UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
( X ) Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1995
or
( ) Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from __________________ to __________________
Commission File Number 0-13440
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B.M.J. FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2474875
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
243 ROUTE 130, BORDENTOWN, NJ 08505
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(609) 298-5500
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report.)
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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: 7,606,324 shares of common
stock, $1.00 par value, outstanding on July 31, 1995.
INDEX
PART 1. FINANCIAL INFORMATION
Consolidated Balance Sheet -
June 30, 1995 and December 31, 1994 (Unaudited)
Consolidated Statement of Operations -
Three months and six months ended June 30, 1995 and 1994 (Unaudited)
Consolidated Statement of Cash Flows -
Six months ended June 30, 1995 and 1994 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART 11. OTHER INFORMATION
SIGNATURES
B.M.J. Financial Corp. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
(In thousands) June 30, December 31,
1995 1994
-------- --------
ASSETS
Cash and cash equivalents:
Cash and due from banks ...................... $ 18,796 $ 21,725
Money market investments ..................... 16,548 23,054
-------- --------
Total cash and cash equivalents ...... 35,344 44,779
-------- --------
Securities available for sale (amortized
cost of $16,580 at June 30, 1995 and
$3,006 at December 31, 1994) ................. 16,578 2,911
Securities held to maturity (market value
of $111,659 at June 30, 1995 and
$113,095 at December 31, 1994):
U.S. Treasury securities ..................... 16,262 25,308
U.S. government agencies and corporations .... 89,825 89,815
States and political subdivisions ............ 3,927 3,080
Other securities ............................. 2,360 781
-------- --------
Total securities held to maturity .... 112,374 118,984
-------- --------
Loans, net of unearned income ........................ 384,254 354,480
Less reserve for loan losses ......................... 12,833 12,485
-------- --------
Net loans ............................ 371,421 341,995
-------- --------
Premises and equipment, net .......................... 5,363 5,598
Other real estate, net ............................... 3,017 7,214
Other assets ......................................... 17,629 16,951
-------- --------
Total assets ......................... $561,726 $538,432
======== ========
B.M.J. Financial Corp. and Subsidiaries
Consolidated Balance Sheet (Continued)
(Unaudited)
(In thousands) June 30, December 31,
1995 1994
-------- --------
LIABILITIES
Demand deposits (noninterest-bearing) ................ $ 76,995 $ 78,446
Savings and interest checking ........................ 257,667 271,209
Certificates of deposit of $100,000
or more ...................................... 13,396 4,483
Other time deposits .................................. 130,287 109,436
-------- --------
Total deposits ....................... 478,345 463,574
-------- --------
Securities sold under agreements
to repurchase ................................ 14,288 8,857
Other liabilities .................................... 5,797 4,955
Capital notes ........................................ 2,700 2,700
-------- --------
Total liabilities .................... 501,130 480,086
-------- --------
SHAREHOLDERS EQUITY
Common stock, par value $1 per share
Authorized 25,000,000 shares;
issued and outstanding 7,601,260
shares at June 30, 1995
and 7,597,513 at December 31, 1994 ........... 7,601 7,597
Surplus .............................................. 36,355 36,311
Retained earnings .................................... 16,641 14,501
Unrealized losses on securities
available for sale, net of tax ............... (1) (63)
-------- --------
Total shareholders equity ............ 60,596 58,346
-------- --------
Total liabilities and
shareholders equity ............... $561,726 $538,432
======== ========
See notes to consolidated financial statements.
B.M.J. Financial Corp. and Subsidiaries
Consolidated Statement of Operations
(In Thousands, Except Per Share Amounts)
Three months ended Six months ended
(Unaudited) June 30, June 30,
------------------------ ------------------------
1995 1994 1995 1994
-------- -------- -------- --------
INTEREST INCOME
Interest and fees on loans ....................................... $ 8,338 $ 7,685 $ 16,111 $ 15,222
Interest on money market investments:
Time deposits with other banks ................................ -- 99 48 142
Interest bearing deposits with other banks .................... 10 18 18 42
Federal funds sold and repurchase agreements .................. 126 62 180 234
Other short term investments .................................. 55 439 191 517
Interest on securities available for sale:
U.S. Treasury securities ...................................... 34 81 67 309
U.S. government agencies and corporations ..................... 17 -- 17 75
States and political subdivisions (tax-exempt) ................ 52 -- 55 5
Other securities .............................................. -- 1 -- 4
Interest on securities held to maturity:
U.S. Treasury securities ...................................... 262 296 550 566
U.S. government agencies and corporations ..................... 1,249 989 2,493 2,031
States and political subdivisions (tax-exempt) ................ 69 67 129 128
Other securities .............................................. 12 13 24 25
-------- -------- -------- --------
Total interest income ....................................... 10,224 9,750 19,883 19,300
-------- -------- -------- --------
INTEREST EXPENSE
Savings and interest checking deposits ........................... 1,411 1,484 2,729 2,979
Certificates of deposit of $100,000 or more ...................... 115 56 163 115
Other time deposits .............................................. 1,451 929 2,583 1,897
Other debt ....................................................... 237 125 451 238
-------- -------- -------- --------
Total interest expense ...................................... 3,214 2,594 5,926 5,229
-------- -------- -------- --------
Net interest income .............................................. 7,010 7,156 13,957 14,071
Provision for loan losses ........................................ -- -- -- --
-------- -------- -------- --------
Net interest income after provision
for loan losses ........................................... 7,010 7,156 13,597 14,071
-------- -------- -------- --------
B.M.J. Financial Corp. and Subsidiaries
Consolidated Statement of Operations (Continued)
(In Thousands, Except Per Share Amounts)
Three months ended Six months ended
(Unaudited) June 30, June 30,
------------------------ ------------------------
1995 1994 1995 1994
-------- -------- -------- --------
NONINTEREST INCOME
Service charges, commissions, and fees ........................... 861 1,197 1,800 2,423
Trust income ..................................................... 118 77 238 152
Gain on sale of other real estate ................................ 48 344 86 372
-------- -------- -------- --------
Total noninterest income .................................... 1,027 1,618 2,124 2,947
-------- -------- -------- --------
NONINTEREST EXPENSE
Salaries and employee benefits ................................... 2,390 2,855 4,898 5,574
Net occupancy .................................................... 733 865 1,464 1,707
Other real estate expense ........................................ 110 522 290 928
Other ............................................................ 2,506 2,798 4,883 5,477
-------- -------- -------- --------
Total noninterest expense ................................... 5,739 7,040 11,535 13,686
-------- -------- -------- --------
Income before income tax expense ................................. 2,298 1,734 4,546 3,332
Income tax expense:
Provision for income tax ...................................... 831 3 1,645 7
Reversal of valuation allowance ............................... -- (3,500) -- (3,500)
-------- -------- -------- --------
NET INCOME ....................................................... $ 1,467 $ 5,231 $ 2,901 $ 6,825
======== ======== ======== ========
Earnings per share - Primary ..................................... $ 0.19 $ 0.69 $ 0.38 $ 0.90
======== ======== ======== ========
- Fully diluted ............................... $ 0.19 $ 0.66 $ 0.38 $ 0.87
======== ======== ======== ========
Weighted average shares outstanding - Primary .................... 7,697 7,593 7,690 7,583
======== ======== ======== ========
- Fully diluted .............. 7,904 8,034 7,902 8,034
======== ======== ======== ========
See notes to consolidated financial statements.
B.M.J. Financial Corp. and Subsidiaries
Consolidated Statement of Cash Flows
(unaudited)
(in thousands) Six months ended June 30,
-------------------------
1995 1994
-------- --------
Cash flows from operating activities:
Net income ........................................... $ 2,901 $ 6,825
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation of premises and equipment ............. 413 490
Amortization of intangibles ........................ 58 233
Net accretion of securities available for sale ..... (102) (147)
Net amortization (accretion) of securities
held to maturity .............................. 33 (79)
Provision for other real estate .................... -- 538
Net (increase) decrease in other
real estate owned ............................. 32 (355)
Increase (decrease) in equity from
unrealized holding loss
on securities available for sale
net of tax .................................... 61 (46)
Decrease in other assets ........................... (735) (1,256)
Increase in other liabilities ...................... 842 (2,529)
-------- --------
Net cash provided by operating activities .............. 3,503 3,674
-------- --------
Cash flows from investing activities:
Proceeds from maturities of securities
available for sale ............................ -- 25,874
Purchase of securities available for sale .......... (13,565) (2,749)
Proceeds from maturities of securities
held to maturity .............................. 10,501 34,531
Purchase of securities held to maturity ............ (3,924) (28,949)
Net (increase) decrease in loans ................... (28,220) (6,108)
Proceeds from other real estate .................... 2,957 6,474
Property and equipment expenditures ................ (177) (277)
-------- --------
Net cash provided by (used in) investing activities .... (32,428) 28,796
-------- --------
B.M.J. Financial Corp. and Subsidiaries
Consolidated Statement of Cash Flows (Continued)
(unaudited)
(in thousands) Six months ended June 30,
-------------------------
1995 1994
-------- --------
Cash flows from financing activities:
Net decrease in demand deposits, savings
and interest checking accounts .................... (14,993) (20,643)
Net increase (decrease) in certificates of deposit ... 29,764 (4,385)
Repayments of capital notes .......................... -- (13)
Net increase in securities sold under
agreements to repurchase .......................... 5,431 1,688
Dividends declared ................................... (760) --
Issuance of stock .................................... 48 --
-------- --------
Net cash provided by (used in) financing activities .... 19,490 (23,353)
-------- --------
Net change in cash and cash equivalents ................ (9,435) 9,117
Cash and cash equivalents at beginning of period ....... 44,779 56,251
-------- --------
Cash and cash equivalents at end of period ............. $ 35,344 $ 65,368
======== ========
Cash paid during the period for:
Interest ............................................. $ 5,587 $ 5,309
======== ========
Income taxes ......................................... $ 950 --
======== ========
Noncash investing activities:
Transfer of loans to other real estate, net .......... $ 1,727 $ 979
======== ========
Transfer of insubstance foreclosures to loans
upon adoption of FASB 114 ......................... $ 2,935 --
======== ========
Transfer of securities available for sale to
securities held to maturity ....................... -- $ 28,237
======== ========
Transfer of bank subsidiary held for sale:
Assets .......................................... -- $ 69,083
======== ========
Liabilities ..................................... -- $ 62,826
======== ========
See notes to consolidated financial statements.
B.M.J. FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis For Financial Statement Presentation
The information in this report is unaudited and is subject to year-end
adjustments and audit. However, in the opinion of management, the information
reflects all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation of the consolidated financial data as of and
for the three-month and six-month periods ended June 30, 1995 and 1994. The
results of operations for the six-month period ended June 30, 1995 are not
necessarily indicative of the results to be expected for the entire year ending
December 31, 1995.
The accompanying consolidated financial statements include the accounts
of B.M.J. Financial Corp. in addition to those of The Bank of Mid-Jersey
("Mid-Jersey"), a wholly-owned subsidiary of B.M.J. Financial Corp. Unless the
context otherwise indicates, the term "BMJ" as used herein refers to the
consolidated B.M.J. Financial Corp. and The Bank of Mid-Jersey entity. All
significant intercompany accounts and transactions have been eliminated. In
preparing the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period. Actual
results could differ from those estimates.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the reserve for loan
losses and the valuation of other real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the determination
of the reserves for loan losses and other real estate, management periodically
obtains independent appraisals for significant properties.
Management believes that the reserves for losses on loans and other
real estate are adequate in relation to the risks and uncertainties inherent in
those portfolios. While management uses available information to determine the
appropriate recognition of losses on loans and other real estate, future
additions to the reserves may be necessary based on, among other things, changes
in economic conditions, particularly in New Jersey, and the changing
circumstances of the borrowers. In addition, various regulatory agencies, as an
integral part of their examinations, periodically review BMJ's reserves for loan
losses. Such agencies may request BMJ to consider recognizing additions to the
reserves based on the regulators' judgments about information available to them
at the time of their examination.
These statements should be read in conjunction with the notes to the
consolidated financial statements contained in B.M.J. Financial Corp.'s Annual
Report on Form 10-K to the Securities and Exchange Commission for the year ended
December 31, 1994, to which reference is hereby made.
2. Divestitures and Merger
Effective June 24, 1994, having received the required regulatory and
shareholder approvals, BMJ completed the merger of its Mount Holly State Bank
subsidiary into its lead bank subsidiary, The Bank of Mid-Jersey. This merger
was consistent with the corporate-wide restructuring program initiated in 1993,
with the objectives being to increase operating efficiency and enhance the level
of service provided to customers.
On July 29, 1994, BMJ completed the sale of its Southern Ocean State
Bank subsidiary, located in Tuckerton, New Jersey, to another financial
institution for a total consideration of $6.8 million in cash. At June 30, 1994,
Southern Ocean State Bank had total assets of $69.1 million and had net income
of $591 thousand for the six-month period ended June 30, 1994.
On November 18, 1994, BMJ's Mid-Jersey subsidiary sold the furnishings
and equipment of its Willingboro branch office to another financial institution
which also assumed approximately $6.6 million of deposit liabilities and the
remaining term of the facility lease. This transaction resulted in a net
reduction in BMJ's asset base of $6.3 million and a pre-tax gain of
approximately $104 thousand that is included in 1994 results of operations.
3. Securities
On January 1, 1994, BMJ adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("FAS 115"). FAS 115 establishes the accounting and reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. In accordance with FAS 115, investments
are classified into three categories: (1) held to maturity securities, which are
reported at amortized cost; (2) trading securities, which are reported at fair
value with unrealized gains and losses included in earnings; and (3) available
for sale securities, which are reported at fair value with unrealized gains and
losses reported as a separate component of shareholders' equity and excluded
from earnings. BMJ currently has no securities classified as trading securities.
Securities classified as available for sale may be sold prior to their
contractual maturity in response to changing market and interest rate conditions
or as part of an overall asset/liability strategy. These securities are carried
at their market value with unrealized gains and losses carried, net of tax, as
adjustments to shareholders' equity. Gains and losses on disposition are
included in earnings using the specific identification method.
Securities held to maturity are comprised of securities that BMJ has
the positive intent and ability to hold to maturity. These securities are
carried at cost, adjusted for amortization of premium or accretion of discount.
The premium or discount adjustments are recognized as adjustments to interest
income, on a level yield basis. Unrealized losses due to fluctuations in market
value are recognized as security losses when a decline in value is assessed as
being other than temporary.
4. Provision For Loan Losses
The provision for loan losses charged against operating income is
determined by management based upon, among other things, a continuing review of
the loan portfolio, past experience and conditions which may affect the
borrower's ability to repay. The reserve for loan losses is based on
management's estimates, and actual losses may vary from the current estimates.
These estimates are reviewed periodically and, as adjustments become necessary,
they are reported in the periods in which they become known.
5. Other Real Estate
Other real estate acquired through foreclosure or deed in lieu of
foreclosure is carried at fair value less estimated costs of disposal. When a
property is acquired, the excess of the loan balance over the estimated fair
value is charged to the reserve for loan losses. A reserve for other real estate
has been established to provide for subsequent write-downs that may be required
to the carrying value of the property or losses on the sales of properties. The
reserve is established through charges to other real estate expense. Operating
results of other real estate owned, including rental income and operating
expenses, are recorded in other real estate expense. Gains and losses realized
from the sales of other real estate are included in noninterest income. Specific
dates of disposal cannot realistically be projected without the existence of
firm contracts for sale. At this time, contracts for sale exist on certain
foreclosed assets representing an insignificant portion of the carrying value on
the balance sheet.
6. Income Taxes
BMJ files a consolidated Federal income tax return, and the amount of
income tax expense or benefit is computed and allocated among subsidiaries on a
separate return basis. BMJ utilizes the asset and liability method of accounting
for income taxes as required by Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109"). Under this method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which temporary differences, which are inherent
in the tax filing process, are expected to be recovered or settled. Under FAS
109, the effect on deferred tax assets and liabilities of a change in the tax
rates is recognized in income in the period that includes the enacted date.
BMJ's Federal income tax returns for the calendar years 1990 through
1993 are currently undergoing an examination by the Internal Revenue Service. In
the course of their examination, the IRS has proposed certain adjustments which
management believes will not have a material effect on the consolidated
financial statements.
B.M.J. Financial Corp. and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis addresses material changes in BMJ's
financial condition between December 31, 1994 and June 30, 1995 and material
changes in its results of operations with respect to the three-month and
six-month periods ended June 30, 1995 and 1994.
Results of Operations
Earnings Performance
BMJ reported net income for the second quarter ended June 30, 1995 of
$1.5 million, compared to net income for the second quarter of 1994 of $5.2
million which included a one-time credit of $3.5 million described below. For
the six months ended June 30, 1995, net income was $2.9 million compared to net
income of $6.8 million including the one-time credit.
On a per share basis, earnings for the second quarter of 1995 were
$0.19, compared to earnings of $0.66 for the comparable period of 1994, of which
$.44 represented the per share effect of the one-time credit. For the six-month
period ended June 30, 1995, earnings per share were $.38 compared to earnings of
$.87 of which $.44 represented the per share effect of the one-time credit.
BMJ's pre-tax income for the second quarter ended June 30, 1995 totaled
$2.3 million, an increase of 33% over the pre-tax income of $1.7 million
reported for the second quarter of 1994. For the six-month period ended June 30,
1995, pre-tax income amounted to $4.5 million, an increase of 36% over the
pre-tax income of $3.3 million reported for the comparable 1994 period.
Income tax expense for the second quarter ended June 30, 1995 amounted
to $831 thousand, compared to $3 thousand for the second quarter of 1994. Income
tax expense for the first six months of 1995 amounted to $1.6 million compared
to $7 thousand for the same period last year. In each of the past two years, BMJ
realized certain income tax adjustments under Statement of Financial Accounting
Standards No. 109," Accounting for Income Taxes", which was adopted by BMJ on
January 1, 1993. As a result, operating results for 1994 included a $3.5 million
credit to income. As of December 31, 1994, BMJ had fully recognized all of its
available tax credits. Therefore, income tax expense in 1995 represents the tax
provision associated with BMJ's 1995 results of operations.
Net interest income for the second quarter ended June 30, 1995 amounted
to $7.0 million compared to $7.2 million for the second quarter of 1994. For the
six-month period ended June 30, 1995, net interest income amounted to $14.0
million versus $14.1 million for the six-month period ended June 30, 1994. BMJ's
taxable-equivalent net interest margin remained strong at 5.69% for the first
six months of 1995 compared to 5.02% for the first six months of 1994.
BMJ continued to pursue its aggressive program to reduce the level of
total noninterest expenses while increasing operating efficiency. As a result,
total noninterest expenses for the second quarter of 1995 amounted to $5.7
million, a reduction of 18.5% from total noninterest expenses of $7.0 million
for the 1994 second quarter. For the six-month period ended June 30, 1995, total
noninterest expenses amounted to $11.5 million, a reduction of 15.7% from total
noninterest expenses of $13.7 million for the first six months of 1994.
For the six-month period ended June 30, 1995, BMJ's core efficiency
ratio (total noninterest expenses exclusive of other real estate expenses and
certain nonrecurring charges as a percent of taxable-equivalent net interest
income plus adjusted noninterest income) improved to 67.14% from 75.05% for the
six-month period ended June 30, 1994.
Operating results for 1994 include those of BMJ's Southern Ocean State
Bank subsidiary and the Willingboro branch of BMJF's The Bank of Mid-Jersey
subsidiary. Southern Ocean State Bank was sold in July 1994 and the Willingboro
branch was sold in November 1994.
Net Interest Income
Net interest income is interest earned on loans and other
interest-earning assets minus interest paid on deposits and other borrowed
funds. Interest rate fluctuations as well as changes in the volume and mix of
interest-earning assets and interest-bearing liabilities combine to affect net
interest income.
Net interest income was $7.0 million for the second quarter of 1995
compared to $7.2 million for the second quarter of 1994. For the six months
ended June 30, 1995, net interest income was $14.0 million compared to $14.1
million for the comparable 1994 period. The financial summary in Table 1 details
yields and rates of major interest-earning assets and interest-bearing
liabilities for the six-month periods ended June 30, 1995 and 1994. Among other
things, Table 1 shows that the cost of interest-bearing deposits increased to
2.91% for the six months ending June 30, 1995 compared to 2.14% for the
corresponding period ended June 30, 1994 as BMJ endeavored to increase its level
of total deposits in the competitive retail market. Despite this increase in the
cost of interest-bearing deposits, BMJ's net interest margin which represents
the difference between yields on average interest-earning assets and costs of
average funding sources, was 5.69% for the six-month period ended June 30, 1995
compared to 5.02% for the comparable 1994 period.
Noninterest Income
BMJ's revenues include noninterest income, which consists primarily of
service charges on deposit accounts and trust service fees. Noninterest income
was $1.0 million for the second quarter of 1995 compared to $1.6 million for the
second quarter of 1994 and $2.1 million for the six-month period ended June 30,
1995 compared to $2.9 million for the comparable 1994 period.
Service charges, commissions and fees amounted to $900 thousand for the
second quarter of 1995 compared to $1.2 million for the second quarter of 1994.
Service charges, commissions and fees totaled $1.8 million for the first six
months of 1995 and $2.4 million for the first six months of 1994. The current
year decrease in revenues from service charges, commissions and fees when
compared with the prior year is primarily due to the lower level of deposit
accounts subject to service charges and other fees during 1995 as a result of
the sale of BMJ's Southern Ocean State Bank subsidiary on July 29, 1994.
Also included in BMJ's noninterest income is the gain recognized on the
sales of other real estate properties. Net gains on the sales of other real
estate properties of $48 thousand were realized during the second quarter of
1995 versus net gains of $344 thousand for the second quarter of 1994. For the
six-month period ended June 30, 1995, BMJ realized net gains of $86 thousand
compared to net gains of $372 thousand for the comparable 1994 period.
Noninterest Expense
Noninterest expense for the quarter ended June 30, 1995 was $5.7
million, a reduction of 18.5% from noninterest expense of $7.0 million for the
second quarter of 1994. For the six-month period ended June 30, 1995, BMJ's
noninterest expense amounted to $11.5 million, a reduction of 15.7% from the
$13.7 million reported for the comparable 1994 period. Two significant
initiatives completed during 1994 which have had an impact on reducing BMJ's
level of total noninterest expense when comparing 1995 results with 1994 results
were the merger of BMJ's two principal subsidiaries, The Bank of Mid-Jersey and
Mount Holly State Bank, and the sale of BMJ's Southern Ocean State Bank
subsidiary. As previously discussed, Southern Ocean State Bank's operating
results are included in BMJ's operating results for 1994.
For the six-month period ended June 30, 1995, BMJ's core efficiency
ratio (total noninterest expenses exclusive of other real estate expenses and
certain nonrecurring charges as a percent of taxable-equivalent net interest
income plus adjusted noninterest income) improved to 67.14% from 75.05% for the
six-month period ended June 30, 1994.
Salaries and employee benefits amounted to $2.4 million for the quarter
ended June 30, 1995, a reduction of 16.3% from the balance of $2.9 million for
the quarter ended June 30, 1994. Salaries and employee benefits for the six-
month period ended June 30, 1995 amounted to $4.9 million, a reduction of 12.1%
compared to the $5.6 million for the six-month period ended June 30, 1994.
Salaries expense, which is the largest component of this noninterest expense
category, amounted to $2.0 million for the 1995 second quarter and $4.1 million
for the six-month period ended June 30, 1995 which represent decreases of 14.6%
and 13.4%, respectively from salaries expense for the corresponding periods of
1994. BMJ has reduced the number of full-time equivalent employees at June 30,
1995 to 274 employees, a reduction of 22.4% from 353 full-time equivalent
employees at June 30, 1994.
Net occupancy expense decreased to $733 thousand for the quarter ended
June 30, 1995 from $865 thousand for the 1994 second quarter and decreased to
$1.5 million for the six months ended June 30, 1995 from $1.7 million for the
comparable 1994 period. Net occupancy expenses in 1995 were favorably affected
by lower repairs and maintenance expenses and lower depreciation expense.
Other real estate expense decreased to $110 thousand for the quarter
ended June 30, 1995, compared to $522 thousand for the 1994 second quarter and
decreased to $290 thousand for the six-month period ended June 30, 1995 compared
to $928 thousand for the 1994 period. Other real estate expense includes the
costs to maintain repossessed properties such as real estate taxes, insurance
and general maintenance expenses. During the six-month period ended June 30,
1995, BMJ was able to reduce the net balance of its other real estate primarily
through the sale of properties to a net balance of $3.0 million at June 30, 1995
compared to the net balance of $9.0 million at June 30, 1994. As a result, BMJ
was able to achieve corresponding reductions in other real estate expense for
the three-month and six-month periods ended June 30, 1995 of 78.9% and 68.6%
respectively when compared with the three and six-month period ended June 30,
1994. Other real estate expense also includes a provision to increase the
valuation reserve used to adjust the carrying value of foreclosed properties to
their fair value. For the six-month period ended June 30, 1995, there was no
provision necessary to increase this reserve. For the six-month period ended
June 30, 1994, a provision of $538 thousand was made to increase this valuation
reserve.
The other (or miscellaneous) noninterest expense category totaled $2.5
million for the quarter ended June 30, 1995 compared to $2.8 million for the
second quarter of 1994. For the six-month period ended June 30, 1995, other
noninterest expense totaled $4.9 million compared to $5.5 million for the
six-month period ended June 30, 1994. Contributing to the 1995 decreases in this
category are the reductions in BMJ's premium for FDIC insurance and legal fees.
The second quarter 1995 versus second quarter 1994 decrease of 28.2% in
the FDIC insurance assessment is a result of BMJ's strong capital ratios plus a
decrease in the levels of those deposits subject to the insurance assessment.
For the six-month period ended June 30, 1995, the FDIC insurance assessment of
$525 thousand represents a 28.2% reduction from the $731 thousand amount for the
corresponding 1994 period.
Legal expense for the second quarter of 1995 amounted to $199 thousand,
a reduction of 54.1% from the $434 thousand reported for the 1994 second
quarter. Legal expenses for the first six months of 1995 totaled $451 thousand,
a reduction of 45.9% from the legal expenses total of $834 thousand for the
first six months of 1994. The current year decrease in BMJ's legal expense is
primarily a result of the lower level of nonperforming assets, thereby
decreasing litigation costs in pursuing collection of delinquent loans and in
obtaining title to properties through the foreclosure process.
Income Tax Expense
Income tax expense for the second quarter ended June 30, 1995 amounted
to $831 thousand compared to $3 thousand for the second quarter of 1994. Income
tax expense for the six-month period ended June 30, 1995 amounted to $1.6
million compared to $7 thousand for the comparable period of 1994.
During 1994, BMJ realized certain income tax benefits under Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
was adopted by BMJ on January 1, 1993. During 1994, BMJ had fully recognized all
of its available alternative minimum tax credits and reversed the deferred tax
asset valuation allowance established in 1993 and, as such, the book tax
provision was offset by a reduction of a portion of the deferred tax asset
valuation allowance. As a result, income tax expense for the three-month period
and six-month period ended June 30, 1995 represents the tax provision associated
with BMJ's 1995 results of operations.
Balance Sheet Analysis
Total assets of BMJ amounted to $561.7 million at June 30, 1995,
increasing from $538.4 million at December 31, 1994. This increase is primarily
attributable to an increase in the level of total deposits at June 30, 1995
versus December 31, 1994. Total deposits of $478.3 million at June 30, 1995
represents a 3.2% increase from the $463.6 of total deposits at December 31,
1994. This increase was achieved despite the high level of competition that
exists among financial institutions in BMJ's market for retail deposits. Through
renewed marketing programs and competitively priced deposit products, it is
BMJ's intention to increase its share of the retail deposits market.
During 1995, BMJ continued to improve its capital ratios and its
balance sheet condition. Shareholders' equity increased from $58.3 million at
December 31, 1994 to $60.6 million at June 30, 1995. The ratio of shareholders'
equity to total assets at June 30, 1995 and December 31, 1994 remained strong at
10.8%.
In addition, asset quality continued to improve as total nonperforming
assets at June 30, 1995 amounted to $11.3 million compared to $14.2 million at
December 31, 1994.
The following discussion deals with the major components of the balance
sheet.
Securities Available for Sale
Securities which may be sold in response to changing market and
interest rate conditions or as part of BMJ's asset/liability management strategy
have been classified as securities available for sale. The securities available
for sale portfolio amounted to $16.6 million at June 30, 1995 compared to $2.9
million at December 31, 1994. The securities available for sale portfolio is
carried at fair market value at June 30, 1995 and December 31, 1994.
Table 1 details the composition of the securities available for sale
portfolio. In addition, Table 1 provides information concerning average yields
and balances of the securities available for sale portfolio for the six-month
periods ended June 30, 1995 and 1994.
Securities Held to Maturity
Securities held to maturity are comprised of securities that BMJ has
the positive intent and ability to hold to maturity. These securities are
carried at cost, adjusted for amortization of premium or accretion of discount.
The premium or discount adjustments are recognized as adjustments to interest
income, on a level yield basis. Gains or losses on disposition are computed by
the specific identification method and are included in noninterest income.
Unrealized losses due to fluctuations in market value are recognized as security
losses when a decline in value is assessed as being other than temporary.
The securities held to maturity portfolio amounted to $112.4 million at
June 30, 1995 compared to $119.0 million at December 31, 1994. Table 1 provides
information concerning average yields and balances of the securities available
for sale portfolio for the six-month periods ended June 30, 1995 and 1994.
Table 1
Financial Summary
Averages Balances, Rates Paid and Yields (yields on a tax-equivalent basis)
(in thousands) Six months ended June 30, 1995 Six months ended June 30, 1994
---------------------------------- -------------------------------
Average Yields Interest Average Yields Interest
Balance or Income/ Balance or Income/
Rates Expense Rates Expense
-------- ---- -------- -------- ---- --------
INTEREST-EARNING ASSETS
Money market investments:
Time deposits with other banks ..................... $ 1,650 5.87% $ 48 $ 8,306 3.45% $ 142
Interest bearing deposits with other banks ......... 638 5.69 18 2,561 3.31 42
Federal funds sold and repurchase agreements ....... 6,047 6.00 180 14,286 3.30 234
Other short term investments ....................... 6,399 6.02 191 26,628 3.92 517
-------- ---- -------- -------- ---- --------
Total money market investments ................. 14,734 5.98 437 51,781 3.64 935
Securities available for sale:
U.S. Treasury securities ........................... 2,946 4.59 67 17,757 3.51 309
U.S. government agencies and corporations .......... 598 5.73 17 3,693 4.10 75
States and political subdivisions .................. 2,507 6.68 83 230 6.14 7
Other securities ................................... -- -- -- 141 5.72 4
-------- ---- -------- -------- ---- --------
Total securities available for sale ............ 6,051 5.57 167 21,821 3.65 395
Securities held to maturity:
U.S. Treasury securities ........................... 19,769 5.61 550 27,013 4.23 566
U.S. government agencies and corporations .......... 89,819 5.60 2,493 88,329 4.64 2,031
States and political subdivisions .................. 4,598 8.55 195 5,290 7.40 194
Other securities ................................... 798 6.06 24 845 5.97 25
-------- ---- -------- -------- ---- --------
Total securities held to maturity .............. 114,984 5.72 3,262 121,477 4.67 2,816
Loans, net of unearned income .......................... 368,641 8.91 16,288 379,334 8.18 15,389
-------- ---- -------- -------- ---- --------
Total interest-earning assets .................. $504,410 8.06% $ 20,154 $574,413 6.86% $ 19,535
======== ==== ======== ======== ==== ========
Table 1
Financial Summary (Continued)
Averages Balances, Rates Paid and Yields (yields on a tax-equivalent basis)
(in thousands) Six months ended June 30, 1995 Six months ended June 30, 1994
---------------------------------- -------------------------------
Average Yields Interest Average Yields Interest
Balance or Income/ Balance or Income/
Rates Expense Rates Expense
-------- ---- -------- -------- ---- --------
FUNDING SOURCES
Deposits:
Savings and interest checking ...................... $257,945 2.13% $ 2,729 $345,304 1.74% $ 2,979
Certificates of deposit of $100,000 or more ........ 6,427 5.11 163 6,846 3.39 115
Other time deposits ................................ 115,306 4.52 2,583 118,627 3.22 1,897
-------- ---- -------- -------- ---- --------
Total interest-bearing deposits ................ 379,678 2.91 5,475 470,777 2.14 4,991
Securities sold under agreements to repurchase ......... 14,220 4.88 344 3,219 2.19 35
Other borrowed funds ................................... 265 4.57 6 135 2.99 2
Other debt ............................................. 2,700 7.54 101 4,807 8.43 201
Total interest-bearing liabilities ............. 396,863 3.01 5,926 478,938 2.20 5,229
Portion of noninterest-bearing funding sources ......... 107,547 -- -- 95,475 -- --
-------- ---- -------- -------- ---- --------
Total funding sources .......................... $504,410 2.37% $ 5,926 $574,413 1.84% $ 5,229
======== ==== ======== ======== ==== ========
Net interest margin and net interest income ............ 5.69% $ 14,288 5.02% $ 14,306
==== ======== ==== ========
Loan Portfolio
BMJ's loan portfolio represented 68.4% of total assets at June 30, 1995,
compared to 65.8% at December 31, 1994. BMJ's loan portfolio amounted to $384.3
million at June 30, 1995 increasing from $354.5 million at December 31, 1994
primarily as a result of increased loan demand in BMJ's market.
The following table provides a comparative analysis of the loan portfolio
composition:
(in thousands) June 30, December 31,
1995 1994
-------- --------
Commercial, financial and agricultural ........... $ 24,183 $ 22,822
Real estate - mortgage ........................... 288,008 272,878
Real estate - construction ....................... 32,887 28,420
Consumer ......................................... 39,176 30,360
-------- --------
$384,254 $354,480
======== ========
Substantially all of BMJ's lending activity is to customers, or secured by
property, located within Mercer, Burlington and Ocean counties in New Jersey. Of
the portfolio as a whole, at June 30, 1995, approximately 83.5% of BMJ's loans
are secured by real estate.
Nonperforming Assets
Nonperforming assets, as summarized in the table below, consist of
nonperforming loans plus net other real estate owned.
(in thousands)
June 30, 1995 December 31, 1994
------------- -----------------
Nonperforming Loans:
Loans past due 90 days or
more and accruing ....................... $ 392 $ 1,264
Nonaccrual loans ............................. 7,907 5,769
--------- ---------
Total nonperforming loans ................ 8,299 7,033
--------- ---------
Other Real Estate:
Insubstance foreclosure ...................... -- 2,935
Other real estate ............................ 3,713 5,237
Loss reserve ................................. (696) (958)
--------- ---------
Total other real estate, net ............. 3,017 7,214
--------- ---------
Total Nonperforming Assets ................... $ 11,316 $ 14,247
========= =========
Nonperforming loans include nonaccrual loans and loans 90 days or greater
past due and still accruing. Loans are generally reported as nonaccrual if they
are past due as to maturity or payment of principal or interest for a period of
more than 90 days, unless such loans are well secured and in the process of
collection. If a loan or a portion of a loan is partially charged off, the loan
is classified as nonaccrual. Loans that are on a current payment status or past
due less than 90 days may also be classified as nonaccrual if repayment in full
of principal and/or interest is determined to be in jeopardy. Loans, with the
exception of partially charged off loans or loans with any portion classified as
doubtful, may be placed back on accrual status when they become current as to
both principal and interest and when concern as to future collectibility in full
no longer exists. The remaining recorded balance of a partially charged off
loan, however, may be returned to accrual status if the entire contractual loan
balance, together with all unpaid contractual interest, is determined to be
fully collectible. Nonperforming loans as a percentage of total loans were 2.2%
as of June 30, 1995 and 2.0% as of December 31, 1994.
The following table illustrates the activity in BMJ's nonaccrual loans during
the six-month period ended June 30, 1995.
(in thousands) Six Months Ended June 30, 1995
------------------------------
Nonaccrual
Loans
----------
Balance, January 1, 1995 ........... $ 5,769
New defaults ....................... 4,246
Assets foreclosed upon or designated
as Other Real Estate ............. (1,054)
Payoffs, cures and sales ........... (963)
Chargeoffs and writedowns .......... (91)
-------
Balance, June 30, 1995 ............. $ 7,907
=======
Potential problem loans consist of loans which are included in performing
loans at June 30, 1995, but for which potential credit problems of the borrowers
have caused management to have concerns as to the ability of such borrowers to
comply with present repayment terms. At June 30, 1995, such potential problem
loans amounted to approximately $3.9 million. Depending on the state of the
economy and the impact thereof on BMJ's borrowers, as well as other future
events, these loans and others not currently so identified could be classified
as nonperforming loans in the future.
The following table illustrates the activity in BMJ's other real estate during
the six-month period ended June 30, 1995.
Six Months Ended
(in thousands) June 30, 1995
----------------
Balance, January 1, 1994 .......................... $ 8,172
Additions:
Assets foreclosed upon or designated
as Other Real Estate ..................... 1,727
-------
Total additions .......................... 1,727
-------
Deductions:
Sales and other reductions .................. (2,869)
Transfer of insubstance foreclosures to loans
upon adoption of FAS 114 ................ (2,935)
Writedowns to fair value/Chargeoffs ......... (382)
-------
Total deductions ......................... (6,186)
-------
Subtotal ....................................... 3,713
Less loss reserve .............................. (696)
-------
Balance, June 30, 1995 ............................ $ 3,017
=======
Other real estate consists of properties acquired through foreclosure or deed
in lieu of foreclosure. A reserve for other real estate has been established to
maintain the portfolio at the lower of cost or fair value less estimated
disposition costs.
On January 1, 1995, BMJ adopted Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan" ("FAS 114") and
Statement of Financial Accounting Standards No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosure" ("FAS 118"). A
loan is considered impaired when, based upon current information and events, it
is probable that BMJ will be unable to collect all principal and interest
amounts due according to the contractual terms of the loan agreement. Under FAS
114, impaired loans subject to the statement are required to be measured based
upon the present value of expected future cash flows discounted at the loan's
initial effective interest rate or at the loan's market price or fair value of
the collateral if the loan is collateral dependent. If the loan valuation is
less than the recorded value of the loan, an impairment reserve must be
established for the difference. The impairment reserve is established by either
an allocation of the reserve for loan losses or by a provision for loan losses,
depending on the adequacy of the reserve for loan losses. FAS 118 allows BMJ's
existing income recognition practices to continue. Adoption of FAS 114 and FAS
118 has not materially impacted BMJ's financial position or results of
operations.
The following table sets forth information concerning the other real estate
loss reserve activity for the six-month periods ended June 30, 1995 and 1994.
Six Months Ended
(in thousands) June 30, 1995 June 30, 1994
------------- -------------
Balance, beginning of year ....................... $ 958 $ 2,614
Add: provision charged to expense ............. -- 538
------- -------
958 3,152
Less: writedowns .............................. (262) (1,802)
: subsidiary held for sale ................ -- (125)
------- -------
Balance, at end of period ........................ $ 696 $ 2,028
======= =======
Reserve for Loan Losses
At June 30, 1995, the reserve for loan losses totaled $12.8 million compared
to $12.5 million at December 31, 1994. The ratio of the reserve for loan losses
to total loans at June 30, 1995 was 3.34% versus 3.52% at December 31, 1994. The
table below provides a summary of the activity in the loan loss reserve plus
additional key ratios for assessing the adequacy of the reserve for loan losses
at June 30, 1995 and 1994.
Six Months Ended
(in thousands) June 30, 1995 June 30, 1994
------------- -------------
Reserve balance, beginning of year .. $ 12,485 $ 14,423
Gross charge-offs ................ (323) (1,883)
Less: recoveries ................. 671 900
--------- ---------
Net (charge-offs) recoveries ........ 348 (983)
Provision charged to operations ..... -- --
Subsidiary held for sale ............ -- (415)
--------- ---------
Reserve, at end of period ........... $ 12,833 $ 13,025
========= =========
Loans, end of period ................ $ 384,254 $ 347,880
Average loans outstanding ........... $ 368,641 $ 379,334
Ratio of net (charge-offs) recoveries
to average loans outstanding ..... .09% (.26%)
Ratio of reserve for loan losses
to nonperforming loans ........... 154.63% 120.87%
Ratio of reserve for loan losses
to loans, end of period .......... 3.34% 3.74%
Management has adopted a reserve adequacy methodology that requires specific
reserve assessment for all loans including residential real estate mortgages and
consumer loans. This methodology assigns reserves based upon credit risk rating
for specific loans and general reserves for all other loans. The general
reserves are based on historical charge-off experience but are subject to
certain minimums based upon BMJ's assessment of the current economic
environment.
BMJ's gross charge-offs during the first six months of 1995 totaled $323
thousand compared with $1.9 million for the first six months of 1994. Subsequent
to the charge-off of a loan, it is BMJ's policy to continue to vigorously pursue
the collection of principal outstanding as well as past due interest. Collection
efforts resulted in recoveries of $671 thousand on previously charged-off loans
during the first six months of 1995 compared with $900 thousand for the first
six months of 1994.
The distribution of the reserve for loan losses and the percentage of loans
in each category to total loans at June 30, 1995 is illustrated in the following
table.
Allocation of the Reserve for Loan Losses
June 30, 1995
(in thousands) % of Loans
Reserve in Each Category
Amount to Total Loans
-------- ----------------
Domestic:
Commercial, financial and agricultural $ 1,119 -- %
Real estate - mortgage ........ 8,245 --
Real estate - construction ......... 2,004 --
Consumer ............................. 455 --
Unallocated ............................... 1,010 --
-------- --------
$ 12,833 100.00%
======== ========
Note: This distribution is made for analytical purposes only. The total
allowance is available to absorb losses from any segment of the portfolio.
Deposits
BMJ's deposit base is the principal source of funds supporting
interest-earning assets. Maintaining a strong core deposit base is key to the
development of long-term customer relationships which, in turn, present
opportunities for BMJ to cross-sell its services. To meet the requirements of
its diverse customer base, BMJ offers a full range of deposit products,
including interest-bearing and noninterest-bearing demand deposits, savings
deposits, insured retail money market accounts and certificates of deposit.
BMJ's total deposits amounted to $478.3 million at June 30, 1995 compared to
$463.6 million at December 31, 1994.
Table 1 provides information concerning average rates and balances of BMJ's
interest-bearing deposits for the six-month periods ended June 30, 1995 and
1994. Among other things, Table 1 shows that as a result of the increasing
interest rate environment which existed during 1994 and mid-1995, the average
rate paid on BMJ's average interest-bearing deposit balances increased to 2.91%
for the six-month period ended June 30, 1995 from 2.14% for the comparable 1994
period.
Capital
BMJ's level of shareholders' equity continued to improve during the first six
months of 1995; primarily as the result of improved operating results. The
following table provides selected shareholders' equity ratios at June 30, 1995
and December 31, 1994.
(in thousands) June 30, December 31,
1995 1994
-------- ----------
Shareholders' equity .................... $60,596 $58,346
Shareholders' equity to assets ratio .... 10.79% 0.84%
Book value per share .................... $ 7.97 $ 7.68
The Federal Reserve Board ("FRB") has issued risk-based capital guidelines
applicable to member banks and bank holding companies and the FDIC has issued
comparable guidelines applicable to state nonmember banks. The guidelines, which
establish a risk adjusted ratio relating to the total amount of assets and
off-balance sheet exposures, (as such assets and off-balance sheet items are
weighted to reflect the risk inherent therein,) require a minimum total
risk-based capital ratio of 8.00%, with at least half of the total capital in
the form of Tier 1 capital. The risk-based capital ratios of BMJ and Mid-Jersey
were as follows on the dates shown:
June 30, 1995 December 31,1994
----------------------------------- ------------------------------------
Total Tier 1 Total Tier 1
Risk-Based Risk-Based Risk-Based Risk-Based
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
------------- ------------- ------------- -------------
B.M.J.Financial Corp. 16.47% 14.53% 17.03% 15.04%
The Bank of Mid-Jersey 14.40% 13.13% 14.86% 13.58%
The FRB and FDIC have also adopted leverage capital requirements specifying
the minimum acceptable ratios of Tier 1 capital to total assets. Under these
requirements, the most sound, well-run institutions engaged in the least risky
operations are required to maintain minimum ratios of Tier 1 capital to total
assets of 3%. All other institutions, as well as even extremely sound
institutions experiencing or anticipating significant growth, are expected to
operate well above this minimum level. Most banks generally operate at capital
levels ranging from 100 to 200 basis points above the stated minimum. Higher
capital ratios could be required if they are deemed by regulators to be
warranted by the particular circumstances or risk profile of an individual bank.
The leverage ratios of BMJ and Mid-Jersey were as follows on the dates shown:
Leverage Ratio at Leverage Ratio at
June 30, 1995 December 31,1994
----------------- -----------------
B.M.J.Financial Corp. 10.56% 10.58%
The Bank of Mid-Jersey 9.91% 9.49%
Failure to satisfy any minimum capital requirement applicable to BMJ or
Mid-Jersey could subject BMJ or Mid- Jersey, as the case may be, to regulatory
actions by the FRB.
BMJ paid $380 thousand in common dividends during the second quarter of 1995,
the first to be paid by BMJ since dividends were suspended in 1991. In addition,
on May 18, 1995 BMJ's Board of Directors declared a cash dividend of $.05 per
share payable July 1, 1995 to shareholders of record on June 16, 1995.
The primary source of funds for payment of dividends by BMJ is dividends
received from Mid-Jersey. The amount of dividends that Mid-Jersey may declare in
any year is subject to certain regulatory limitations. Mid-Jersey may not
declare dividends if such declaration would leave it inadequately capitalized.
Generally, dividends declared by a bank are limited to its net profit, as
defined by the regulatory agencies, for that year combined with its retained net
income from the preceding two years. At January 1, 1995, the amount of retained
earnings of Mid-Jersey available for declaration of dividends to BMJ was $10.7
million.
Liquidity and Asset/Liability Management
Liquidity refers to BMJ's ability to maintain a cash flow adequate to fund
operations and meet obligations on a timely and cost effective basis. Asset
liquidity is represented by the ease with which assets can be converted into
cash. BMJ continually evaluates its funding needs and manages its liquidity
position by maintaining adequate levels of liquid assets, such as cash and cash
equivalents and securities available for sale. BMJ's funding needs change as
loans grow, deposits mature and payments on obligations are made. Because the
characteristics of BMJ's assets and liabilities change, liquidity management is
a dynamic process. Among those factors affecting liquidity management are
pricing and maturity of loans, deposits and other assets and liabilities. In
addition, liquidity management is affected by changes in the relationship
between short-term and long-term interest rates.
At June 30, 1995, BMJ had a total of $51.9 million or 9.2% of total assets in
cash and cash equivalents, short-term money market investments, and securities
available for sale, representing its primary sources of liquidity, as compared
to $47.4 million or 8.9% of assets at December 31, 1994. Another source of asset
liquidity is the cash flows provided by maturities and periodic repayments of
principal of both the securities held to maturity portfolio and the loan
portfolio.
Liabilities also provide a source of liquidity for BMJ. Wholesale
certificates of deposit (none of which were brokered deposits) and repurchase
agreements comprised 5.5% of total liabilities at June 30, 1995 and 2.8% of
total liabilities at December 31, 1994. Management believes there is substantial
room to increase these funding sources if necessary to meet its liquidity needs.
In addition, Mid-Jersey currently has a line of $10.8 million available for
discount window borrowing from the Federal Reserve without further pledging
requirements and a $2.0 million line of credit with a correspondent bank to
cover short term funding needs in the federal funds market.
As shown in the Consolidated Statement of Cash Flows, cash and cash
equivalents decreased by $9.4 million to $35.3 million at June 30, 1995. This
decrease reflected net cash of $3.5 million provided by operating activities,
$32.4 million of net cash used in investing activities and $19.5 million of net
cash provided by financing activities. Cash generated by operating activities
reflected BMJ's net income of $2.9 million adjusted for noncash charges and
credits. Cash used in investing activities primarily reflected the net increases
in the loan portfolio and securities available for sale portfolio offset in part
by the proceeds from maturities of securities held to maturity. Cash provided by
financing activities primarily reflected the net decrease in demand deposit,
savings and interest checking accounts, offset by the net increase in
certificates of deposit and securities sold under agreements to repurchase.
At June 30, 1995, B.M.J. Financial Corp. (the parent company) had a total of
$3.0 million in cash and cash equivalents, and $7.3 million in short-term
securities for general corporate purposes, which serves as the parent company's
primary source of liquidity. The parent company does not maintain lines of
credit or other borrowing arrangements.
Certain limitations of regulatory agencies exist with respect to the ability
of banking subsidiaries to transfer funds as dividends to the parent holding
company. Nevertheless, on January 1, 1995, $10.7 million of retained earnings of
Mid- Jersey was available for declaration of dividends from Mid-Jersey to BMJ
without prior regulatory approval. Moreover, BMJ has the capacity to borrow
funds from the Federal Reserve discount window to meet liquidity needs that are
not funded through subsidiary dividends or income.
BMJ's principal asset/liability management objectives are to manage the
sensitivity of net interest spreads to potential changes in interest rates and
to enhance profitability in ways that should provide sufficient reward for
understood and controlled risk. Specific asset/liability strategies are chosen
to achieve an appropriate trade-off between average spreads and the variability
of spreads. The BMJ Asset/Liability Management Committee meets weekly to monitor
consolidated risk at the corporate level and to monitor compliance with
established liquidity and interest rate sensitivity policy parameters on a
consolidated and individual bank basis. Funding positions are kept within
established policy limits designed to maintain reasonable risk levels and
adequate liquidity.
In order to measure the effect of interest rate fluctuations on BMJ's net
interest margin, management simulates the potential effects of changing interest
rates through computer modeling. These simulations determine the impact on net
interest income of various interest rate scenarios and balance sheet trends and
strategies. These simulations incorporate the dynamics of the balance sheet as
well as the interrelationships between various categories of short-term interest
rates and the impact the yield-curve level has on asset and liability pricing.
Net interest income sensitivity to balance sheet trends and interest rate
movements is quantified and appropriate strategies are developed and
implemented.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
- ------------------------------
Not Applicable
Item 2. Changes in Securities
- ---------------------------------
Not Applicable
Item 3. Defaults Upon Senior Securities.
- --------------------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
- ----------------------------------------------------------------
Not Applicable
Item 5. Other Information.
- ------------------------------
Not Applicable
Item 6. Exhibits and Reports on Form 8-K.
- ---------------------------------------------
(a) Exhibit 11.
Statement Regarding Computation of Per Share Earnings
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date 08/07/95 /s/ Elmer J. Elias
------------------------ -------------------------------------------
Elmer J. Elias, Acting President
Date 08/07/95 /s/ Joseph M. Reardon
------------------------ -------------------------------------------
Joseph M. Reardon, Chief Financial Officer