and criminal penalties.
In addition, in the event of a holding company insolvency, the Crime
Control Act of 1990 affords a priority in respect of capital commitments
made by a holding company on behalf of subsidiary banks.
As more fully discussed in Item 7, Management's Discussion and
Analysis, and the Notes to the Consolidated Financial Statements, the
Registrant and the Bank are deemed "well capitalized" as it significantly
exceeds the minimum level required by regulation for each relevant capital
measure.
Registrant has only domestic operations which are primarily concentrated
in Cumberland and Salem Counties of New Jersey.
Item 1a. Executive Officers of Registrant
Set forth below are the names, ages, and titles of persons with
Registrant and present and past positions of the persons serving as executive
officers of Registrant and its subsidiaries. Unless otherwise stated, each
officer has served in his present position since April, 1993.
NAME AND AGE OFFICE AND EXPERIENCE
Clarence D. McCormick, Sr. 69 Chairman of the Board and Chief Executive
Officer of Southern Jersey Bancorp of
Delaware, Inc., Vice President of F&M
Investment Company since August 8, 1997,
Chairman of the Board and Chief Executive
Officer of Farmers and Merchants National
Bank of Bridgeton, NJ
Clarence D. McCormick, Jr. 38 President of Southern Jersey Bancorp of
Delaware, Inc., President of F&M
Investment Company since August 8, 1997,
and President of Farmers and Merchants
National Bank of Bridgeton, NJ since
April 20, 1995
Ralph A. Cocove, Sr. 60 Executive Vice President of Administration
and Cashier of Farmers and Merchants
National Bank of Bridgeton, NJ
Paul J. Ritter, III 38 Senior Vice President and Comptroller
of Farmers and Merchants National Bank
of Bridgeton, NJ and Treasurer of
Southern Jersey Bancorp of Delaware, Inc.
since April 20, 1995
Dainis Basens 38 Senior Vice President/Loan Administration
since June 1998. Prior to 1998, Mr.
Basens was a Senior Vice President with
First Union Bank of Philadelphia.
Harry W. Bullock 72 Secretary of Southern Jersey Bancorp of
Delaware, Inc.
Russell Chappius, Sr. 57 Senior Vice President and Operations
Officer of Farmers and Merchants National
Bank of Bridgeton, NJ
Kevin J. Karol 28 Senior Vice President and Chief Informa-
tion Officer of Farmers and Merchants
National Bank of Bridgeton, NJ since
March 1998. Prior to 1998, Mr. Karol
was Assistant Vice President of Farmers
and Merchants National Bank for over 3
years.
J. Kevin Danna 44 Senior Vice President since December 1996.
Prior to 1996, Mr. Danna was a loan
officer of Farmers & Merchants National
Bank for over 10 years.
John P. Ritter 35 Senior Vice President and Senior Trust
Officer of Farmers and Merchants
National Bank of Bridgeton, NJ, since
February 1, 1999. Prior to 1999, Mr.
Ritter was Vice President and Trust
Officer of Farmers and Merchants
National Bank for over 12 years.
Set forth below are the names and beneficial stock ownership of persons
Serving as executive officers of Registrant and its subsidiaries.
Name Shares of Stock Owned Percentage of Outstanding
and Beneficially Owned Common Stock
Clarence D. McCormick 162,025 14.37
Clarence D. McCormick, Jr. 69,410 6.16
Harry W. Bullock 4,498 .40
Ralph A. Cocove, Sr. 6,715 .60
Paul J. Ritter, III 5,736 .51
Russell Chappius, Sr. 2,136 .19
Kevin J. Karol 103 .01
John P. Ritter 61 .01
Dainis Basens 0 .00
J. Kevin Danna 757 .07
STATISTICAL DISCLOSURES UNDER GUIDE 3
Schedule I
Item I(A) Average Balance Sheets
December 31
1998 1997 1996
ASSETS
Cash and due from banks $ 18,376 $ 17,226 $ 15,818
Interest-bearing deposits 3,415 219 0
Federal funds sold 45,449 32,923 21,670
Investment securities - Taxable
65,118 65,125 73,642
Investment securities - Tax Exempt
31,124 29,319 37,339
Loans net of unearned income
290,487 302,354 263,904
Less:Allowance for loan losses
6,828 3,574 2,785
Net loans 283,659 298,780 261,119
Bank premises and equipment - net
6,730 6,385 6,250
Other assets 25,796 16,144 9,238
TOTAL ASSETS $479,667 $466,121 $425,076
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Interest-bearing demand deposits
$ 97,149 $ 99,022 $ 91,500
Savings accounts and CD's under $100,000
213,435 193,431 159,848
CDs $100,000 or more 64,933 64,758 62,152
Non-interest bearing deposits
64,585 57,940 65,727
Total Deposits 440,102 415,151 379,227
Other liabilities 5,784 7,224 6,051
Total Liabilities 445,886 422,375 385,278
Shareholders' Equity
Preferred stock 0 0 0
Common stock 2,132 2,129 2,129
Additional paid-in capital
2,317 2,260 2,241
Retained earnings 32,582 43,070 38,771
Accumulated other comprehensive income
548 90 475
37,579 47,549 43,616
Less: Treasury stock 3,798 3,803 3,818
Total Shareholders' Equity
33,781 43,746 39,798
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY
$479,667 $466,121 $425,076
GUIDE 3
Schedule II
Item I(B) Analysis of Interest Earnings
For The Years Ended December 31
(In Thousands) 1998 1997 1996
Interest % Interest % Interest %
INTEREST EARNING ASSETS:
Interest bearing deposits
$ 196 5.74% $ 13 5.94% $ 0 N/A
Federal funds sold 2,480 5.46% 1,830 5.56% 1,147 5.29%
Investment securities:
Taxable 3,877 5.95% 4,253 6.53% 5,141 6.98%
Tax-exempt 2,106 6.77% 1,870 6.38% 1,661 4.45%
Loans 24,624 8.68% 25,834 8.65% 22,441 8.59%
Average Yield $33,283 7.76% $ 33,800 7.93% $ 30,390 7.72%
INTEREST BEARING LIABILITIES:
Interest on deposits:
Demand deposits $ 2,756 2.84% $ 2,642 2.67% $ 2,644 2.89%
Savings and CDs under $100,000
12,262 5.75% 10,863 5.62% 9,332 5.84%
CDs $100,000 or more
3,382 5.21% 3,654 5.64% 2,894 4.66%
Average Effective Rate Paid
$18,400 4.90% $17,159 4.80% $ 14,870 4.74%
NET YIELD ON INTEREST-EARNING
ASSETS $14,883 3.36% $16,641 3.84% $ 15,520 3.89%
NOTES:
(1) Non-accrual loans are not included in the "Loans net of unearned income"
amount used in the yield computation.
(2) No out-of-period items included in the calculation of the changes in
interest income and interest expense.
(3) Loan fees are immaterial.
(4) Tax exempt income is not calculated on a tax equivalent basis.
GUIDE 3
Schedule III
Item I(C)(1) Schedules of Interest Income & Expense Variance
For The Years Ended December 31
(In Thousands) 1998 1997
INTEREST VARIANCE INTEREST VARIANCE
INTEREST INCOME:
Interest-bearing deposits $ 196 $ 183 $ 13 $ 13
Federal funds sold 2,480 650 1,830 683
Investment securities:
Taxable 3,877 (376) 4,253 (888)
Tax-exempt 2,106 236 1,870 209
Loans 24,624 (1,210) 25,834 3,393
TOTAL INTEREST INCOME $33,283 $ (517) $33,800 $3,410
Item I(C)(2)
INTEREST EXPENSE:
Interest on deposits:
Demand deposits $ 2,756 $ 114 $ 2,642 $ (2)
Savings and CDs under $100,000
12,262 1,399 10,863 1,531
CDs $100,000 or more 3,382 (272) 3,654 760
TOTAL INTEREST EXPENSE
$18,400 $1,241 $17,159 $2,289
GUIDE 3
Schedule IV
Item I(C)(2)(a) and (b) Schedules of Volume Variance and Rate Variance
For The Years Ended December 31
(In Thousands) 1998 1997
VARIANCE
VOLUME RATE VOLUME RATE
(a) (b) (a) (b)
INTEREST INCOME:
Interest-bearing deposits
$ 190 $ 0 $ 13 $ 0
Federal funds sold 696 (33) 595 59
Investment securities
Taxable 0 (378) (594) (331)
Tax-exempt 115 114 (357) 721
Loans (1,026) 91 3,303 158
TOTAL INTEREST INCOME
$ (25) $ (206) $2,960 $ 607
INTEREST EXPENSE:
Interest on deposits:
Demand deposits $ (50) $ 168 $ 217 $ (201)
Savings and CDs under $100,000
1,124 251 1,961 (352)
CDs $100,000 or more 10 (278) 121 609
TOTAL INTEREST EXPENSE
$1,084 $ 141 $2,299 $ 56
GUIDE 3
Schedule V
Item I(C)(2)(c) Schedules of Changes in Rate/Volume
December 31, 1998
(In Thousands) TOTAL VOLUME RATE RATE/VOL
VARIANCE VARIANCE VARIANCE VARIANCE
INTEREST INCOME:
Interest-bearing deposits
$ 183 $ 190 $ 0 $ (7)
Federal funds sold 650 696 (33) (13)
Investment securities:
Taxable (376) 0 (378) 2
Tax-exempt 236 115 114 7
Loans (1,210) (1,026) 91 (275)
TOTAL INTEREST INCOME$ (517) $ (25) $ (206) $ (286)
INTEREST EXPENSE:
Interest on deposits:
Demand deposits $ 114 $ (50) $ 168 $ (4)
Savings and CDs under
$100,000 1,399 1,124 251 24
CDs $100,000 or more (272) 10 (278) (4)
TOTAL INTEREST EXPENSE
$1,241 $1,084 $ 141 $ 16
December 31, 1997
(In Thousands) TOTAL VOLUME RATE RATE/VOL
VARIANCE VARIANCE VARIANCE VARIANCE
INTEREST INCOME:
Interest-bearing deposits $ 13 $ 13 $ 0 $ 0
Federal funds sold 683 595 59 29
Investment securities:
Taxable (888) (594) (331) 37
Tax-exempt 209 (357) 721 (155)
Loans 3,393 3,303 158 (68)
TOTAL INTEREST INCOME $3,410 $2,960 $ 607 $ (157)
INTEREST EXPENSE:
Interest on deposits:
Demand deposits $ (2) $ 217 $ (201) $ (18)
Savings and CDs under
$100,000 1,531 1,961 (352) (78)
CDs $100,000 or more 760 121 609 30
TOTAL INTEREST EXPENSE$2,289 $2,299 $ 56 $ (66)
GUIDE 3
Schedule VI
Item II(A) and (B) Investment Portfolio
December 31,
(In Thousands) 1998 1997 1996
Book Average Book Book
Value Yield Value Value
U.S. Treasury Securities:
Maturing within 1 year $ 3,005 5.706% $ 8,509 $ 6,026
Maturing between 1-5 years 13,143 6.083% 4,002 10,512
TOTAL 16,148 12,511 16,538
U.S. Government Agencies:
Maturing within 1 year 0 2,000 1,998
Maturing between 1-5 years 1,998 6.063% 5,982 10,488
Maturing between 6-10 years 35,004 6.468% 29,426 21,390
TOTAL 37,002 37,408 33,876
State and Political Subdivisions:
Maturing within 1 year 2,308 5.204% 5,737 4,528
Maturing between 1-5 years 16,004 4.688% 18,594 21,727
Maturing between 6-10 years 10,802 4.605% 6,138 2,840
Maturing over 10 years 69 6.806% 69 64
TOTAL 29,183 30,538 29,159
Federal Reserve Stock 128 6.000% 128 128
Other Securities:
Maturing within 1 year 2,017 6.163% 3,056 4,763
Maturing between 1-5 years 5,015 6.035% 9,068 12,172
Maturing between 6-10 years 8,063 4.704% 743 0
TOTAL 15,095 12,867 16,935
Equity Securities
Maturing within 1 year
Maturing between 1-5 years
Maturing between 6-10 years
TOTAL 0 0 0
Total Before Allowance For
Unrealized Gains 97,556 93,452 96,636
Add: Unrealized Gains 1,418 241 33
TOTAL SECURITIES $98,974 $93,693 $96,669
Item II(C) Securities With One Issuer Exceeding Ten Percent of Stockholders'
Equity - NONE
GUIDE 3
Schedule VI
Item II(A) and (B) Investment Portfolio - Available For Sale
December 31,
(In Thousands) 1998 1997 1996
Book Average Book Book
Value Yield Value Value
U.S. Treasury Securities:
Maturing within 1 year $ 3,005 5.706% $ 0 $ 1,000
Maturing between 1-5 years 13,143 6.083% 4,002 1,995
TOTAL 16,148 4,002 2,995
U.S. Government Agencies:
Maturing within 1 year 0 0 1,998
Maturing between 1-5 years 1,998 6.063% 4,482 8,488
Maturing between 6-10 years 35,004 6.468% 28,426 21,390
TOTAL 37,002 32,908 31,876
State and Political Subdivisions:
Maturing within 1 year 2,308 5.204%
Maturing between 1-5 years 16,004 4.688%
Maturing between 6-10 years 10,802 4.605%
Maturing over 10 years 69 6.806%
TOTAL 29,183 0 0
Federal Reserve Stock 128 6.000% 0 0
Other Securities:
Maturing within 1 year 2,017 6.163%
Maturing between 1-5 years 5,015 6.035%
Maturing between 6-10 years 8,063 4.704%
TOTAL 15,095 0 0
Equity Securities
Maturing within 1 year
Maturing between 1-5 years
Maturing between 6-10 years
TOTAL 0 0 0
Total Before Allowance For
Unrealized Gains/(Losses) 97,556 36,910 34,871
Add: Unrealized Gains 1,418 241 33
TOTAL SECURITIES $98,974 $37,151 $34,904
GUIDE 3
Schedule VI
Item II(A) and (B) Investment Portfolio - Held to Maturity
December 31,
(In Thousands) 1998 1997 1996
Book Average Book Book
Value Yield Value Value
U.S. Treasury Securities:
Maturing within 1 year $ 8,509 $ 5,026
Maturing between 1-5 years 0 8,517
TOTAL 0 8,509 13,543
U.S. Government Agencies:
Maturing within 1 year 2,000 0
Maturing between 1-5 years 1,500 2,000
Maturing between 6-10 years 1,000 0
TOTAL 0 4,500 2,000
State and Political Subdivisions:
Maturing within 1 year 5,737 4,528
Maturing between 1-5 years 18,594 21,727
Maturing between 6-10 years 6,138 2,840
Maturing over 10 years 69 64
TOTAL 0 30,538 29,159
Federal Reserve Stock 0 128 128
Other Securities:
Maturing within 1 year 3,056 4,763
Maturing between 1-5 years 9,068 12,172
Maturing between 6-10 years 743 0
TOTAL 0 12,867 16,935
Equity Securities
Maturing within 1 year
Maturing between 1-5 years
Maturing between 6-10 years
TOTAL 0 0 0
Total Before Allowance For
Unrealized Gains/(Losses) 0 56,542 61,765
Add: Unrealized Gains
TOTAL SECURITIES $ 0 $56,542 $61,765
GUIDE 3
Schedule VII Analysis of Loans
Item III(A) - Types of Loans: December 31
(In Thousands)
1998 1997 1996 1995 1994
Real estate loans:
1-4 Family Residential
$64,074 $ 66,041 $ 61,668 $52,673 $ 48,443
Farmers 2,797 2,342 2,098 2,337 1,832
Commercial 71,443 75,484 72,492 28,695 31,161
Loans to farmers 1,397 1,449 1,310 1,148 1,601
Commercial and industrial loans
62,781 72,555 50,548 83,672 74,165
Loans to individuals:
Credit cards 1,933 1,834 1,799 1,661 1,562
Consumer installment loans
64,774 86,304 101,688 53,121 35,645
Lease financing receivables 0 17 17 10,059 219
Total Loans 269,199 306,026 291,620 233,366 194,628
Less: Unearned income 305 470 735 1,253 2,110
Allowance for loan losses
10,137 5,236 3,190 2,413 2,146
Net Loans $258,757 $300,320 $287,695 $229,700 $190,372
Item III(B) - Maturities and Sensitivities of Loans to Changes in Interest
Rates at December 31, 1998:
(In Thousands)
Domestic:
Interest Rates
Total
Loans Predetermined Floating
Commercial, Financial and Agricultural
Due in 1 year or less $13,565 $10,174 $ 3,391
Due after 1 year through 5 years
35,215 26,411 8,804
Due after 5 years 15,398 11,549 3,849
$64,178 $48,134 $16,044
Item III(C) - Risk Elements
1. Non-accrual, Past Due and Restructured Loans
(In Thousands) December 31
1998 1997 1996 1995 1994
(1)(a)Total non-accrual loans
$16,180 $3,971 $2,287 $3,133 $2,298
(1)(b)Accruing loans past due
90 or more days$ 671 $2,447 $1,288 $2,043 $1,116
(1)(c)Troubled debt restructuring
$ 2,363 $2,892 $ 983 $1,226 $1,147
(2)(i)Interest income that would
have been recorded on
non-accrual loans$ 2,967 $ 259 $ 122 $ 158 $ 104
(2)(ii)Interest recorded on
non-accrual loans
included in net income
for the period $ 420 $ 38 $ 17 $ 21 $ 15
(3)Registrant's policy for placing loans on non-accrual status - See
Summary of Significant Accounting Policies under heading "Loans" on
Registrant's Consolidated Financial Statements for the year ended December 31,
1998, included in Item 8 of Form 10-K.
2. Potential Problem Loans - None
Any loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention that have not been disclosed under Item III
of Industry Guide 3 do not represent or result from trends or uncertainties
which Management reasonably expects will materially impact future operating
results, liquidity, or capital resources or represent material credits about
which Management is aware of any information which causes Management to have
serious doubts as to the ability of such borrowers to comply with the loan
repayment terms.
3. Foreign Outstanding Loans - None
4. Loan Concentrations - See Item III (A)
GUIDE 3
Schedule VIII(a)
Item III (C)(1)
SOUTHERN JERSEY BANCORP OF DELAWARE, INC.
CHARTER 9498 ANALYSIS OF REPRICING OPPORTUNITIES DECEMBER 31, 1998
REPRICING OPPORTUNITIES FOR:
Three Three- Six Mo.- One- Three- Five All Total
Mo. Six Mo. One Yr. Three Yr. Five Yr Yrs+ Other Assets %
Total Loans and Leases
$25,606 $17,636 $19,069 $95,780 $35,060 $59,563 $252,714 52.36%
Debt Securities
3,258 0 4,648 30,369 6,480 54,091 $128 98,974 20.51%
Trading Account Assets
0 0.00%
Other Interest-Bearing Assets
67,700 67,700 14.03%
Total Interest-Bearing Assets
96,564 17,636 23,717 126,149 41,540 113,654 128 419,388 86.89%
Loan and Lease Loss Reserve 10,137) (10,137(2.10)%
Non-Accrual Loans 16,180 16,180 3.35%
All Other Assets Including Cash
21,329 35,905 57,234 11.86%
Total Assets
$117,893 $17,636 $23,717 $126,149 $41,540 $113,654 $42,076 $482,665100.00%
Deposits in Foreign Offices $ 0 0.00%
CDs over $100,000
$14,453 $9,477 $18,881 $12,214 $11,081 66,106 13.70%
Other Time Deposits
39,952 18,762 29,446 21,077 37,962 147,199 30.50%
MMDA 3,775 3,775 11,325 18,875 37,750 7.82%
Other Savings
6,744 6,744 6,744 20,232 13,488 13,488 67,440 13.97%
NOW 12,337 6,168 6,168 12,337 12,337 12,337 61,684 12.78%
Mortgages & Capitalized Leases &
Treasury Notes 0 0.00%
Other Nondeposit Interest-Bearing Liabilities 0 0.00%
Total Interest-Bearing Liabilities
77,261 44,926 72,564 84,735 74,868 25,825 0 380,179 78.77
Demand Deposits
18,703 28,011 13,077 5,596 65,387 13.54%
All Other Liabilities 5,010 5,010 1.04%
Total Liabilities
95,964 44,926 72,564 112,746 87,945 31,421 5,010 450,576 93.35
Total Equity (Excluding Limited Life Pref.Stock)
29,849 32,089 6.65%
Total Liabilities & Capital
$95,964 $44,926 $72,564 $112,746 $87,945 $31,421 $34,859$482,665 100.00%
Net Positions - Total Assets
$21,929 $(27,290)$(48,847) $13,403$(46,405) $82,233 $7,217
Less: Liabilities and Capital
Cumulative Position Ratios
0.96 0.75 0.87 0.79 0.99
Total Assets
117,893 135,529 159,246 285,395 326,935 440,589 482,665
Total Liabilities & Capital
95,964 140,890 213,454 326,200 414,145 445,566 480,425
Total Assets Less Liabilities & Capital
$21,929 $(5,361)$(54,208) $(40,805)$(87,210) $(4,977) $2,240
G A P TABLE FOOTNOTES**
1.) These items are generally considered to be non-interest sensitive
due to their infrequent repricing characteristics.
2.) In addition to the rate sensitivity characteristics of assets and
supporting funds, sensitivity balances include assumptions for the potential
balance volatility of certain deposit categories.
Regular savings balances are generally considered to be non-interest
sensitive due to their infrequent repricing characteristics.
However, in order to account for possible internal transfers to other
deposit categories or the possibility of deposit disintermediation, a
measure of variation has been determined for certain non-interest sensitive
deposits. Consequently, an amount representing this measure of variation for
savings accounts has been treated as interest rate sensitive within
three months, six months and one year and the remainder has been
considered non-interest sensitive.
GUIDE 3
Schedule IX
Item IV (A)(1)
SUMMARY OF LOAN LOSS EXPERIENCE
(In Thousands) For The Years Ended December 31,
1998 1997 1996 1995 1994
Balances at beginning of year
$5,236 $ 3,190 $ 2,413 $ 2,146 $ 2,135
Loan charge-offs:
Real estate loans:
1-4 family residential
0 65 46 2 98
Farmers 0 0 0 0 0
Commercial 1,045 0 37 17 53
Loans to farmers 14 24 0 10 91
Commercial and industrial loans
5,569 703 862 508 142
Loans to individuals:
Credit cards 183 114 67 75 40
Consumer installment loans
5,670 6,933 199 317 225
Lease financing receivables
0 0 0 140 150
Total Charge-offs
12,481 7,839 1,211 1,069 799
Recoveries of loans previously
charged off:
Real estate loans:
1-4 Family residential 0 1 0 3 2
Farmers 0 0 0 0 0
Commercial 55 0 1 0 0
Loans to farmers 2 0 0 0 2
Commercial and industrial loans
500 1 15 13 32
Loans to individuals:
Credit cards 19 17 27 7 2
Consumer installment loans
1,536 1,899 140 47 47
Lease financing receivables
0 0 0 0 0
Total recoveries 2,112 1,918 183 70 85
NET CHARGE-OFFS 10,369 5,921 1,028 999 714
Allowance charged to operations
15,270 7,967 1,805 1,266 725
Balances at end of year
$10,137 $ 5,236 $ 3,190 $ 2,413 $ 2,146
Average loans outstanding
during year $290,487 $302,354 $263,904 $210,327 $169,025
Ratio of net charge-offs to
average loans outstanding during
year 3.569% 1.958% 0.390% 0.475% 0.422%
Item IV(B) Allocation of Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered by
Management to be adequate to provide for losses which may be incurred on
loans currently held based on a detailed evaluation of the loan portfolio,
historical experience, current economic trends and other factors relevant
to the collectibility of the loans in the portfolio. Credit risk, the
risk that a borrower will fail to perform to the loan agreement, is
managed by limiting the total amount of loans outstanding and by applying
normal credit policies to all lending activities. Collateral is obtained
based on Management's credit assessment of the customer. Loans are further
subject to interest rate risk and risk from geographic concentration of
lending activities. Interest rate risk is managed through various asset/
liability management techniques. Loan policies and administration
are designed to provide assurance that loans will only be granted to
creditworthy borrowers, although credit losses are expected to occur
because of subjective factors and factors beyond the control of the Bank.
The Bank is mandated by the Community Reinvestment Act and other regulations
to conduct most of its lending activities within the geographic area where
it is located. As a result, the Bank and its borrowers may be vulnerable
to the consequences of changes in the local economy.
GUIDE 3
Schedule X
Item V(A) - Average Deposits
December 31
(In Thousands) 1998 1997 1996
AVG. AMT. % AVG. AMT. % AVG. AMT. %
Non-interest bearing demand deposits
$64,585 0.0 $ 57,940 0.0 $ 65,727 0.0
Interest bearing demand deposits
97,149 2.8 99,022 2.7 91,500 2.9
Savings accounts and CDs under $100,000
213,435 5.8 193,431 5.6 159,848 5.8
CDs $100,000 or more 64,933 5.2 64,758 5.6 62,152 4.7
Total Average Deposits
$440,102 4.9 $415,151 4.8 $379,227 4.7
Item V(D) - Deposits Summary
(In Thousands) 1998
Demand deposits:
Non-interest bearing $65,387
Interest bearing 61,683
(Money Market and N.O.W. Accounts)
Savings deposits 105,191
Time deposits under $100,000 147,199
Time deposits $100,000 or more 66,106
Total Deposits $445,566
The remaining maturity on certificates of deposit of $100,000 or more
is presented below:
(In Thousands) 1998
Maturity
3 months or less $14,453
3 months to 6 months 9,477
6 to 12 months 18,881
Over 12 months to 5 years 23,295
Over 5 years 0
Total $66,106
GUIDE 3
Schedule XI
Item VI - Return on Equity and Assets
December 31
1998 1997 1996
(1) Return on assets (1.63)% 0.18% 1.25%
(2) Return on equity (23.18)% 1.91% 13.39%
(3) Dividend payout ratio (4.32)% 160.00% 23.06%
(4) Equity to assets ratio 7.04% 9.39% 9.36%
Item 2. Properties
The following table sets forth the location and principal offices of
Registrant and its subsidiary.
Location Use
Bridgeton, New Jersey Executive Offices and Main Bank Office
Bridgeton, New Jersey Branch Office (West Broad Street)
Bridgeton, New Jersey Operations Center and Computer Facilities
*Upper Deerfield, New Jersey Branch Office (Carll's Corner)
Upper Deerfield, New Jersey Branch Office (Seabrook)
Fairton, New Jersey Branch Office
Penns Grove, New Jersey Branch Office
Pennsville, New Jersey Branch Office
Rosenhayn, New Jersey Branch Office
*Vineland, New Jersey Branch Office (Landis Avenue)
Millville, New Jersey Branch Office
Millville (Airport), New Jersey Branch Office
Wilmington, Delaware Administrative Office for F&M Investment
Company
*Salem City, New Jersey Branch Office
*Washington Township, New Jersey Branch Office
Cedarville, New Jersey Branch Office
*Elmer, New Jersey Branch Office
*Leased Property
Registrant owns substantially all properties used in its business. Branch
office leases are less than $100,000 annually, and Management does not foresee
any material changes in terms or amounts of leased property or the ability to
renew applicable leases.
None of the owned principal properties are subject to any major encumbrance
material to the operations of Registrant.
All facilities are in good condition and are adequate and suitable for
Registrant's business. Management believes that the capacity of the offices
is such that no additional office space will be needed in the foreseeable
future for administration purposes. Additional branch offices may be opened
in the future when Management deems it necessary for meeting customer needs,
expansion and growth.
Item 3. Legal Proceedings
None
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders of Registrant
during the fourth quarter of fiscal year 1998.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Market Information for Common Stock.
Registrant's common stock is inactively traded on a local basis, and the
range of sales prices known to Management based on quotes from the National
Quotation Bureau and transactions noted in the transfer and issuance of
Registrant's common stock certificates, for each quarter during the two most
recent years are as follows:
(Per share data give retroactive effect to stock dividend)
1998 1997
High Low High Low
First Quarter $61.50 $59.50 $41.25 $40.00
Second Quarter $60.00 $49.50 $45.00 $41.25
Third Quarter $49.50 $41.00 $45.50 $45.00
Fourth Quarter $41.00 $26.00 $60.50 $45.50
Holders
At March 26, 1999, there were 482 holders of record of Registrant's common
stock.
Dividends
Registrant declared cash dividends of $.29 per share payable to its common
shareholders on June 30, 1998, for a total of approximately $328,000.
Registrant declared 3% stock dividends payable to its common shareholders
on December 10, 1998. A total of 32,683 shares were distributed on
January 1, 1999 to all common shareholders of record as of December 21,
1998. Cash paid for fractional shares totaled approximately $4,000.
Registrant declared cash dividends of $.58 per share payable to its
common shareholders on June 30, 1997 and December 31, 1997, for a total
of $1.16 per share or approximately $1,306,000.
For restriction on dividends, see Note 15 to the consolidated financial
statements. Currently, dividends may not be paid without prior approval
of the Company's regulators.
Item 6. Selected Financial Data
The following table presents selected financial data of the Registrant.
The historical data should be read in conjunction with the consolidated
financial statements and the related notes thereon in Item 8 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7. (Per share data give retroactive effect to stock
dividends.)
In Thousands except per share data
Year Ended December 31
1998 1997 1996 1995 1994
Interest income $33,283 $33,800 $30,390 $28,212 $24,616
Interest expense 18,400 17,159 14,870 13,114 10,731
Net interest income 14,883 16,641 15,520 15,098 13,885
Provision for loan losses15,270 7,967 1,805 1,266 725
Net interest income after provision for
loan losses (387) 8,674 13,715 13,832 13,160
Non-interest income 3,509 3,043 3,246 2,743 2,308
Non-interest expenses 15,842 11,590 10,357 10,023 9,580
Income before income taxes
(12,720) 127 6,604 6,552 5,888
Provision(benefit) for income taxes
(4,888) (710) 1,276 1,700 1,411
Net Income (7,832) 837 5,328 4,852 4,477
Cash dividends declared on common stock
332 1,306 1,195 1,093 1,054
Dividend payout ratio N/A 156.0% 22.4% 22.5% 23.5%
Per Common Share Amounts
Basic earnings per share $(6.95) $ .75 $4.77 $4.30 $3.97
Diluted earnings per share
$(6.95) $ .73 $4.67 $4.26 $3.95
Cash dividends declared on common stock
$ .29 $ 1.16 $1.07 $ .97 $ .93
Year-End Balances
Total assets $482,665 $483,354 $430,324 $404,240 $372,896
Investment securities 98,974 92,693 96,669 114,320 138,144
Loans, net of unearned income
268,894 305,556 290,885 232,113 192,518
Deposits 445,566 438,464 385,384 363,433 337,223
Shareholders' equity 32,089 39,559 39,751 36,643 32,555
Selected Share Data
Common shares outstanding 1,127 1,124 1,118 1,118 1,132
Weighted average common shares
Outstanding 1,127 1,120 1,118 1,128 1,129
At December 31:
Book value per common share
$28.46 $35.20 $35.58 $32.79 $28.76
Item 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto. The following
discussion contains forward-looking statements. The Company's actual
results may differ significantly from those projected in the forward-
looking statements.
OVERVIEW
The Company's results of operations for 1998 continued to be negatively
impacted by a series of credits that first impacted the Company at the
beginning of the third quarter of 1997. Specifically, the marine loans
which totaled approximately $37,603,000 at December 31, 1997, continued to
deteriorate as the Company provided another $314,306 in loan loss provision
therefore. In addition, the Company charged off approximately $3,230,000 of
these marine loans in 1998.
The boats held by the Company for resell required $1,733,000 in reserves
to be established and $821,123 in repossession and legal costs in 1998. In
summary, the Company's recent experience with the marine loan portfolio,
although historically it has been a profitable line of business for the
Company, was unsuccessful.
As a result of the Company's recent experience with its marine loan
portfolio, the Company sold approximately $19,700,000 of the marine
portfolio at a 1.4% discount from face value. Other than the
marine loans sold in February 1999, the Company still had $7,088,000
in marine loans it did not sell. It also held 142 repossessed boats to
be sold with a market value of approximately $2,196,000. The marine
loans retained by the Company include approximately $518,000 on non-
accrual.
In addition to the losses suffered from the marine portfolio, the
Company also experienced significant losses from its commercial
loan portfolio. The Company was required to provision $7,421,000 to
its Allowance for Loan and Lease Losses ("ALL") to cover its
commercial loan losses in 1998. The Company again, as in 1997,
increased in 1998 the percentage of total loans covered by the ALL.
The ALL, as a result, almost doubled in 1998 for an increase of 93.6%
or $4,901,000 to $10,137,000. As with the marine loan portfolio in
1997, in 1998 the company discovered another long-time senior executive
loan officer who purposely disregarded long-standing Company lending
policies to the detriment of the Company. As a result of these officer
transgressions, the Board of Directors has taken a more proactive approach
to monitoring Company lending and its adherence to Company policies
including the utilization of a well-qualified outsourced internal audit
function.
Finally, losses on real estate loans increased significantly. The
Company experienced in 1998 a 247% increase in losses on foreclosed
real estate from 1997. These losses increased $643,000 from $260,000
in 1997 to $903,000 in 1998. The continuing depressed market area the
Company primarily serves is the primary explanation for the
deterioration in its real estate loan portfolio. Indeed, the United
States Government declared Cumberland County as a Federal Empowerment
Zone and intends to provide up to $230 million over the next 10 years
to buttress the local economy. Cumberland County was one of only 20
communities in the United States to be named a Federal Empowerment Zone.
RESULTS OF OPERATIONS
The Company had a consolidated net loss of $7,832,000 for the twelve
months ended December 31, 1998, as compared to $837,000 in consolidated
net income for the comparable period of 1997. The $8,669,000 decrease
in net income is primarily attributable to the installment loan charge
offs associated with the marine loans discussed above, the $5,582,000 in
commercial loan charge-offs in 1998, and the Company's real estate loan
portfolio which accounted for $1,045,000 in charge-offs in 1998.
The following is a comparison of the consolidated basic earnings per
share of Common Stock of the Company for the years ended December 31,
1998, 1997, and 1996.
Years ended December 31
1998 1997 1996
Basic Earnings (Loss) Per Share $(6.95) $.75 $4.77
Diluted Earnings (Loss) Per Share $(6.95) $.73 $4.67
LOANS
The Company had $258,757,000 in Total Loans at December 31, 1998,
as compared to 300,320,000 in Total Loans at December 31, 1997
and $291,620,000 at December 31, 1996. The 16.1% decrease in
total loans in 1998 is a result of the Company's tightening of
credit standards and the implementation of its revised loan policy.
Not wanting to make significant out-of-territory loans, the Company
has found it difficult to obtain good performing assets in its
primary market area. Also, significant attention of the Company's
lending personnel is directed at collecting problem credits in
addition to generating new loans.
Standby letters of credit amounting to $6,904,000 and $5,960,000 were
outstanding as of December 31, 1998 and 1997 respectively.
Loan commitments and unused lines of credit outstanding as of December
31, 1998 and 1997 were $16,296,000, $17,332,000 respectively.
During the year 1998, 312 new loans totaling $11,597,630 were booked
which includes refinancing and renewals of existing loans. Loan
volume has decreased, however, as a result of management's desire
to increase the quality of the loan portfolio and to maintain adequate
capital levels.
The Company's loan portfolio as of December 31, 1998, is classified
as follows: Real Estate Mortgage Loans - 51%; Agricultural and
Commercial Loans - 24%; and Installment and Consumer Credit - 25%.
INTEREST INCOME
The Company had consolidated interest income from its loans and
investment securities of $33,283,000, $33,800,000, and $30,390,000,
for the years ended December 31, 1998, 1997, and 1996 respectively,
or an 1.6% decrease for the comparable period of 1997 to 1998. The
$517,000 decrease in interest income as of December 31, 1998, is
mainly attributable to the $41,563,000 decrease in loans at the Company
and the redeployment of new deposits and maturing loans into lower
yielding investment securities and Federal funds sold.
The Company's investment portfolio increased by $6,281,000 or 6.78% at
December 31, 1998, from December 31, 1997. Interest income on investment
securities, however, decreased in the amount of $140,000 or 2.3% from
December 31, 1997, to December 31, 1998. This decrease in interest
Income on investment securities resulted from lower market yields on
replacement investment securities for matured and called investment
securities.
NET INTEREST INCOME
Net Interest Income, the difference between interest income and interest
expense, is a significant component of performance of a banking
organization. Net interest incomee was $14,883,000 for the year ended
December 31, 1998, a decrease of $1,758,000 or 10.6% over net interest
income of $16,641,000 earned during 1997. Net interest income was
$15,520,000 for the year ended December 31, 1996.
Management attributes the decrease in net interest income for 1998
primarily to the substantial decrease in the amount of interest income
earned on loans which return a higher yield to the Company than interest
earned on investment securities and the increased volume of Federal funds
sold. This was coupled with the moderate increase in the amount of interest
expense paid by the Company on its time deposits. The increase in time
deposit interest expense was primarily a result of the Bank issuing
approximately $42,000,000 in five year certificates of deposit in the
third quarter of 1997.
NON-INTEREST INCOME
Non-Interest Income consists primarily of service fees on deposit
accounts, Trust Department income, commissions, collection fees,
credit card fees, and rental income from safe deposit boxes. The
Company's non-interest income was $3,509,000 for the year ended
December 31, 1998, as compared to $3,043,000 for the year ended
December 31, 1997. The Company's non-interest income was higher
For the twelve months of 1998 as compared to the same period in
1997 because of the 157.5% increase in income on the cash value
of life insurance in which the Bank is the owner and beneficiary
of the policy. All but approximately $100,000 of the increase
in non-interest income in 1998 is attributable to the income
on the cash value of life insurance. The other $100,000 increase
is a result of increases in Trust Department fees and other
deposit service fee income.
NON-INTEREST EXPENSES
Non-Interest Expenses consist of salaries and employee benefits,
occupancy, equipment, FDIC assessments and other miscellaneous
expenses such as stationary and supplies, professional fees,
postage, advertising, etc. The Company's non-interest expense
was $15,842,000 and $11,590,000 for the years ended December 31,
1998 and 1997 respectively. The 36.7% increase in non-interest
expense from December 31, 1997 to December 31, 1998, was mainly
a result of a $643,000 increase in losses on foreclosed real
estate, a $1,733,000 reserve established for other assets, and a
charge of $821,000 for repossession and legal expense for other
assets. These three items comprise $3,197,000 or 75.2% of the
overall $4,252,000 million increase in non-interest expense from
1997 to 1998. Other than those three items, non-interest expense
rose in accordance with past years as the Company incurred additional
personnel, professional, and occupancy fees.
PROVISION (BENEFIT) FOR INCOME TAXES
Provision (benefit) for income taxes were ($4,888,000), ($710,000)
and $1,276,000 for the years ended December 31, 1998, 1997 and 1996
respectively. Income tax expense was $4,178,000 lower in 1998
than in 1997 because of the significant losses realized by the
Company as a result of the loan charge offs.
DEPOSIT ACCOUNTS
Total Deposit Accounts are composed of demand (non-interest bearing)
deposits, Money Market accounts, Super NOW accounts, savings accounts,
jumbo ($100,000 and over) time accounts, and other time deposits.
The Company had $445,566,000 in total deposits at year-end 1998, and
increase of $7,102,000 or 1.62% over the $438,464,000 in total
deposits at year-end 1997.
The Company's total deposits continued to increase in 1998 because
of the Company's strong capital position, which is attracting new
deposits from customers of the several large regional banks, which
recently merged. Additionally, the opening of several new branches
in prior years by the Company has expanded the Company's penetration
in its primary market area. The Company expects its total deposits
to decrease in 1999 as it will not aggressively bid on public fund
deposits and will not be a market leader in rates paid on short-term
depository products in order to enhance its interest income and
strengthen the Company's capital ratios.
ALLOWANCE FOR LOAN AND LEASE LOSSES
The Company's Allowance for Loan and Lease Losses (ALL) as a percentage
of gross total outstanding loans was 3.77% at December 31, 1998, 1.71%
at December 31, 1997, and 1.09% at December 31, 1996. Management
estimates the required ALL and makes the necessary provisions thereto
on a monthly basis and any deficiency in the ALL is made up by
charging current operating income.
In determining the ALL required, management applies such factors as a
review of the loan portfolio, past loan loss experience, current
economic conditions, evaluation of borrower capacity to repay based
on financial statements, sources of cash flow, guarantees and other
similar information, and current appraisals or internal evaluations
of collateral. The methodology of the ALL is reviewed annually by the
Company's independent auditors and its banking regulators.
The Company had $16,180,000 or 6.01% of total loans outstanding on
a non-accrual status on December 31, 1998, $3,971,000 or 1.29% of
total loans outstanding on non-accrual status on December 31, 1997,
and $2,287,000 or .78% of total loans outstanding on a non-accrual
status on December 31, 1996. Non-accrual loans are those loans from
which, in management's opinion, the collection of additional interest
is questionable.
The increase in the ALL of $4,901,000 from $5,236,000 as of December
31, 1997, to $10,137,000 as of December 31, 1998, was a result of the
increased charge-offs and non-accrual loans experienced by the Company
in 1998 and management's desire to increase the ALL percentage of total
loans from 1.71% to 3.77%.
The increase in the amount of loans on a non-accrual status is
attributable to the loans being classified by the Company's internal
loan review after 95% of the commercial loan portfolio was reviewed
and the Company's due diligence.
Loan charge-offs were $12,481,000 or 4.63% of total loans and
$7,839,000 or 2.56% of total loans, and $1,211,000 or .42% of total
loans respectively for the years ended December 31, 1998, 1997 and
1996. The increase from 1997 to 1998 in charge-offs was primarily a
result of the non-performing installment retail loans including the
marine loans and the large increase in charge-offs in the Commercial
loan portfolio. Commercial loan charge-offs increased dramatically
from $727,000 in 1997 to $5,582,000 in 1998. This 678.1% increase
in commercial loan charge-offs primarily resulted from a failure of
the internal control systems to adequately monitor lending exceptions
from the established loan policies, which were committed by long-time
trusted, senior executive officers.
The lack of adequate internal controls in the Company's commercial
lending department resulted in the discovery of numerous loans that
were in violation of established policies. Virtually the entire loan
department of the Company has been changed since the third quarter of
1998 and the Board of Directors has under taken a review of 95% of the
Company's commercial loan portfolio, and continues to be actively
engaged in ongoing loan review.
ASSET AND LIABILITY MANAGEMENT
The major objectives of the Company's asset and liability management
are to (1) manage exposure to changes in the interest-rate environment
to achieve a neutral interest sensitivity position within reasonable
ranges, (2) ensure adequate liquidity and funding, (3) maintain a strong
capital base, and (4) maximize net interest income opportunities. The
Company manages these objectives centrally through Management's Asset
and Liability Committee. Members of the Committee meet monthly to
develop balance sheet pricing strategies affecting the future level of
net interest income, liquidity, and capital. Factors that are considered
in asset and liability management include forecasts of balance sheet mix,
the economic environment, the anticipated direction of interest rates,
and the Company's earnings sensitivity to changes in these rates.
LIQUIDITY
The Company must maintain adequate liquidity to ensure the availability
of funds for loan growth, the purchase of investment securities, deposit
withdrawals, and maturing liabilities. Cash and cash equivalents, cash
and due from banks, interest bearing time deposits at other depository
institutions and Federal funds sold are the Company's most liquid assets.
The Company had Federal Funds sold of $67,700,000 at December 31, 1998,
as compared to $40,950,000 at December 31, 1997, and $12,900,000 at
December 31, 1996. The increase of 65.3% in Federal Funds sold as of
December 31, 1998, as compared to December 31, 1997, is mainly
attributable to the large reduction in new loans being booked at the
Company and the desire to provide sufficient liquidity for the Company's
customers.
The Company's investment securities portfolio, in addition to the
earnings it generates, supplies needed liquidity. As of December 31,
1998, the Company had $7,367,000 or 7.44% of the portfolio maturing
in one year or less, $36,849,000 or 37.23% maturing in over one year
and within five years, $54,546,000 or 55.12% maturing in over five
years and within 10 years, and $212,000 or 0.21% maturing in over 10
years.
By maintaining adequate liquidity in its investment portfolio, the
Company has positioned itself to take advantage of changes in interest
rates and increased loan demand.
Additionally, 20% of the Company's loan portfolio has a maturity date
of one year or less. This permits the company to utilize re-pricing
opportunities arising from changing interest rates. The remaining
portion of the loan portfolio included a significant number of loans
that the Company is able to reprice rapidly enough that any repricing
of deposits would not have a material adverse effect on the Company's
net interest income margin.
Management believes that the Company's liquidity position is strong
based on its high level of cash, cash equivalents, core deposits, the
stability of its other funding sources, and the support provided by its
capital base.
INTEREST RATE SENSITIVITY
The Company analyzes its interest sensitivity position to manage the
risk associated with interest rate movements through the use of
"gap analysis" and "simulation". Interest rate risk arises from
mismatches in the repricing of assets and liabilities within a given
time period. A "negative" gap results when this amount of interest-
sensitive liabilities exceeds that of interest-sensitive assets.
While gap analysis is a general indicator of the potential effect that
changing interest rates may have on net interest income, the gap itself
does not present a complete picture of interest rate sensitivity. The
Company, therefore, also uses simulation techniques to project future
net interest income streams incorporating the current "gap" position, the
forecast balance sheet mix, and the anticipated spread relationships
between market rates and bank products under a variety of interest rate
scenarios. The Company's interest sensitivity at December 31, 1998, was
essentially liability sensitive within reasonable ranges.
CAPITAL ADEQUACY
The maintenance of appropriate levels of capital is a management
priority. Overall capital adequacy and dividend policy are monitored
on an ongoing basis by management and are reviewed monthly by the
Company's Board of Directors. Management discusses the Company's
capital plans with the Board of Directors on a frequent basis.
The Company's principal capital planning goals are to provide an
Attractive return to stockholders while maintaining a sufficient
base from which to provide for future growth.
The Company's Tier 1 and Total risk based capital ratios along with
the Total Leverage Ratio exceeded the minimum ratios required by the
Office of the Comptroller of the Currency (OCC), the Bank's primary
regulator, as demonstrated in the following chart:
Capital Ratios
1998 1997 1996 Required
Tier 1 Risk Based Capital Ratio
(Tier 1 Risk based Capital to Risk-Weighted Assets)
8.8 11.3 12.5 4.0
Total Risk Based Capital Ratio
(Total Risk Base Capital to Risk-Weighted Assets)
10.1 12.5 13.6 8.0
Total Leverage Ratio
(Stockholders' Equity to Adjusted Total Assets)
5.9 8.2 8.9 4.0
REGULATORY ACTION
On December 10, 1998, the Company entered into a Memorandum of
Understanding (the "MOU") with the OCC that, among other things,
required the Company to maintain a Total Leverage Ratio of at least
6.0%. The Company was not in compliance with this requirement at
December 31, 1998, with a Total Leverage Ratio of 5.50%. Also,
pursuant to the MOU, the Company must review and revise various
policies, including its lending, capital planning, liquidity, and
asset-liability management policies, and conduct a thorough review of
its loan portfolio. The Company is currently undergoing an examination
by the OCC and believes it will be found in substantial compliance with
all requirements of the MOU other than the hiring of a new chief
operating officer of the Company and maintaining its Total Leverage
Ratio at a minimum of 6.0%. At February 28, 1999, this ratio was 5.76%.
Failure to substantially comply with all requirements of the MOU may
result in the imposition of a formal order against the Company by the OCC.
ASSET QUALITY
The Board of Directors grants lending authority to individual officers
and to loan committees. The Chairman of the Board is empowered to appoint
members to the various loan committees. There are two committees appointed
annually by the Chairman as follows: 1) The Management Loan committee.
The chairman of this committee is the President or, in his absence, one
of the Senior Vice presidents of the Company. This Committee meets weekly,
approves or rejects loans up to $1,000,000, and recommends loans to the
Directors Loan Committee or the Board of Directors for loan requests over
that amount; 2) The Directors Loan Committee. This committee is comprised
of four outside board members, one of whom is appointed Chairman and, for
loan approval or rejection purposes, is joined by two members (Senior
Vice President or higher) of the Management Loan Committee. In addition
to approving loans over $1,000,000 and up to $2,000,000 or recommending
or passing loans to the full loan policies to the Board of Directors; b)
to review the allowance for loan losses; c) to review charge offs,
delinquent loans and action plans; d) to review other loan reports as
submitted by management; e) to recommend guidelines for management
pertaining to market and economic conditions; and f) review reports from
loan review officers as to the condition of the loan portfolio.
All authority to make loans is delegated by the board of Directors to
specific officers. Therefore, the Board must annually pass a resolution
granting authority to various officers in various dollar amounts. Generally
speaking, the Company's philosophy is to serve customers through relatively
high lending authority to Committees of senior officers or board members
but to limit individual authority. Individual lenders may only combine
their own authority with that of an Executive Vice President or the
President. When approving a loan, the total borrowings, at the Company,
when combined with the new loan request, must be within the lending
authority of the approving officer or committees. Individual limits
of lending authority are up to $250,000 secured and $100,000 unsecured.
The Company's independent loan review function is also an integral part
of its overall loan administration. The loan review department is
responsible for the evaluation of credit extensions with respect to
quality, documentation and risk criteria. This department's direct
reporting line to the Audit Committee of the Company's Board of Directors
is intended to maintain its independence and to provide assurance
that troubled situations will be identified and proper procedures
followed to establish corrective measures. The loan review and risk
rating systems are designed to provide the Company with an early
warning mechanism to detect loans to customers with deteriorating
financial conditions or loans that may represent potentially troubled
situations.
In addition, the Company's internal audit department reviews loan
documentation and collateral as part of its regular audit procedures.
The Company's Other Real Estate Owned portfolio of foreclosed
properties was decreased from $2,016,000 at December 31, 1996 to
$1,820,000 at December 31, 1997, to $1,310,000 at December 31,
1998. This decrease was a result of management's efforts to
aggressively market and sell these properties.
YEAR 2000 COMPLIANCE
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 Company 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 Company'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
Company 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 Company's current systems and vendors to determine
their Y2K compliance. The Company 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 Company made the determination of what
systems needed to be updated or replaced.
After the completion of this assessment, the Company 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 Company's core
accounting system hardware and software. The Company formed a committee to
monitor this process. The conversion was completed by the end of the third
quarter of 1998. The Company also performed several other replacements and
upgrades to ensure year 2000 compliance. These upgrades are approximately
90% complete.
The Company is preparing for the validation phase of the project. The
Company 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 has been formed to complete this phase of
the project. This committee will consist of members of the Company's
management representing the various departments of the Company. 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 Company 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 Company will be, either
partially or wholly, successful. Much of the Company's success in
implementing its Plan will rely on third parties who are beyond the
Company's control. The complete failure of the Company's Plan to address
the Year 2000 situation may have a material adverse effect on the operations
of the Company. As of September 30, 1998, the Company is uncertain of the
magnitude of the impact the Year 2000 issue will have on its operations.
The Company 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 Company does business to address timely and successfully the
Year 2000 issue.
Item 8. Financial Statements and Supplementary Data.
SOUTHERN JERSEY BANCORP OF DELAWARE, INC.
Index to Consolidated Financial Statements
Page
Independent Auditor's Report 32
Consolidated Balance Sheets 33
Consolidated Statements of Operations 34
Consolidated Statements of Shareholders' Equity 35
Consolidated Statements of Cash Flow 36
Notes to Consolidated Financial Statements 38
Independent Auditor's Report - F&M Investment Company 62
INDEPENDENT AUDITORS' REPORT
To The Stockholders and Board of Directors
Southern Jersey Bancorp of Delaware, Inc.
We have audited the accompanying consolidated balance sheets of
Southern Jersey Bancorp of Delaware, Inc., and its subsidiaries as
of December 31, 1998 and 1997, and the related consolidated statements
of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We did not audit the financial statements of F&M Investment Company, a
wholly-owned subsidiary, which statements reflect total assets of
$102,565,000 and $92,210,000 as of December 31, 1998 and 1997, respectively,
and net interest income revenues of $5,891,000, $5,672,000 and $6,738,000
for each of the three years in the period ended December 31, 1998, of the
related consolidated totals. Those statements were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar
as it relates to the amounts included for the F&M Investment Company, is
based solely upon the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits and the reports of other auditors provide a reasonable
basis for our opinion.
In our opinion, based upon our audits and the reports of other
auditors, the consolidated financial statements referred to above present
fairly in all material respects the consolidated financial position of
Southern Jersey Bancorp of Delaware, Inc., and subsidiaries at December
31, 1998 and 1997, and the consolidated results of their operations and
cash flows for each of the years in the three year period ended December
31, 1998, in conformity with generally accepted accounting principles.
Bridgeton, New Jersey
January 22, 1999
Southern Jersey Bancorp of Delaware, Inc. And Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31
(dollars in thousands, except share and per share data)
1998 1997
Assets
Cash and due from banks $ 18,879 $ 18,565
Interest bearing deposits with banks 2,450 4,000
Federal funds sold 67,700 40,950
Securities available for sale 98,974 37,278
Securities held to maturity 0 55,415
Loans receivable, net of allowance for loan losses of
$10,137 in 1998 and $5,236 in 1997 258,757 300,320
Accrued interest receivable 4,076 3,625
Premises and equipment - net 6,994 6,353
Other real estate owned 1,310 1,820
Cash value of life insurance 10,831 8,164
Other assets 12,694 6,864
Total assets $482,665 $483,354
Liabilities
Deposits:
Demand deposits $ 65,387 $ 61,100
Savings and NOW deposits 129,124 122,076
Money market deposits 37,750 39,081
Other time deposits 213,305 216,207
Total deposits 445,566 438,464
Other liabilities 5,010 5,331
Total liabilities 450,576 443,795
Commitments and contingencies (Notes 11 and 14)
Shareholders' Equity
Shareholders' Equity
Preferred stock, no par value;
shares authorized - 500,000; no shares issued
Common stock, par value $1.67 per share;
shares authorized - 5,000,000;
shares issued - 1,307,683 2,184 2,129
Additional paid-in-capital 3,259 2,260
Retained earnings 29,549 38,767
Accumulated other comprehensive income 936 159
Treasury stock at cost -
180,202 shares in 1998
and 183,927 shares in 1997 (3,839) (3,756)
Total shareholders' equity 32,089 39,559
Total liabilities and shareholders' equity
$482,665 $483,354
Southern Jersey Bancorp of Delaware, Inc. And Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
(dollars in thousands, except per share data)
1998 1997 1996
Interest Income
Loans receivable $ 24,624 $ 25,834 $ 22,441
Investment securities 5,983 6,123 6,802
Federal funds sold 2,480 1,830 1,147
Deposits with banks 196 13 0
Total interest income 33,283 33,800 30,390
Interest Expense
Deposits 18,400 17,159 14,870
Net interest income 14,883 16,641 15,520
Provision for loan losses 15,270 7,967 1,805
Net interest income(loss) after
provision for loan losses (387) 8,674 13,715
Noninterest Income
Service charges on deposit accounts
1,707 1,693 1,677
Income from fiduciary activities 834 745 694
Income on cash value of life insurance
587 228 0
Other service charges and fees 378 372 460
Net realized gains on sales of securities
3 5 415
Total noninterest income 3,509 3,043 3,246
Noninterest Expense
Salaries and employee benefits 6,575 6,254 5,598
Loss on foreclosed real estate 903 260 259
Loss on other assets 1,733 0 0
Occupancy expense 2,196 1,973 1,777
Examinations and FDIC assessments 250 143 98
Postage, stationery and supplies 603 499 469
Professional fees 1,020 977 647
Repossession expenses for other assets
821 0 0
Other operating expenses 1,741 1,484 1,509
Total noninterest expenses 15,842 11,590 10,357
Income(loss) before income taxes
(12,720) 127 6,604
Provision(benefit) for income taxes
(4,888) (710) 1,276
Net income(loss) $ (7,832) $ 837 $ 5,328
Net income(loss) per common and common
equivalent share:
Basic $ (6.95) $ .75 $ 4.77
Diluted $ (6.95) $ .73 $ 4.67
Average common and common equivalent
shares outstanding:
Basic 1,127 1,120 1,118
Diluted 1,127 1,148 1,141
Cash dividends declared, per share of common stock
$ .29 $ 1.16 $ 1.07
Southern Jersey Bancorp of Delaware, Inc. And Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For The Three Years Ended December 31, 1998
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Treasury Shareholders'
Stock Capital Earnings Income Stock Equity
(dollars in thousands, except share and per share data)
Balances at January 1, 1996
$2,129 $2,260 $35,103 $ 929 $(3,778) $36,643
Comprehensive income:
Net income for 1996 5,328
Net change in unrealized gains(losses) on
available-for-sale investment securities, net of
taxes $(467) (907)
Comprehensive income 4,421
Cash dividends declared ($1.07 per share)
(1,195) (1,195)
Addition of 10,137 shares to the Treasury (404) (404)
Issuance of 10,134 shares from the Treasury 286 286
Balances at December 31, 1996
2,129 2,260 39,236 22 (3,896) 39,751
Comprehensive income:
Net income for 1997 837
Net change in unrealized gains(losses) on
available-for-sale investment securities, net of
taxes $71 137
Comprehensive income 974
Cash dividends declared ($1.16 per share)
(1,306) (1,306)
Addition of 3,520 shares to the Treasury (166) (166)
Issuance of 9,789 shares from the Treasury 306 306
Balances at December 31, 1997
2,129 2,260 38,767 159 (3,756) 39,559
Comprehensive income:
Net loss for 1998 (7,832)
Reclassification adjustment-
Unrealized gain on available-for-sale securities
transferred from held-to-maturity securities,
net of taxes $396 769
Net change in unrealized gains (losses) on
available-for-sale investment securities, net of
taxes $4 8
Comprehensive loss (7,055)
Payment for fractional shares
of stock dividends declared (4) (4)
3% common stock dividend
distributable, 32,683 shares
55 999 (1,054) 0
Cash dividends ($.30 per share) (328) (328)
Addition of 4,363 shares to the Treasury (258) (258)
Issuance of 8,088 shares from the Treasury 175 175
Balances at December 31, 1998
$2,184 $3,259 $29,549 $ 936 $(3,839) $32,089
Southern Jersey Bancorp of Delaware, Inc. And Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
(dollars in thousands) 1998 1997 1996
Operating Activities
Net income(loss) $(7,832) $ 837 $ 5,328
Adjustments to reconcile net income(loss) to net
cash provided by(used in) operating activities:
Depreciation of premises and equipment
624 556 482
Provision for loan losses 15,270 7,967 1,805
Deferred income tax benefit
(2,851) (457) (842)
Gains on sales of investment securities
(3) (5) (415)
Increase in accrued interest receivable
(451) (342) (98)
Increase in cash value of life insurance
(2,667) (8,164) 0
Increase in other assets (5,830) (3,172) (114)
Increase(decrease) in other liabilities
(321) 155 1,025
Provision for losses on other real estate
536 68 78
Amortization of premium on investment securities
216 160 237
Accretion of discount on investment securities
(112) (36) (73)
(Gain)loss on disposal of bank premises and equipment
(1) 2 0
(Gain)Loss on disposal of other real estate owned
143 (78) (20)
Net cash provided by(used in) operating activities
(3,279) (2,509) 7,393
Investing Activities
Net (increase)decrease in interest bearing deposits with banks
1,500 (4,000) 0
Net (increase)decrease in federal funds sold
(26,750) (28,050) 14,900
Purchase of available-for-sale investment securities
(47,666) (16,490) (15,923)
Sales and maturities of available-for-sale investment securities
44,227 12,465 14,858
Purchase of held-to-maturity investment securities
(13,870) (9,306) (1,986)
Maturities and calls of held-to-maturity investment securities
12,088 17,277 19,538
Net (increase)decrease in loans made to customers
28,142 (21,046) (60,829)
Purchase of bank premises and equipment
(1,276) (1,293) (883)
Proceeds from the sale of other real estate owned
495 661 1,660
Proceeds from sales of premises and equipment
12 595 0
Net cash used in investing activities
(carried forward) $(3,098) $(49,187) $(28,665)
Southern Jersey Bancorp of Delaware, Inc. And Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
(dollars in thousands) 1998 1997 1996
Net cash used in investing activities
(brought forward) $(3,098) $(49,187) $(28,665)
Financing Activities
Net increase(decrease)in demand deposits
4,287 5,757 (21,973)
Net increase in savings and NOW deposits
7,048 3,857 17,362
Net increase(decrease) in money market deposits
(1,331) 3,086 (8,217)
Net increase(decrease) in other time deposits
(2,902) 40,380 34,779
Cash dividends (328) (1,306) (1,195)
Purchase of treasury stock (258) (166) (404)
Sale of treasury stock 175 306 286
Net cash provided by financing activities
6,691 51,914 20,638
Net increase(decrease) in cash and due from banks
314 218 (634)
Cash and due from banks at January 1
18,565 18,347 18,981
Cash and due from banks at December 31
$18,879 $18,565 $18,347
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $17,169 $17,089 $14,282
Income taxes $ 0 $ 1,615 $ 1,775
OTHER NON-CASH ACTIVITIES:
Transfer of loans, net of charge-offs to
other real estate owned $ 188 $ 455 $ 2,789
Increase(decrease) in unrealized gain on
available-for-sale investment securities
$ 8 $ 137 $ (907)
Reclassification adjustment -
unrealized gain on securities available-for-sale
transferred from securities held-to-maturity
$ 769 $ 0 $ 0
Southern Jersey Bancorp of Delaware, Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting principles followed and the methods of applying those
principles conform to generally accepted accounting principles and to
general practices in the banking industry. The significant policies
are summarized as follows:
(a) Nature of Operations
Southern Jersey Bancorp of Delaware, Inc. (the Company) is a
bank holding company whose principal activity is the ownership and
management of its wholly-owned subsidiary, The Farmers and Merchants
National Bank of Bridgeton (the Bank). The Bank generates commercial
(including agricultural), mortgage and consumer loans and receives
deposits from customers located primarily in Southern New Jersey and
the surrounding areas.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of
Southern Jersey Bancorp of Delaware, Inc. and its wholly-owned subsidiaries,
The Farmers and Merchants National Bank of Bridgeton and AMFDCM, Inc., and
the Bank's wholly-owned subsidiaries, F&M Investment Company and Woulf Asset
Holdings, Inc., after elimination of all material intercompany transactions
and balances.
(c) Use of Estimates
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 revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Material estimates that are particularly susceptible to significant
changes relate to the determination of the allowance for losses on loans
and the valuation of real estate acquired in connection with foreclosures
or in satisfaction of loans. In connection with the determination of the
allowances for losses on loans and foreclosed real estate, management
obtains independent appraisals for significant properties.
While management uses available information to recognize losses
on loans and foreclosed real estate, future adjustments to the allowance
may be necessary based on changes in local economic conditions. In
addition, regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowances for losses on loans and
foreclosed real estate. Such agencies may require the Bank to recognize
adjustments to the allowance based on their judgments about information
available to them at the time of their examination. Because of these
factors, it is reasonably possible that the allowances for losses on loans
and foreclosed real estate may change in the near term.
(d) Cash Equivalents
For the purpose of presentation in the consolidated statements of
cash flows, cash and cash equivalents are defined as those amounts
included in the balance sheet caption "cash and due from banks".
(e) Investment Securities
Debt securities that the Bank has the intent and ability to hold
until maturity are classified as "held-to-maturity" and are carried at
historical cost, adjusted for any amortization of premiums or accretion
of discounts. Trading securities are those held principally for the
purpose of selling in the near future and are carried at fair value,
with unrealized gains and losses included in earnings. Marketable equity
securities and debt securities that are not classified as held-to-maturity
or trading are classified as "available-for-sale" and are carried at fair
value, with the unrealized gains and losses, net of tax, reported as a
separate component of stockholders' equity as accumulated other
comprehensive income. As of December 31, 1998, the Bank has no trading
securities or held-to-maturity securities.
Realized gains and losses and declines in value judged to be other
than temporary are included in earnings. The specific identification
method is utilized in determining the cost of a security that has
been sold.
Premiums and discounts are amortized and accreted, respectively, as
an adjustment of the securities yield using the interest method,
adjusted for the effects of prepayment on the underlying collateral.
(f) Loans
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for
loan losses, and unearned income.
The interest method is used to amortize unearned income on installment
loans and interest on all other loans is recognized based on the principal
balance outstanding.
The accrual of interest on impaired loans is discontinued when,
in management's opinion, the borrower may be unable to meet payments as
they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received.
(g) Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered
by management to be adequate to provide for potential loan losses. The
allowance is increased by provisions charged to operations and reduced by
net charge-offs. Management's periodic evaluation of the adequacy of the
allowance is based on the Company's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
(h) Premises and Equipment
Premises and equipment are carried at cost, less accumulated
depreciation and amortization computed on the straight-line method
over the estimated useful lives of the assets.
Property under capital lease is recorded at the present value
of the minimum lease payments and is amortized using the straight-line
method over the term of the lease.
(i) Other Real Estate Owned
Real estate acquired in satisfaction of a loan is recorded at
the lower of cost or fair value less disposition costs. Properties
acquired by foreclosure or deed in lieu of foreclosure are transferred
to other real estate owned and recorded at the lower of cost or fair
value less disposition cost based on their appraised value at the date
actually or constructively received. Losses arising from the acquisition
of such property are charged against the allowance for loan losses.
Subsequent adjustments to the carrying values of other real estate owned
are charged to operating expenses.
(j) Income Taxes
Income taxes are provided for the tax effects of the transactions
reported in the consolidated financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences between
the basis of the allowance for loan losses, net operating loss and
accumulated depreciation. The deferred tax assets and liabilities
represent the future tax return consequences of those differences which
will either be taxable or deductible when the assets and liabilities are
recovered or settled. Deferred tax assets and liabilities are reflected
at income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes
in tax laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes. The Company files
consolidated income tax returns with its subsidiaries.
(k) Financial Instruments
Other off-balance-sheet instruments. In the ordinary course of
business, the Bank has entered into off-balance-sheet financial
instruments consisting of commitments to extend credit, commitments
under credit-card arrangements, and standby letters of credit. Such
financial instruments are recorded in the consolidated financial
statements when they are funded or related fees are incurred or received.
(l) Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair values of financial instruments as disclosed herein:
Cash and short-term instruments - The carrying amounts of cash and
short-term instruments approximate their fair value.
Available-for-sale and held-to-maturity securities - Fair values for
securities, excluding restricted equity securities, are based on quoted
market prices. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments. The
carrying values of restricted equity securities approximate fair values.
Loans - Fair values are estimated for portfolios of loans with similar
financial characteristics. The fair value of loans is calculated by
discounting scheduled cash flows through the estimated maturity using
estimated market discount rates that reflect the credit and interest
rate risk inherent in the loan. The estimate of maturity is based on
the Bank's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect
of current economic and lending conditions. Fair values for impaired
loans are estimated using discounted cash flow analyses or underlying
collateral values, where applicable.
Deposit liabilities - The fair values disclosed for demand deposits
are, by definition, equal to the amount payable on demand at the
reporting date. The carrying amounts of variable-rate, fixed-term
money-market accounts and certificates of deposit (CDs) approximate
their fair values at the reporting date. Fair values for fixed-rate
CDs are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
Off-balance-sheet instruments - Fair values for off-balance-sheet
lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standings.
(m) Earnings per Share
Basic earnings per share are computed by dividing earnings available
to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share reflect per
share amounts that would have resulted if dilutive potential common stock
had been converted to common stock. Both basic and diluted earnings per
share computations give retroactive effect to stock dividends.
(n) Stock Dividend
On December 10, 1998, the Company's Board of Directors declared 3%
stock dividends which were paid on January 1, 1999 to shareholders of
record at December 21, 1998. Payment of the stock dividend resulted in
the issuance of 32,683 additional common shares and cash of $4,000 in lieu
of fractional shares.
(o) Trust Fees
Trust fees are recorded on the accrual basis.
(p) Recent Accounting Standards
As of January 1, 1998, the Company adopted Financial Accounting
Standards Board (FASB) Statement No. 130, "Reporting Comprehensive Income"
(FAS 130). FAS 130 establishes new standards for reporting comprehensive
income, which includes net income as well as certain other items which result
in a change to equity during the period. Prior period financial statements
have been reclassified to conform to the requirements of FAS 130. The
adoption of FAS 130 had no impact on the Company's financial position or
results of operations.
As of January 1, 1998, the Company adopted Financial Accounting
Standards Board (FASB) Statement No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". FAS 132 standardizes the
disclosure requirements for pensions and other postretirement benefits.
As of October 1, 1998, the Company adopted FASB issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities"
(FAS 133). FAS 133 requires the Company to recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure these instruments at fair value. In connection with the adoption
of FAS 133, the Company reclassified all held-to-maturity securities to
available-for-sale securities without any effect on earnings or the
financial position of the Company.
(q) Reclassifications
Certain reclassifications have been made to the 1997 and 1996 amounts
in order to conform with 1998 presentation.
NOTE 2 - CASH AND DUE FROM BANKS
The Bank maintains various deposits in other banks. The withdrawal or
usage restrictions on these balances do not have a significant impact
on the consolidated operations of the Company. Aggregate reserves of
$7,161,000 and $7,195,000 were maintained at the Federal Reserve Bank
of Philadelphia as of December 31, 1998 and 1997, respectively, to
satisfy federal regulatory requirements.
NOTE 3 - INVESTMENT SECURITIES
Investment securities have been classified in the Consolidated Balance
Sheets according to management's intent at the time of purchase. The
carrying amounts of securities and their approximate fair values at
December 31, 1998 and 1997 were as follows (In Thousands):
At December 31, 1998
Gross Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available-for-sale:
U.S. Treasury securities
$16,148 $247 $ 0 $16,395
U.S. Government agencies 37,002 267 (58) 37,211
State and municipal 29,183 827 (1) 30,009
Other securities 15,223 146 (10) 15,359
Securities available-for-sale
$97,556 $1,487 $(69) $98,974
Securities held-to-maturity
$ 0 $ 0 $ 0 $ 0
At December 31, 1997
Available-for-sale:
U.S. Treasury securities $4,003 $ 140 $ 0 $ 4,143
U.S. Government agencies 32,908 133 (34) 33,007
Other securities 128 0 0 128
Securities available-for-sale
$37,039 $ 273 $ (34) $37,278
Held-to-maturity:
U.S. Treasury securities $8,508 $ 0 $ (22) $ 8,486
U.S. Government agencies 3,500 0 (35) 3,465
State and municipal 30,537 588 (1) 31,124
Other securities 12,870 48 (37) 12,881
Securities held-to-maturity
$55,415 $ 636 $ (95) $55,956
The scheduled maturities of securities held to maturity and securities
available-for-sale at December 31, 1998 were as follows (In Thousands):
Amortized Fair
Cost Value
Securities available-for-sale:
Within one year $ 7,330 $ 7,367
After one year but within five years 36,160 36,849
After five years but within ten years 53,869 54,546
After ten years 197 212
97,556 98,974
Securities held-to-maturity 0 0
Total debt securities $97,556 $98,974
The gross realized gains and gross realized losses on investment
securities transactions for the years ended December 31 are as follows:
(dollars in thousands) Available-for-sale Held-to-maturity
December 31, 1998
Gross gains $ 0 $ 3
Gross losses 0 0
Net $ 0 $ 3
December 31, 1997
Gross gains $ 13 $ 2
Gross losses (9) (1)
Net $ 4 $ 1
December 31, 1996
Gross gains $424 $ 6
Gross losses 0 (15)
Net $424 $(9)
Gross realized gains and gross realized losses on held-to-maturity
investment securities are a result of calls prior to maturity.
Investment securities with a fair value of $34,603,000 and
$36,464,000 were pledged at December 31, 1998 and 1997, respectively,
to secure public funds, customer deposits, and for other purposes
required by law.
NOTE 4 - LOANS RECEIVABLE
The components of loans in the Consolidated Balance Sheets were
as follows (In Thousands):
December 31
1998 1997
Commercial and agriculture $ 63,917 $ 74,021
Real estate mortgages 138,315 143,867
Installment and consumer credit 66,967 88,138
Subtotal 269,199 306,026
Unearned discount (305) (470)
Allowance for loan losses (10,137) (5,236)
Loans receivable - net
$258,757 $300,320
As of December 31, 1998 and 1997, the Bank had related party
loans to officers, directors, significant shareholders and their
affiliated interests. The terms of these loans are substantially
the same as those prevailing at the time for comparable unrelated
transactions. A summary of the related party loans outstanding as
of December 31, 1998 and 1997 is as follows (In Thousands):
December 31
1998 1997
Balance, January 1, $4,340 $4,468
New loans 3,117 4,041
Loan payments (4,313) (4,169)
Balance, December 31, $3,144 $4,340
An analysis of the change in the allowance for loan losses is
as follows (In Thousands):
December 31
1998 1997 1996
Balances at beginning of year $ 5,236 $ 3,190 $2,413
Provision charged to operating expense
15,270 7,967 1,805
Recoveries of loans previously charged off
2,112 1,918 183
Loan charge-offs (12,481) (7,839) (1,211)
Balances at end of year $10,137 $ 5,236 $3,190
A significant portion of the additional provision for loan losses and
loan charge-offs were in the fourth quarter of 1998.
Non-performing assets include non-performing loans and other real estate
owned. The non-performing loan category includes loans on which accrual
of interest has been discontinued with subsequent interest payments
credited to principal or income as received and loans 90 days past due
or greater on which interest is still accruing. Other real estate
owned consists of properties acquired through foreclosure.
Non-performing loans as a percentage of total loans was 6.3% and 2.1%
as of December 31, 1998 and 1997, respectively.
A summary of non-performing assets as of December 31, 1998 and 1997
is as follows:
December 31
1998 1997
Non-accruing loans:
Commercial and agriculture $ 1,449 $1,384
Commercial and Real estate mortgages 13,294 2,123
Installment and consumer credit 1,437 464
Total non-accruing loans 16,180 3,971
Past due 90 days or more accruing loans:
Commercial and agriculture 465 379
Commercial and Real estate mortgages 154 969
Installment and consumer credit 52 1,099
Total past due 90 days or more accruing loans
671 2,447
Total non-performing loans 16,851 6,418
Other real estate owned 1,310 1,820
Total non-performing assets $18,161 $8,238
As of December 31, 1998 and 1997, the recorded investment in loans
considered to be impaired under SFAS Statement No. 114, "Accounting
by Creditors for Impairment of a Loan", as amended by FASB Statement
No. 118, totaled $21,027,000 and $2,462,000, respectively. As
permitted, all homogenous smaller balance consumer and residential
mortgage loans were excluded from individual review for impairment.
The majority of impaired loans were measured using the fair value of
collateral. The total allowance for loan losses related to these loans
was $6,611,000 and $812,000 on December 31, 1998 and 1997, respectively.
During 1998 and 1997, impaired loans averaged approximately $11,745,000
and $1,814,000, respectively. Actual interest income recorded on these
loans amounted to $420,000, $38,000 and $17,000 during 1998, 1997 and
1996, respectively.
The Bank is not committed to lending additional funds to debtors whose
loans have been considered impaired.
NOTE 5 - PREMISES AND EQUIPMENT
A summary of premises and equipment as of December 31, 1998 and 1997, is
as follows (In Thousands):
December 31
Estimated Lives 1998 1997
Land $ 463 $ 463
Buildings and improvements
10-80 years 5,191 5,172
Leasehold improvements
5-31 years 521 511
Furniture, fixtures and equipment
5-10 years 5,934 5,809
Equipment under capital lease
7 years 369 324
12,478 12,279
Less: Accumulated depreciation and
Amortization 5,484 5,926
Net Bank Premises and Equipment $ 6,994 $ 6,353
Depreciation charged to operating expenses amounted to $624,000 in
1998, $556,000 in 1997,and $482,000 in 1996.
NOTE 6 - DEPOSITS
The aggregate amount of short-term time deposits, each with a minimum
denomination of $100,000, was approximately $42,811,000 and $41,206,000
in 1998 and 1997, respectively.
As of December 31, 1998, the scheduled maturities of time deposits are
as follows (In Thousands):
1999 $130,971
2000 20,424
2001 18,493
2002 43,417
2003 and Thereafter 0
$213,305
NOTE 7 - SHAREHOLDERS' EQUITY
(a) Common Stock
The Company has 5,000,000 shares of $1.67 par value common stock
authorized with 1,307,683 shares issued and 1,127,411 shares outstanding
at December 31, 1998, and 5,000,000 shares of $1.67 par value common
stock authorized with 1,307,683 shares issued and 1,123,756 shares
outstanding at December 31, 1997. Treasury stock totaled 180,202 shares
and 183,927 shares at December 31, 1998 and 1997, respectively, and was
accounted for under the cost method.
(b) Earnings per Share
The following reconciles amounts reported in the financial statements
(In Thousands except per share data):
For the Year Ended December 31, 1998
Loss Shares Per-Share
(Numerator) (Denominator) Amount
Loss available to common stock-
holders--basic earnings per share
$(7,832) 1,127 $(6.95)
Effect of dilutive securities
Options 0 0
Loss available to common stock-
holders--diluted earnings per share
$(7,832) 1,127 $(6.95)
For the Year Ended December 31, 1997
Income Shares Per-share
(Numerator) (Denominator) Amount
Income available to common stock-
holders--basic earnings per share
$ 837 1,088 $ .77
Effect of dilutive securities
Options 0 30
Income available to common stock-
holders--diluted earnings per share
$ 837 1,118 $ .75
For the Year Ended December 31, 1996
Income Shares Per-share
(Numerator) (Denominator) Amount
Income available to common stock-
holders--basic earnings per share
$5,328 1,085 $ 4.91
Effect of dilutive securities
Options 0 25
Income available to common stock-
holders--diluted earnings per share
$5,328 1,110 $ 4.80
(c) Preferred Stock
The Company has 500,000 shares of no par value preferred stock
authorized, of which none are issued or outstanding.
(d) Stock Rights
Pursuant to a shareholder rights plan adopted by the Company on
November 30, 1989, the Company distributed common stock purchase rights
to the shareholders of record on November 30, 1989. Each Right entitles
the registered holder thereof to purchase from the Company following the
Distribution Date, one one-hundredth of a share of Series A Preferred
Stock, no par value, at a Purchase Price of $70.00 per one one-hundredth
share, subject to adjustment, or, upon the occurrence of certain events,
Common Stock of the Company or common stock of an entity that acquires
the Company.
A Distribution Date will occur upon the earlier of 10 days following
a public announcement that a Person or group of affiliated or associated
Persons has acquired, or obtained the right to acquire, beneficial ownership
of 20% or more of the outstanding shares of Common Stock; or 10 days
following the commencement of a tender offer or exchange offer that would
result in a Person or group beneficially owning 30% or more of such
outstanding shares of Common Stock.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on November 30, 1999, unless redeemed
earlier by the Company.
In the event that, at any time following the Distribution Date, the
Company is the surviving corporation in a merger with an Acquiring
Person and the Company's Common Stock is not changed or exchanged; a
Person becomes the beneficial owner of more than 30% of the then
outstanding shares of Common Stock (except pursuant to an offer for
all outstanding shares of Common Stock that the Continuing Directors
determine to be fair to and otherwise in the best interests of the
Company and its stockholders); an Acquiring Person engages in one
or more "self-dealing" transactions; or during such time as there
is an Acquiring Person, an event occurs that results in such
Acquiring Person's ownership interest being increased by more than
one percentage point, each holder of a Right will thereafter have
the right to receive, upon exercise thereof and in lieu of Preferred
Stock, Common Stock (or, in certain circumstances, cash, property, or
other securities of the Company) having a value equal to twice the
Purchase Price of the Right.
In the event that, at any time following the Stock Acquisition Date,
the Company is acquired in a merger or other business combination
transaction in which the Company is not the surviving corporation;
or 50% or more of the Company's assets or earning power is sold or
transferred to any Person other than a subsidiary of the Company, each
holder of a Right shall thereafter have the right to receive, upon exercise
thereof and in lieu of Preferred Stock, common stock of the acquiring
Person having a value equal to twice the Purchase Price of the Right.
At any time prior to the earlier of November 30, 1999, or 10 days
following the Stock Acquisition Date, the Company may redeem the Rights
in whole, but not in part, at a price of $0.01 per Right (payable in cash,
Common Stock, or other consideration deemed appropriate by the Board of
Directors).
Until a Right is exercised, the holder will have no rights as a
shareholder of the Company, including, without limitation, the right to
vote or to receive dividends.
On April 11, 1996, the Stockholders Rights Agreement dated November 30,
1989 was amended to, among other things, extend the expiration date of the
Rights subject to the Agreement to April 11, 2006, and to increase the
purchase price of one one-hundredth of a share of Series A Preferred Stock,
no par value, from $70 to $90.
(e) Stock Option and Stock Appreciation Rights Plan
On August 7, 1988, the Company initiated a stock option and stock
appreciation rights plan (Plan #1) for sale or award to key employees
as incentive stock options, non-qualified stock options or stock appreciation
rights, and may not be exercised later than ten years from the date of the
grant. The options exercise price is $18.00 per share. On August 7, 1998,
all outstanding stock appreciation rights under (Plan #1) expired.
On March 25, 1993, the Company initiated a second stock option and stock
appreciation rights plan (Plan #2) with the same terms and conditions as
the first plan with the options exercise price at $20.00 per share.
On December 8, 1994, the Company initiated a third stock option and
stock appreciation rights plan (Plan #3) with the same terms and
conditions as the previous two plans with the options exercise price at
$31.00 per share.
The Company accounts for the stock option plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, no compensation
expense has been recognized for the stock options. All options were
granted prior to the adoption date of SFAS Statement No. 123,
"Accounting for Stock-Based Compensation." Therefore, the Company
is not required to adopt the fair value provisions or present
proforma financial information.
The stock options were satisfied with reissuance of treasury stock.
The following table summarizes the options activity:
Weighted Average
Number Option Price
Of Shares Per Share
Options outstanding at
January 1, 1996 96,233 $27.62
Options exercised (Plan #1) (3,095) $18.00
Options exercised (Plan #2) (2,250) $20.00
Options outstanding at
December 31, 1996 90,888 $28.14
Options exercised (Plan #1) (3,305) $18.00
Options exercised (Plan #2) (1,500) $20.00
Options cancelled (Plan #2) (400) $20.00
Options outstanding at
December 31, 1997 85,683 $28.71
Options exercised (Plan #1) (7,403) $18.00
Options expired (Plan #1) (1,800) $18.00
Options cancelled (Plan #2) (1,000) $20.00
Options outstanding at
December 31, 1998 75,480 $30.13
Options exercisable at
December 31, 1998 75,480 $30.13
At December 31, 1998, the Company had reserved 75,480 shares of
common stock to cover grants under the plans.
NOTE 8 - RETIREMENT PLANS
(a) 401(K) Profit Sharing Plan
The Bank has a profit sharing retirement plan under which eligible
employees may defer a portion of their annual compensation, pursuant
to Section 401(K) of the Internal Revenue Code. The Bank matches
employee contributions at a designated rate times elective contribution.
All employees with at least one year of service and who have attained
the age of 21 are eligible to participate. The Bank's contributions
to the 401(K) plan were $93,000, $82,000 and $72,000 for the years ended
December 31, 1998, 1997 and 1996.
(b) Defined Benefit Pension Plan
The Bank has a non-contributory defined benefit pension plan which
covers substantially all salaried employees. Benefits under this plan
are based on the employees' highest consecutive five years' compensation
in the last ten years prior to retirement. The Bank's policy has been to
fund the pension plan on a current basis to the extent deductible under
existing tax regulations.
Pension expense in the amount of $34,000, $112,000 and $129,000
was recognized for the years ended 1998, 1997 and 1996, respectively.
The following table sets forth the plan's funded status and amounts
recognized in the consolidated financial statements (In Thousands):
Pension Benefit
1998 1997 1996
Change in benefit obligation:
Obligation at January 1 $3,958 $3,657 $3,526
Service cost 221 208 219
Interest cost 289 265 251
Benefits payments (190) (228) (325)
Actuarial (gain)loss (201) 56 (14)
Obligation at December 31 $4,077 $3,958 $3,657
Change in plan assets:
Fair value of plan assets at
January 1 $5,067 $4,083 $3,892
Actual return on plan assets 207 1,212 517
Benefit payments (190) (228) (326)
Fair value of plan assets at
December 31 $5,084 $5,067 $4,083
Funded status:
Funded status at December 31 $1,006 $1,109 $426
Unrecognized transition
(asset) obligation (78) (122) (166)
Unrecognized (gain)loss (979) (1,004) (164)
Net amount recognized $ (51) $ (17) $ 96
Amounts recognized in the statement of financial position consist of:
Prepaid benefit cost $ (51) $ (17) $ 96
Net amount recognized $ (51) $ (17) $ 96
Components of net periodic benefit cost:
Service cost $ 221 $ 208 $ 219
Interest cost 289 265 251
Expected return on plan assets (397) (317) (297)
Amortization of transition
(asset) obligation (44) (44) (44)
Amortization of net (gain)loss (35) 0 0
Net periodic benefit cost $ 34 $ 112 $ 129
The assumptions used in the measurement of the Company's benefit
obligation are as follows:
Weighted-average assumptions December 31
1998 1997 1996
Annual discount rate 7.5% 7.5% 7.5%
Annual rate of increase in compensation levels
5.0% 5.0% 5.0%
Annual expected long-term rate of return on assets
8.0% 8.0% 8.0%
The projected benefit obligation, accumulated benefit obligation,
and fair value of plan assets for the pension plan with accumulated
benefit obligations in excess of plan assets were $4,077,000,
$3,220,000, and $5,084,000, respectively, as of December 31, 1998,
and $3,958,000, $2,945,000, and $5,067,000, respectively, as of December
31 1997, and $3,657,000, $2,729,000, and $4,083,000, respectively, as of
December 31, 1996.
No amounts were included in other comprehensive income arising from
a change in the additional minimum pension liability at December 31,
1998 and December 31, 1997.
The prior-service costs are amortized on a straight-line basis over
the average remaining service period of active participants. Gains
and losses in excess of 10% of the greater of the benefit obligation
and the market-related value of assets are amortized over the average
remaining service period of active participants.
Plan assets are invested in common stocks, treasury securities and
corporate obligations, with the balance in cash and short-term
investments. Investment in the Company's stock as of December 31,
1998 and 1997, was 20,544 shares valued at $555,000 and $1,243,000,
respectively.
NOTE 9 - DEFERRED COMPENSATION
The Bank has a deferred compensation plan for the benefit of key
employees. Under the plan, upon retirement after age 65, the employee
shall receive a minimum of fifty percent of his then monthly salary
for one hundred twenty months. This amount will be reduced by one-half
of one percent for each month that retirement is prior to age 65
with the minimum age for retirement at age 60. If a covered employee
dies while employed by the Bank, a death benefit of fifty percent of
the employee's then annual salary is payable to the employee's beneficiary
over ten years. The expense charged to operations for future obligations
was $27,000, $15,000 and $11,000 in 1998, 1997 and 1996, respectively.
NOTE 10 - CASH SURRENDER VALUE OF LIFE INSURANCE
Commencing in 1997, the Bank maintains life insurance policies on
several officers. The policies are of three types: officer supplemental
life insurance/split-dollar plan, group term replacement/split-dollar plan,
and salary continuation plan. Under the officer supplemental life
insurance/split-dollar plan and the group term replacement/split-dollar
plan, the Bank pays the premium and receives, upon termination of the
policy or the death of the insured, the cash surrender value of the
policy, and the insured or a designated beneficiary receives the balance
of benefits paid. The salary continuation plan is a deferred compensation
for key employees (Note 9). The Bank is the owner and beneficiary of the
policy. The insurance purchased is designed to offset the Bank's
contractual obligations under deferred compensation agreements.
NOTE 11 - FINANCIAL INSTRUMENTS
The Bank is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of
its customers and to reduce its own exposure to fluctuations in interest
rates. These financial instruments include commitments to extend credit,
commitments under credit-card arrangements to extend credit, standby
letters of credit and financial guarantees. Those instruments involve,
to varying degrees, elements of credit and interest-rate risk in excess
of the amount recognized in the Consolidated Balance Sheets. The
contract or notional amounts of those instruments reflect the extent of
the Bank's involvement in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit, commitments under credit-card arrangements to extend credit,
standby letters of credit, and financial guarantees written is
represented by the contractual notional amount of those instruments.
The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Commitments to Extend Credit and Financial Guarantees - Commitments to
extend credit are agreements to lend to a customer as long as there is
no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and
may require payment of a fee. The Bank's experience has been that
approximately 97 percent of loan commitments are drawn upon by customers.
While approximately 20 percent of performance letters of credit are
utilized, a significant portion of such utilization is on an immediate
payment basis. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if it is deemed
necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies but may
include accounts receivable; inventory, property, plant, and equipment;
and income-producing commercial properties.
Standby letters of credit and financial guarantees written are
conditional commitments issued by the Bank to guarantee the performance
of a customer to a third party. Those guarantees are primarily issued
to support public and private borrowing arrangements, including commercial
paper, bond financing, and similar transactions. The credit risk involved
in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. The percentage of collateral held
for those commitments was approximately 19%.
During 1998, the Bank had 5 letters of credit drawn upon. The Bank had
not been required to perform on any financial guarantees during 1997
and 1996, and had not incurred any losses on its commitments in 1998,
1997 or 1996.
The estimated fair values of the Company's financial instruments were
as follows (In Thousands):
December 31
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Assets:
Cash and due from banks $ 18,879 $ 18,879 $ 18,565 $ 18,565
Interest bearing deposits
with banks 2,450 2,450 4,000 4,000
Federal funds sold 67,700 67,700 40,950 40,950
Investment securities
available-for-sale 98,974 98,974 37,278 37,278
Investment securities
held-to-maturity 0 0 55,415 55,956
Loans receivable - net 258,757 257,763 300,320 299,407
Accrued interest receivable 4,076 3,625 3,625 3,625
Financial Liabilities:
Deposits $445,566 $438,127 $438,464 $439,938
Other Liabilities 5,010 5,010 5,331 5,331
A summary of the notional amounts of the Bank's financial instruments
with off-balance sheet risk at December 31, 1998 and 1997, is as
follows:
Notional Amount
1998 1997
Commitments to extend credit $16,296,000 $17,332,000
Credit card arrangements $ 3,995,000 $ 2,175,000
Standby letters of credit $ 6,904,000 $ 5,960,000
NOTE 12 - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Most of the Bank's business activity is with customers located within
the Bank's geographical area. The Bank is mandated by the Community
Reinvestment Act and other regulations to conduct most of its lending
activities within the geographical area where it is located. As a result,
the Bank and its borrowers may be vulnerable to the consequences of
changes in the local economy. Investments in state and municipal
securities involve governmental entities within the Bank's geographical
area.
The distribution of commitments to extend credit approximates the
distribution of loans outstanding. Commercial and standby letters of
credit were granted primarily to commercial borrowers.
The contractual amounts of credit-related financial instruments, such
as commitments to extend credit, credit-card arrangements, and letters
of credit, represent the amounts of potential accounting loss should
the contract be fully drawn upon, the customer default and the value
of any existing collateral become worthless.
NOTE 13 - INCOME TAXES
Significant components of the Bank's deferred tax assets and
liabilities were as follows (In Thousands):
December 31
1998 1997
Deferred Tax Assets:
Allowance for loan losses $2,343 $1,012
Deferred compensation 275 283
Accrued pension cost 0 18
Non-accrual loan interest 190 63
Federal operating loss 1,626 94
Total deferred tax assets 4,434 1,470
Deferred Tax Liabilities:
Accumulated depreciation 376 263
Net unrealized appreciation on
investment securities 482 82
Total deferred tax liabilities 858 345
Net deferred tax assets $3,576 $1,125
The significant components of the consolidated provision (benefit)
for income taxes were as follows (In Thousands):
Year Ended December 31
1998 1997 1996
Current tax provision(benefit):
Federal $(2,037) $(253) $2,118
Deferred income tax (benefit)expense
(2,851) (457) (842)
Provision(benefit) for income taxes
$(4,888) $(710) $1,276
A reconciliation of the provision for income taxes, as reported,
with the federal income tax at the statutory rate of 34 percent
for the years ended December 31, is as follows (In Thousands):
Year Ended December 31
1998 1997 1996
Income taxes at the statutory rate $(4,325) $ 43 $2,245
Increase(decrease) in federal
tax expense resulting from:
Tax-exempt income (716) (538) (566)
Other 153 (215) (403)
Provision(benefit) for income tax
$(4,888) $ (710) $1,276
As of December 31, 1998, a net operating loss in the amount of
$4,781,000 is available for carryforward to offset future taxable
income, and if not utilized, will expire on December 31, 2013.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Bank has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Bank
is a defendant in certain claims and legal actions arising in the ordinary
course of business. In the opinion of management, after consultation with
legal counsel, the ultimate disposition of these matters is not expected
to have a material adverse effect on the consolidated financial condition
of the Bank.
The Bank provides self-funded comprehensive health care coverage to
substantially all of its employees. The plan is covered by an umbrella
policy for catastrophic illnesses. The Bank's maximum liability is
$35,000 per participant for 1998 and 1997, with an overall maximum
liability of $523,000 for 1998 and $476,000 for 1997.
NOTE 15 - DIVIDEND RESTRICTION AND REGULATORY MATTERS
Permission from the Comptroller of the Currency is required if
the total of dividends declared in a calendar year exceeds the total
of its net profits, as defined by the Comptroller, for that year,
combined with its retained net profits of the two preceding years.
There are no retained net profits of the Company available for dividends
as of December 31, 1998.
The Company and its bank subsidiary (the Companies) are subject to
various regulatory capital requirements administered by federal
banking agencies.
Failure to meet the minimum capital requirements can initiate
certain mandatory, and possibly additional discretionary actions
by regulators that, if undertaken, could have a direct material
effect on the Company's consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Companies must meet specific capital guidelines
that involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. Capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Companies to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital(as defined
in the regulations) to risk-weighted assets (as defined), and of Tier
I capital (as defined) to average assets (as defined). Management
believes, as of December 31, 1998, that the Companies meet all the
capital adequacy requirements to which they are subject.
As of December 31, 1998, the most recent notifications from
applicable regulatory agencies indicate that the Companies were
categorized as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized,
an entity must maintain a minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table below. There are
no conditions or events since the most recent notification that
management believes have changed the institution's category.
The Companies' actual capital amounts and ratios are presented in
the following table (In Thousands):
Per Regulatory Guidelines
Actual Minimum Well Capitalized
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1998:
Total Capital to
Risk-Weighted Assets:
Southern Jersey Bancorp
of Delaware, Inc.
$32,744 10.1% $25,919 8.0% $32,399 10.0%
Farmers and Merchants
National Bank 30,356 9.5% 25,628 8.0% 32,037 10.0%
Tier I Capital to
Risk-Weighted Assets:
Southern Jersey Bancorp
of Delaware, Inc.
28,619 8.8% 12,960 4.0% 19,440 6.0%
Farmers and Merchants
National Bank 26,379 8.2% 12,814 4.0% 19,221 6.0%
Tier I Capital to
Average Assets:
Southern Jersey Bancorp
of Delaware, Inc.
28,619 5.9% 19,293 4.0% 24,116 5.0%
Farmers and Merchants
National Bank 26,379 5.5% 19,191 4.0% 23,989 5.0%
As of December 31, 1997:
Total Capital to
Risk-Weighted Assets:
Southern Jersey Bancorp
of Delaware, Inc.
$43,775 12.5% $27,929 8.0% $34,911 10.0%
Farmers and Merchants
National Bank 40,365 11.7% 27,689 8.0% 34,612 10.0%
Tier I Capital to
Risk-Weighted Assets:
Southern Jersey Bancorp
of Delaware, Inc.
39,400 11.3% 13,964 4.0% 20,946 6.0%
Farmers and Merchants
National Bank 36,030 10.4% 13,844 4.0% 20,767 6.0%
Tier I Capital to
Average Assets:
Southern Jersey Bancorp
of Delaware, Inc.
39,400 8.2% 19,318 4.0% 24,148 5.0%
Farmers and Merchants
National Bank 36,030 7.5% 19,318 4.0% 24,148 5.0%
NOTE 16 - YEAR 2000 (unaudited)
The Company began the process of preparing its computer systems and
applications for the Year 2000 in 1997. The process includes directing
its external service providers to take the appropriate action to ensure
Year 2000 compliance, as well as replacing its hardware and software in
the third quarter of 1998. Management believes their new computer systems
are a comprehensive solution to the Year 2000 issues.
NOTE 17 - SOUTHERN JERSEY BANCORP OF DELAWARE, INC.
(PARENT COMPANY ONLY) - CONDENSED FINANCIAL
INFORMATION
CONDENSED BALANCE SHEETS
December 31
(dollars in thousands except share and per share data)
1998 1997
ASSETS
Cash and due from banks $ 163 $ 685
Investment in subsidiaries 31,930 39,189
Other assets 0 340
Total Assets $32,093 $40,214
LIABILITIES
Dividends Payable $ 4 $ 655
Total Liabilities 4 655
SHAREHOLDERS' EQUITY
Preferred stock, no par value;
shares authorized - 500,000;
no shares issued
Common stock, par value $1.67 per share;
shares authorized - 5,000,000;
shares issued - 1,307,683 2,184 2,129
Additional paid-in-capital 3,259 2,260
Retained earnings 29,549 38,767
Accumulated other comprehensive income
936 159
35,928 43,315
Less: Treasury stock at cost -
180,202 shares in 1998 and
183,927 shares in 1997 3,839 3,756
Total Shareholders' Equity 32,089 39,559
Total Liabilities and
Shareholders' Equity $32,093 $40,214
SOUTHERN JERSEY BANCORP OF DELAWARE, INC. (Parent Company Only) -
CONDENSED FINANCIAL INFORMATION
CONDENSED STATEMENTS OF INCOME
Year Ended December 31
(dollars in thousands)
1998 1997 1996
Income:
Cash dividends from subsidiary $ 328 $4,306 $1,595
Expenses:
Operating Expenses 123 330 88
Income before equity in
undistributed net income(loss)
of subsidiaries 205 3,976 1,507
Equity in undistributed net income(loss)
of subsidiaries (8,037) (3,139) 3,821
NET INCOME(LOSS) $(7,832) $ 837 $5,328
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended December 31
(dollars in thousand) 1998 1997 1996
Operating activities:
Net income(loss) $(7,832) $ 837 $5,328
Adjustments to reconcile income from
continuing operations to net cash
provided by operating activities:
Equity in (net income)loss of subsidiary
8,037 3,139 (3,821)
(Increase)decrease in other assets 340 150 (240)
Increase(decrease) in liabilities(656) 58 46
Net cash provided by operating activities
(111) 4,184 1,313
Investing activities:
Investment in subsidiary 0 (3,000) 0
Net cash used in investing activities 0 (3,000) 0
Financing activities:
Cash dividends (328) (1,306) (1,195)
Purchase of Treasury stock (258) (166) (404)
Sale of Treasury stock 175 306 286
Net cash used for financing activities(411) (1,166) (1,313)
Net increase(decrease) in cash and due from banks
(522) 18 0
Cash and due from banks at beginning of year
685 667 667
Cash and due from banks at end of year $ 163 $ 685 $ 667
SELECTED FINANCIAL DATA
The following table sets forth selected financial data derived
from the consolidated financial statements of Southern Jersey Bancorp
of Delaware, Inc. and Subsidiaries audited by Athey & Company, Certified
Public Accountants, P.A., for the five years ended December 31, 1998.
This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Company's Annual Reports on Form 10-K and the financial
statements and related notes thereto. (Per share data give retroactive
effect to stock dividend.)
(dollars in thousands except per share data)
Year Ended December 31
1998 1997 1996 1995 1994
Interest income $33,283 $33,800 $30,390 $28,212 $24,616
Interest expense 18,400 17,159 14,870 13,114 10,731
Net interest income 14,883 16,641 15,520 15,098 13,885
Provision for loan losses 15,270 7,967 1,805 1,266 725
Other income 3,509 3,043 3,246 2,743 2,308
Other expenses 15,842 11,590 10,357 10,023 9,580
Income(loss) before income taxes
(12,720) 127 6,604 6,552 5,888
Provision(benefit) for income taxes
(4,888) (710) 1,276 1,700 1,411
Net Income(Loss) (7,832) 837 5,328 4,852 4,477
Cash dividends declared on common stock
332 1,306 1,195 1,093 1,054
Dividend payout ratio N/A 156.0% 22.4% 22.5% 23.5%
Per Common Share Amounts
Basic earnings(loss) per share
$ (6.95) $ .75 $4.77 $4.30 $3.97
Dilluted earnings(loss) per share
$ (6.95) $ .73 $4.67 $4.26 $3.95
Cash dividends declared on common stock
$ .29 $ 1.16 $1.07 $ .97 $ .93
Year-End Balances
Total assets $482,665 $483,354 $430,324 $404,240 $372,896
Investment securities 98,974 92,693 996,66 114,320 138,144
Loans, net of unearned income
268,894 305,556 290,885 232,113 192,518
Deposits 445,566 438,464 385,384 363,433 337,223
Shareholders' equity 32,089 39,559 39,751 36,643 32,555
Selected Share Data
Common shares outstanding 1,127 1,124 1,118 1,118 1,132
Weighted average common shares
outstanding 1,127 1,120 1,118 1,128 1,129
At December 31:
Book value per common share
$28.46 $35.20 $35.58 $32.79 $28.76
The common stock is inactively traded, and the range of sales prices
known to Management for each quarter during the two most recent years
were as follows:
1998 1997
High Low High Low
First Quarter $61.50 $59.50 $41.25 $40.00
Second Quarter $60.00 $49.50 $45.00 $41.25
Third Quarter $49.50 $41.00 $45.50 $45.00
Fourth Quarter $41.00 $26.00 $60.50 $45.50
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
F & M Investment Company
We have audited the balance sheets of F & M Investment
Company, (a wholly-owned subsidiary of Farmers & Merchants National
Bank) as of December 31, 1998 and 1997, and the related statements
of stockholders' equity, income and cash flows for the years then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
F & M Investment Company, as of December 31, 1998 and 1997, and the
results of its operations and cash flows for the years then ended,
in conformity with generally accepted accounting principles.
As discussed in Note I to the financial statements, the
Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" effective in 1998.
s/Belfint, Lyons & Shuman, P.A.
___________________________________
March 3, 1999
Wilmington, Delaware
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of Registrant
Information regarding Directors of Registrant will be set forth
in the Southern Jersey Bancorp of Delaware, Inc. Proxy Statement for
the annual meeting of shareholders to be held June 3, 1999, and is
incorporated herein by reference. Information regarding executive
officers of Registrant is set forth under the caption "Executive
Officers" in Item 1(a) hereof.
Item 11. Executive Compensation
Information regarding executive compensation will be set forth in
the Southern Jersey Bancorp of Delaware, Inc. Proxy Statement for the
annual meeting of shareholders to be held June 3, 1999, and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners
And Management will be set forth in the Southern Jersey Bancorp of
Delaware, Inc. Proxy Statement for the annual meeting of shareholders
to be held June 3, 1999, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions
will be set forth in the Southern Jersey Bancorp of Delaware, Inc. Proxy
Statement for the annual meeting of shareholders to be held June 3, 1999,
and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
(1) Financial Statements
The financial statements filed as a part of this report are listed
on the Index to Consolidated Financial Statements on Page 32.
(2) Financial Statement Schedules
All other schedules have been omitted because the required information
is shown in the Consolidated Financial Statements or notes thereto, the
statistical information in Item 1, pursuant to Industry Guide 3, or they
are not applicable.
(3)(a) Exhibits (numbered in accordance with Item 601 of Regulation
S-K)
Exhibit
Number Description
3A Form of Certificate of Incorporation of the Registrant-
Incorporation by reference to Definitive Proxy Statement
Filed and dated June 16, 1989
3B Form of Bylaws of the Registrant -
Incorporation by reference to Definitive Proxy Statement
Filed and dated June 16, 1989
4A Form of Common Stock Certificate -
Incorporation by reference to Definitive Proxy
Statement filed and dated June 16, 1989
4B Instruments Defining the Rights of Security Holders-
Incorporation by reference to Form 8-A filed
November 30, 1989
10A Stock Option and Stock Appreciation Rights Plan -
Incorporated by reference to the Registrant's
Definitive Proxy Statement filed February 27, 1987,
and the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987, filed
March 31, 1988.
21 Subsidiaries of the Registrant -
Included under Item 1, Page 2 of this filing.
(3)(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant
during the quarter ended December 31, 1998.
(3)(c) Form of Deferred Compensation Agreement for named
executive officers, Clarence D. McCormick, Sr., Harry W.
Bullock, and Ralph Cocove is incorporated by reference to
Form 10-K filed March 31, 1989.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and 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.
Dated: March 30, 1999 By:s/ Clarence D. McCormick
Clarence D. McCormick
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signatures Title Date
s/ Henry L. Backenson Vice Chairman March 30, 1999
Henry L. Backenson
s/ Alfred F. Caggiano Vice Chairman March 30, 1999
Alfred F. Caggiano
s/ James H. Carll Director March 30, 1999
James H. Carll, Esq.
s/ Keron D. Chance Director March 30, 1999
Keron D. Chance, Esq.
s/ Harry W. Bullock Director March 30, 1999
Harry W. Bullock
s/ Clarence D. McCormick, Jr. Director March 30, 1999
Clarence D. McCormick, Jr.
s/ Louis Pizzo Director March 30, 1999
Louis Pizzo
s/ Donald Strang Director March 30, 1999
Donald Strang
s/ Anthony M. Sparacio, Jr. Director March 30, 1999
Anthony M. Sparacio, Jr.
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.
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