SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1996
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- 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 ____________________
SEC File Number: 0-17839
CENTRAL JERSEY FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
New Jersey 22-2977019
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(State or other jurisdiction of (I.R.S. Employer
of incorporation or organization) Identification No.)
591 Cranbury Road
East Brunswick, New Jersey 08816
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 254-6600
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(Title of Class)
Indicate by check mark whether 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 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 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of
registrant as of May 31, 1996 was $81,716,000 or $30 5/8 per share.
The number of shares outstanding of the issuer's common stock as of May 31,
1996: Common Stock, no par value - 2,668,269
CENTRAL JERSEY FINANCIAL CORPORATION
INDEX
Page
PART I
Item 1. Business.....................................................1
Item 2. Properties...................................................7
Item 3. Legal Proceedings............................................8
Item 4. Submission of Matters to a Vote
of Securities Holders........................................8
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder
Matters......................................................8
Item 6. Selected Financial Data......................................9
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations...............................................10
Item 8. Financial Statements and Supplementary
Data........................................................23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.........................55
PART III
Item 10. Directors and Executive Officers of the
Registrant.................................................55
Item 11. Executive Compensation.....................................58
Item 12. Security Ownership of Certain Beneficial
Owners and Management......................................65
Item 13. Certain Relationships and Related
Transactions...............................................65
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K....................................66
Signatures
PART I
ITEM 1. BUSINESS
General. Central Jersey Financial Corporation (the "Corporation") is a
unitary thrift holding company incorporated in the State of New Jersey. The
Corporation commenced business in December 1989 with the acquisition of Central
Jersey Savings Bank, SLA ("CJSB"), its only subsidiary. Principal executive
offices of the Corporation and CJSB are located at 591 Cranbury Road, East
Brunswick, New Jersey 08816 and the telephone number is (908) 254-6600.
CJSB is a state chartered savings and loan association that was
organized in 1892 as "The South River Building and Loan Association." The
deposits of CJSB are insured by the Savings Association Insurance Fund ("SAIF")
of the Federal Deposit Insurance Corp. ("FDIC"). On September 20, 1984, CJSB
converted from a mutual to a New Jersey stock savings association through the
sale and issuance of a total of 1,239,305 shares of common stock and, on May 7,
1986, CJSB completed a second offering of a total of 623,907 shares of common
stock (which totals are adjusted pursuant to a three-for-two stock split,
effective in September 1987, a ten percent stock dividend paid on October 1,
1992, a five-for-four stock split paid October 22, 1993 and a ten percent stock
dividend paid September 2, 1994). In December 1989, the Corporation acquired
CJSB as part of the reorganization of CJSB into a savings and loan holding
company structure. The Corporation conducts its business through six
full-service offices located in East Brunswick, North Brunswick, Jamesburg,
South River and Spotswood, New Jersey.
Merger Agreement - Summit Bancorp. The Corporation, on May 22, 1996,
entered into a definitive merger agreement (the "Agreement") with Summit Bancorp
("Summit"). The Agreement provides for Summit to acquire the Corporation in a
tax-free exchange of stock. Under the general terms of the Agreement, each of
the corporation's common shares would be exchanged for 0.875 shares of Summit
common stock. Summit was given an option to purchase up to 19.9 percent of the
Corporation's common stock if certain conditions occur. Additional details of
the Agreement are provided in the accompanying notes to consolidated financial
statements.
Acquisition - University Savings and Loan Association. On July 1, 1982,
the Corporation acquired University Savings and Loan Association ("University")
and accounted for the acquisition under the purchase method of accounting. At
the time of acquisition, University's liabilities exceeded its assets by
$8,505,522, based upon its then fair market value. In accordance with generally
accepted accounting principles, the Corporation amortized the cost in excess of
fair market value on a straight-line basis over 30 years. Management
subsequently determined, consistent with the policy of many financial
institutions, to shorten the maximum amortization period for goodwill from 30 to
25 years. Therefore, commencing January 1, 1986, the goodwill applicable to the
acquisition is being amortized over a period of 25 years. At March 31, 1996, the
Corporation had goodwill of $3,791,000. The net contribution (charge) to net
income from amortization and accretion of valuation adjustments related to the
acquisition of University was ($156,000), ($50,000), ($13,000), $104,000, and
$151,000 for the years ended March 31, 1996, 1995, 1994, 1993, and 1992,
respectively.
BANKING ACTIVITIES
General. CJSB is the primary asset of the Corporation and the
Corporation's business is conducted principally through CJSB. The Corporation's
business consists primarily of attracting deposits from the general public and
using those deposits, together with borrowings and other funds, to originate and
acquire mortgage loans and purchase mortgage-backed securities and investments.
The principal elements of the Corporation's current operating strategy are to
(i) concentrate lending efforts on single family residential loans and sell
certain mortgage loans being originated; (ii) purchase mortgage-backed
securities ("MBS") and investments (including real estate mortgage investment
conduits ("REMICs") and
collateralized mortgage obligations ("CMOs"); (iii) focus on retail deposits as
the primary funding source supplemented by borrowings and (iv) manage interest
rate risk. To a lesser extent, the Corporation, through CJSB's service
corporation, Old Reliable Corporation, Inc. ("Old Reliable"), is engaged in a
real estate development project, although the Corporation does not intend to
pursue new development projects in the future. Management adopted a policy to
sell certain mortgage loans currently being originated. The determination of the
loans which are originated for sale is based upon management's evaluation of,
among other considerations, interest-rate sensitivity investments, liquidity and
capital regulations.
Net Interest Income/Interest-Rate Sensitivity. The earnings of the
corporation depend primarily on the level of net interest income, which is the
difference between interest earned on loans, MBS, investment securities and cash
in interest bearing accounts and interest paid on deposits and borrowed funds.
Earnings are also impacted by fluctuations in the value of real estate
underlying mortgage loans and real estate investments. The Corporation's loan,
MBS and investment portfolios have been and remain less sensitive to general
interest rate changes than its deposit base. This is the result of having a
substantial portion of these portfolios comprised of long-term, fixed-rate
products, while the deposit base is comprised of accounts with substantially
shorter maturities adjusting more readily with current market conditions. The
Corporation, as a result of the relationship of its interest earning assets and
liabilities, would be adversely affected in a rising interest-rate environment.
Loans. The Corporation is engaged in the origination of mortgage loans,
including equity lines of credit, to finance owner occupied homes and had
retained these loans in its portfolio until fiscal 1992. During fiscal 1992, the
Corporation adopted a policy to sell certain loans being originated based upon
management's evaluation of various criteria. Since January 1992, loans
originated for sale have been sold on a non-recourse basis with servicing
generally retained. The Corporation offers fixed-rate and adjustable-rate
mortgage loans for periods generally ranging from 1-30 years; terms normally
provide for monthly payments of principal and interest. The Corporation's
experience indicates that home mortgage loans generally remain outstanding for
significantly shorter periods than their contractual terms. Adjustable-rate home
mortgage loans presently offered by the Corporation generally provide for
interest rates that adjust monthly to a rate equal to 1.5 percent above the
prime lending rate or that adjust every one or three years to a rate equal to
2.00-2.75 percent over the rate of the corresponding Treasury bill. The
Corporation's adjustable-rate home mortgage loans typically provide for maximum
interest rate increases of 2% per year and 6% over the life of the loan. The
Corporation also offers a mortgage loan product providing for an initial
fixed-rate term of ten years, adjusting each year thereafter for the remaining
twenty years to maturity.
The Corporation also offers consumer loans, including loans on
automobiles, household and other consumer goods, property improvement loans and
savings account loans.
During fiscal 1992, the Corporation resumed the origination of
construction and commercial real estate loans on a limited basis using criteria
designed to reduce credit risk. Previously, management had discontinued
originating loans for construction and commercial purposes to reduce the amount
of these loans in its portfolio.
2
A summary of the Corporation's loan portfolio by type of loan at March
31, 1996 through 1992 is presented in the accompanying table, headed "Type of
Loans."
March 31,
1996 1995 1994 1993 1992
---------- ----------- ---------- ---------- -------
(In Thousands)
Type of Loans
First mortgage real estate loans:
Conventional........................... $154,636 $174,828 $158,631 $154,825 $157,462
Commercial............................. 29,496 31,456 33,310 32,912 35,462
Construction and land.................. 11,505 11,129 16,668 11,964 11,384
FHA insured and VA guaranteed.......... 7,006 8,411 10,011 13,086 16,490
------- ------- ------- ------- -------
202,643 225,824 218,620 212,787 220,798
Home equity loans........................ 27,510 28,659 29,009 30,131 18,643
Other consumer loans..................... 793 814 553 659 700
Other commercial loans................... 276 328 404 2,228 4,133
------- ------- ------- -------- --------
231,222 255,625 248,586 245,805 244,274
Less:
Loans in process ...................... 7,569 6,825 6,736 2,503 2,888
Discount on loans receivable
acquired through business combinations -- 207 521 871 1,263
Deferred loan fees..................... 595 661 902 1,230 1,235
Unearned (premium) discount on purchased
loans and other loans................ (82) (180) (278) (396) 188
Allowance for loan losses.............. 3,031 2,890 2,652 2,882 2,081
------- ------- ------- ------- -------
$220,109 $245,222 $238,053 $238,715 $236,619
======= ======= ======= ======= =======
Investments. The adoption of the policy to sell certain mortgage loans
being originated has made investing a more significant aspect of the
corporation's business. MBS and other types of securities have become the
Corporation's primary focus of investment. MBS are participants in organized
pools of residential mortgages, the principal and interest payments on which are
passed from the mortgage originators through intermediaries to investors. Other
asset-backed securities which the Corporation purchases are collateralized
mortgage obligations (CMOs) and real estate mortgage investment conduits
(REMICs). CMOs and REMICs are debt obligations collateralized by pools of
mortgages; the underlying cash flow of the collateral is used to fund the debt
service on the bonds. CMOs and REMICs are priced based on their own maturity and
rate of return rather than that of the underlying mortgages.
A summary of the Corporation's investment portfolio at March 31, 1996,
1995, and 1994 is presented in the accompanying notes to consolidated financial
statements.
3
Deposits. Deposits are the principal source of the Corporation's funds
for lending and investment purposes. The following paragraphs provide a brief
description of the types of accounts offered by the Corporation.
Money Market Deposit Accounts ("MMDA"). The corporation's MMDA's do not
have a maximum rate of interest unless an account balance drops below $5,000 for
a tiered MMDA, $2,500 for a statement MMDA and $1,000 for a passbook MMDA. These
accounts have no minimum, maturity or prepayment penalty and no restrictions on
the size and frequency of withdrawals or additional deposits, except that MMDAs
are limited to three checks per month payable to third parties. The Corporation
regularly reviews the interest rate paid on the MMDAs and adjusts the rate to
reflect cash flow projections and market conditions.
Passbook and NOW Accounts. Savings may be invested in and withdrawn from
regular passbook accounts without restriction. Interest on passbook savings is
compounded monthly and credited monthly. The Corporation offers negotiable order
of withdrawal ("NOW") accounts which are similar to interest-bearing checking
accounts; interest is compounded monthly and credited monthly.
IRA and Keogh Accounts. The Corporation offers two 18-month retirement
accounts, one with a fixed rate and the other with a rate that adjusts
periodically. Any of the other certificates offered by the Corporation which
have a term of 6 months or more are also available for IRA and Keogh accounts.
Fixed-Rate, Fixed-Term Certificates. Certificates have no interest rate
ceiling. Certificates are the highest cost deposit product offered by the
Corporation. Interest rates offered on certificates are regularly reviewed and
adjusted to reflect cash flow projections and market conditions.
A summary of deposits by type at March 31, 1996, 1995 and 1994 is
presented in the accompanying notes to consolidated financial statements.
OTHER ACTIVITIES
The corporation, through Old Reliable, is involved in a real estate
work-out project. The Corporation does not intend to pursue new real estate
investments and is considering alternatives to reduce and ultimately eliminate
its investment in this project. The decision to withdraw from real estate
development was based on the severe depression of the market and the capital
regulations imposed by the Office of Thrift Supervision ("OTS"), CJSB's primary
regulator. Capital regulations provide, among other requirements, that equity
investments, which include real estate investments, must be deducted from
regulatory capital.
EMPLOYEES
As of March 31, 1996, the Corporation and CJSB employed 105 full-time
and part-time persons. Management considers relations with its employees to be
satisfactory.
COMPETITION
The banking business is highly competitive and the Corporation competes
not only with New Jersey thrifts, but also with commercial banks, savings banks,
money market funds, mortgage bankers, insurance companies, consumer finance
companies, credit unions, and other lending and deposit-gathering institutions.
4
SUPERVISION AND REGULATION
General. The Corporation is unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Corporation is required
to register and file reports with the OTS and is subject to regulation and
examination by the OTS. In addition, the OTS has enforcement authority over the
Corporation and any non-savings association subsidiaries which also permits the
OTS to restrict or prohibit activities that are determined to be a serious risk
to the subsidiary savings association. This regulation and oversight is intended
primarily for the protection of the depositors of CJSB and not for stockholders
of the Corporation.
CJSB and its subsidiary, Old Reliable, are regulated and supervised by
the New Jersey Department of Banking and the OTS. Deposits of CJSB are insured
by the FDIC to the maximum extent provided by law through the SAIF and, as a
result, CJSB and Old Reliable are subject to regulation and supervision by the
FDIC.
On December 19, 1991, the FDICIA was enacted into law. The purpose of
the FDICIA is to provide funding to the federal deposit insurance funds insuring
the deposits of both banks and savings associations. Among other things, the
FDICIA (i) reduced the percentage of assets required to meet the qualified
thrift lender test to 65% from the previous requirement of 70% and permitted
savings associations to include certain assets in their calculation of qualified
thrift investments not previously includable under existing law; (ii) requires
federal regulators to seize a bank or savings association which does not
maintain tangible equity (as defined in the adopting regulations) of at least 2%
of total assets; (iii) increased the amount of consumer loans a savings
association may invest in to 35% of total assets from the prior limitation of
30%; and (iv) requires all banks and savings associations to be subject to
uniform accounting principles and annual audits of their financial statements.
The FDICIA imposes a number of new mandatory supervisory measures on
savings associations, such as CJSB. The FDICIA requires financial institutions
to take certain actions relating to their internal operations, including:
providing annual reports on financial condition and management to the
appropriate federal banking regulators, having an annual independent audit of
financial statements performed by an independent public accountant and
establishing an independent audit committee comprised solely of outside
directors. The FDICIA also imposes certain operational and managerial standards
on financial institutions relating to internal controls, loan documentation,
credit underwriting, interest rate exposure, asset growth, compensation, fees
and benefits. The FDICIA also required the FDIC to assess deposit insurance
premiums based on risk. As discussed below, the FDIC has adopted a new
risk-based deposit insurance premium.
Deposit Insurance. Pursuant to FDICIA, on October 1, 1992, the FDIC
adopted final regulations (i) establishing 15 year recapitalization schedules
for the SAIF and the Bank Insurance Fund ("BIF"), (ii) implementing a
transitional risk-based assessment system, and (iii) increasing the deposit
insurance rate for certain members of SAIF and BIF. The purpose of these
regulations is to restore the reserve ratios for BIF and SAIF to the statutorily
mandated reserve ratio of 1.25% of insured deposits for both funds.
Under the risk-based assessment system, each BIF and SAIF member
institution will be assigned to one of nine assessment risk classifications
based on its capital ratios and supervisory evaluations. Initially, the lowest
risk institutions will pay deposit insurance at a rate of .23% of domestic
deposits while the highest risk institutions will be assessed at the rate of
.31% of domestic deposits. Each institution's classification under the system is
reexamined semiannually. In addition, the FDIC is unauthorized to increase or
decrease such rates on a semiannual basis. The risk-based system and the
5
applicable insurance rates are effective for the semiannual assessment period
beginning January 1, 1993. Under the transitional risk-based assessment schedule
adopted by the FDIC, CJSB's deposit insurance premium is $.23 per $100 of total
domestic deposits.
In January 1995, the FDIC proposed to lower the insurance premium for
members of the BIF to a range between .04 percent and .31 percent of deposits.
Any reduction in insurance premiums for BIF members could place the SAIF members
at a materially competitive disadvantage to BIF members and, for the reasons set
forth below, could have a materially adverse effect on the results of operations
and financial condition of CJSB in future periods.
A disparity in insurance premiums between those required for CJSB and
BIF members could allow BIF members to attract and retain deposits at a lower
effective cost than that possible for CJSB, and put competitive pressure on CJSB
to raise its interest rates paid on deposits, thus increasing its cost of funds
and possibly reducing net interest income. The resultant competitive
disadvantage could result in CJSB losing deposits to BIF members who have a
lower cost of funds and are therefore able to pay higher rates of interest on
deposits. Although CJSB has other sources of funds, these other sources may have
higher costs than those of deposits.
Among other ideas under consideration for addressing this disparity is a
possible one-time assessment on thrift institutions sufficient to recapitalize
the SAIF to a level which would at least approach that of the BIF. While there
can be no assurance that this or any other idea for addressing the premium
disparity will be effected, an assessment of this kind could have an adverse
impact on CJSB's results of operations.
Regulatory Capital. The OTS has established a core capital ratio of at
least 3 percent for those savings associations in the strongest financial and
managerial condition based on the "CAMEL" rating system currently in use by the
OTS. Those savings associations receiving a CAMEL rating of "1", the best
possible rating on a scale of 1 to 5, are required to maintain a ratio of core
capital to adjusted total assets of 3 percent. All other savings associations
are required to maintain minimum core capital of at least 4 percent of total
adjusted assets, with a maximum core capital ratio requirement of 5 percent. At
March 31, 1996, CJSB's ratio of core capital to total adjusted assets was 9.56
percent. CJSB is currently prohibited by the OTS from disclosing its CAMEL
rating.
Lending and Other Limitations. Among other regulations imposed and
enforced by CJSB's regulators are limitations on loans to one borrower,
restrictions on equity investments, including real estate investments, and a
general prohibition from entering into any agreement, including loans, which
would jeopardize the safety or soundness of the institution. Actions that could
be taken for violations include cease and desist orders, including orders for
the rescission of contracts, and civil money penalties. CJSB is also subject to
other laws and regulations relating to, among other things, investments, loans,
establishment of branches and other aspects of its operations.
The appropriate federal regulatory authorities also have authority to
prohibit a savings association or holding company from engaging in any activity
or transaction deemed by the federal regulatory authority to be an unsafe or
unsound practice. The payment of dividends could, depending upon the financial
condition of the savings association or holding company, be such an unsafe or
unsound practice.
Branching. On April 2, 1992, the OTS amended its rules on branching by
federally chartered savings associations to permit nationwide branching to the
extent allowed by federal statute. This action, which became effective May 2,
1992, permits federal associations with interstate networks to diversify their
loan portfolios and lines of business. These rules preempt any state law
purporting to regulate
6
branching by federal savings associations. CJSB, as a savings association
chartered under New Jersey law, is prohibited by New Jersey law from interstate
branching.
The foregoing references to certain statutes and regulations are brief
summaries thereof. The references are not intended to be complete, and are
qualified in their entirety by reference to the statutes and regulations. In
addition, there are other statutes and regulations that apply to and regulate
the operation of banking institutions. A change in applicable law or regulation
may have a material effect on the business of the Corporation.
There are numerous legislative and regulatory proposals being considered
at both the federal and state levels which would impact among other areas,
deposit insurance, the structure of bank regulation, and foreign and interstate
banking. It is premature to assess the impact these proposals could have on the
operations and financial condition of the Corporation; however, if certain
proposals become law, competition in the banking industry within the State of
New Jersey could be significantly increased.
The Corporation's common stock is registered under the Securities
Exchange Act of 1934. As a result, the Corporation and its common stock are
subject to the Securities and Exchange Commission's rules regarding, among other
things, the filing of public reports, the solicitation of proxies and the
disclosure of beneficial ownership of certain securities.
ITEM 2. PROPERTIES
The Corporation's headquarters is located at 591 Cranbury Road, East
Brunswick, New Jersey; the main office of CJSB is also maintained at this
location. In addition to the main office, the Corporation operates five
full-service branch offices in the following locations:
Branch Office Location
----------------------
25 E. Railroad Avenue
Jamesburg, New Jersey
75 and 79 Main Street
South River, New Jersey
911 Livingston Avenue
North Brunswick, New Jersey
455 Old Bridge Turnpike
East Brunswick, New Jersey
296 Summerhill Road
Spotswood, New Jersey
All of the above locations are owned and not subject to any mortgages.
Property was purchased adjacent to the North Brunswick branch for the
purpose of replacing the present facility with a new and larger facility. The
decision to proceed with the project has been suspended for the present time, as
a result of the merger announcement with Summit.
7
ITEM 3. LEGAL PROCEEDINGS
The Corporation is involved in various legal proceedings which arise out
of the general operations of its business. The lawsuits primarily involve claims
to enforce liens on real and personal property, condemnation proceedings on real
property and other matters incidental to the Corporation's business. The
Corporation does not believe that the resolution of these lawsuits would have a
material adverse effect on its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended March 31, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Corporation's common stock is listed on the Nasdaq National Market
System under the ticker symbol CJFC. The following table sets forth, for the
periods indicated, the highest and lowest prices for actual transactions in the
Corporation's common stock as reported by the Nasdaq National Market System.
Cash dividends declared on the Corporation's common stock are also presented.
Dividends Declared
Per Share
High Low Common Stock
---------- -------- ------------------
Fiscal 1996
First quarter................ $21 $17 $.10
Second quarter............... 25 19 3/4 .12
Third quarter................ 25 1/2 21 .12
Fourth quarter............... 30 3/4 23 3/4 .12
Fiscal 1995
First quarter................ 18 5/8 14 9/16 .09
Second quarter............... 22 17 1/2 .10
Third quarter................ 21 1/2 15 1/2 .10
Fourth quarter............... 18 1/2 15 1/2 .10
The number of common shareholders of record at March 31, 1996 was
approximately 1,676.
8
ITEM 6. SELECTED FINANCIAL DATA
As of or for the Year Ended March 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands, except per share amounts)
For The Year
Total interest income....................... $32,851 $28,255 $27,885 $29,174 $30,727
Total interest expense...................... 17,481 13,895 13,037 14,836 19,913
------ ------ ------ ------ ------
Net interest income......................... 15,370 14,360 14,848 14,338 10,814
Provision for loan losses................... 250 200 300 807 835
Non-interest income (loss).................. 1,530 1,094 1,858 1,018 (461)
Non-interest expenses....................... 8,532 8,500 8,923 8,345 6,604
Income tax expense ......................... 2,914 2,489 2,833 2,446 1,089
-----
Net income ................................. $5,204 $4,265 $4,650(2) $3,758 $1,825
===== ===== ===== ===== =====
Per Common Share
Earnings - assuming no dilution............. $ 2.15 $ 2.12 $ 2.34(2) $ 1.95 $ 0.95
Earnings - assuming full dilution........... 1.96 1.75 1.89(2) -- --
Tangible book value......................... 19.42 19.40 17.60 14.40 12.55
Stated book value........................... 20.84 21.52 19.94 17.09 15.39
Cash dividends.............................. 0.46 0.39 0.31 0.24 0.22
Total As of Year End
Assets....................................... $468,272 $ 439,884 $408,009 $392,384 $369,725
Loans receivable, net........................ 220,109 245,222 238,053 238,715 236,619
Mortgage-backed securities................... 191,531 144,926 114,753 103,989 57,403
Investment securities........................ 26,768 20,560 20,743 16,598 20,337
Cash and interest bearing deposits........... 8,805 7,694 8,205 5,943 24,224
Excess of cost over fair value of net assets
acquired................................... 3,791 4,155 4,518 5,178 5,465
Deposits..................................... 386,569 361,213 352,829 348,198 328,975
Borrowed funds............................... 22,500 32,105 11,770 5,400 5,400
Stockholders' equity......................... 55,612 42,261 38,509 32,918 29,647
Selected Ratios
Return on average assets.................... 1.13% 0.99% 1.15%(2) 0.99% 0.51%
Return on average equity.................... 10.41 10.61 12.84 (2) 12.06 6.30
Net interest margin......................... 3.53 3.55 3.93 4.07 3.25
Average equity/average assets............... 10.87 9.36 8.95 8.21 8.04
Average tangible equity/average assets...... 10.01 8.35 7.73 6.80 6.48
Dividend payout ratio....................... 21.40 18.40 13.25 (2) 12.31 23.16
Allowance for loan losses/non- performing loans 38.95 53.11 30.18 29.55 17.98
Allowance for loan losses/gross loans....... 1.36 1.16 1.10 1.19 0.87
Non-performing assets/total assets(1)....... 1.81 1.70 3.09 4.34 5.68
Non-performing loans/gross loans............ 3.49 2.19 3.65 4.04 4.85
- --------------------------
(1) Non-performing assets include: non-accrual loans before deduction for
specific and general allowances; investments in real estate, including
investments in non-consolidated entities, net of specific allowances but
before deduction of general allowances; and other real estate owned net
of all allowances related to those assets.
(2) Net income based statistics for the year ended March 31, 1994, excludes
the cumulative effect of a change in accounting principle, SFAS No. 109
"Accounting for Income Taxes." The cumulative effect amounted to income
of $1,500,000, $0.75 per share assuming no dilution and $0.55 per share
assuming full dilution.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Net income for the year ended March 31, 1996 amounted to $5,204,000
compared with $4,265,000 in 1995, an increase of $939,000. The increase in net
income was primarily the result of the increase in net interest income
$1,010,000 and the increase in non-interest income $436,000. Net interest income
increased from $14,360,000 in 1995 to $15,370,000 in 1996 and non-interest
income increased from $1,094,000 in 1995 to $1,530,000 in 1996. The increases in
income were partially offset by an increase in income tax expense of $425,000
from $2,489,000 in 1995 to $2,914,000 in 1996.
Net income for 1994 included $1,500,000 of income resulting from the
cumulative effect of a change in accounting principle, SFAS No. 109 "Accounting
for Income Taxes." Excluding the cumulative effect of the change in accounting
principle, net income decreased $385,000 between 1995 and 1994, from $4,650,000
to $4,265,000, respectively. The decrease was generally attributable to the
decrease in net interest income $488,000, from $14,848,000 in 1994 to
$14,360,000 in 1995 and the decrease in non-interest income $764,000 from
$1,858,000 in 1994 to $1,094,000 in 1995. The decreases in income were partially
offset by decreases in non-interest expenses $423,000, from $8,923,000 in 1994
to $8,500,000 in 1995 and the decrease in income tax expense $344,000, from
$2,833,000 in 1994 to $2,489,000 in 1995.
The Corporation, on May 22, 1996, entered into a definitive merger
agreement (the "Agreement") with Summit Bancorp. The terms of the Agreement,
more fully discussed in the accompanying notes to consolidated financial
statements, provide for Summit Bancorp to acquire the Corporation in a tax-free
exchange of stock. Summit Bancorp was given an option to purchase up to 19.9
percent of the Corporation's common stock if certain conditions occur. The
transaction is expected to be completed in the fourth quarter of calendar 1996,
subject to the approval of the Corporation's shareholders, regulatory approvals
and the market price of Summit Bancorp.
Net Interest Income
Net interest income is the most significant component of the
Corporation's income from operations. Net interest income is the difference
between interest received on interest-earning assets, primarily loans,
mortgage-backed securities ("MBS") and investments, and the interest expense
paid on interest-bearing liabilities, primarily deposits and borrowings. Net
interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them.
10
The following table presents a summary of average balances with
corresponding interest income and expense and average yield and cost information
for each of the years ended March 31, 1996, 1995 and 1994.
Average Balances, Interest and Yields
-----------------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------------- -------------------------------- ----------------------------
Interest Average Interest Average Interest Average
Average Earned Yield/ Average Earned Yield/ Average Earned Yield/
Balance(4) or Paid Cost Balance(4) or Paid Cost Balance(4) or Paid Cost
---------- ------- ---- ---------- ------- ---- ---------- ------- ----
(Dollars in Thousands)
Assets
Loans receivable(1)......... $237,614 $19,345 8.14%(2) $251,553 $19,263 7.66%(2) $243,156 $20,296 8.35%(2)
Mortgage-backed securities.. 171,411 11,581 6.76 (2) 129,689 7,415 5.72 (2) 110,044 6,193 5.63 (2)
Investment securities:
available for sale........ 8,150 577 7.08 (2) 6,389 448 7.02 (2) -- --
Investment securities:
portfolio................. 17,273 1,266 7.33 (2) 14,664 1,056 7.20 (2) 20,812 1,275 6.13 (2)
Deposits in other banks..... 1,410 82 5.77 (2) 2,133 73 3.43 (2) 3,687 121 3.30 (2)
------- ----- ------- ----- ------- ------
Total interest-earning
assets.................... 435,858 32,851 7.54 (2) 404,428 28,255 6.99 (2) 377,699 27,885 7.38 (2)
------ ------ ------
Other assets................ 24,011 25,019 26,911
------- ------- -------
Total assets................ $459,869 $429,447 $404,610
======= ======= =======
Liabilities and
Stockholders' Equity
Deposits:
Savings certificates...... $217,858 12,166 5.58 (2) $183,112 7,911 4.32 (2) $182,266 7,690 4.22 (2)
Money market accounts..... 51,679 1,477 2.86 (2) 63,409 1,771 2.79 (2) 64,983 1,748 2.69 (2)
Passbook accounts......... 67,854 1,813 2.67 (2) 71,216 1,941 2.73 (2) 66,739 1,797 2.69 (2)
Individual NOW accounts... 38,154 670 1.76 (2) 34,513 640 1.85 (2) 32,072 598 1.86 (2)
Business NOW accounts..... 3,543 -- 0.00 (2) 3,115 -- 0.00 (2) 2,805 -- 0.00 (2)
------- ------ ------- ----- ------- -----
379,088 16,126 4.25 (2) 355,365 12,263 3.45 (2) 348,865 11,833 3.39 (2)
Long-term debt.............. 3,842 198 5.14 (2) 9,822 757 7.71 (2) 12,308 1,135 9.22 (2)
Other borrowed funds........ 19,577 1,157 5.91 (2) 16,830 875 5.20 (2) 2,118 69 3.26 (2)
------- ------ ------- ------ ------- -----
Total interest-bearing
liabilities............... 402,507 17,481 4.34 (2) 382,017 13,895 3.64 (2) 363,291 13,037 3.59 (2)
Other liabilities........... 7,354 7,237 5,091
------- ------- -------
Total liabilities........... 409,861 389,254 368,382
Stockholders' equity........ 50,008 40,193 36,228
------- ------- -------
Total liabilities and
stockholders' equity...... $459,869 $429,447 $404,610
======= ======= =======
Net interest income/Net ------ ------ ------
interest spread........... $15,370 3.20 $14,360 3.35 $14,848 3.79
====== ====== ======
Net interest margin......... 3.53 (3) 3.55 (3) 3.93 (3)
- --------------------
(1) Non-accrual loan balances are included in the calculations.
(2) Calculated by dividing income/expense for the year by the respective
average category of asset/liability.
(3) Calculated by dividing net interest income for the year by average
interest-earning assets.
(4) Average balances are computed on a quarterly basis, except Other Borrowed
Funds which is calculated on a daily basis.
11
The following table presents an analysis of changes in interest income
and expense for the year ended March 31, 1996 compared with 1995 and for the
year ended March 31, 1995 compared with 1994, identifying the portion of the
change attributable to rate, volume and a combination of rate/volume.
Year Ended March 31, 1996 vs 1995 Year Ended March 31, 1995 vs 1994
-------------------------------------- ----------------------------------------
Interest-Earning Asset/ (1) (2) (3)Rate/ (1) (2) (3)Rate/
Interest-Bearing Liability Rate Volume Volume Total Rate Volume Volume Total
- -------------------------- ---- ------- ------- ------- ------- ------ ------- -----
(Dollars in thousands)
Loans receivable ......... $ 1,217 $(1,067) $ (68) $ 82 $(1,676) $ 701 $ (58) $(1,033)
Mortgage-backed securities 1,347 2,385 434 4,166 99 1,105 18 1,222
Investment securities:
available for sale ...... 4 124 1 129 -- 448 -- 448
Investment securities:
portfolio .............. 19 188 3 210 227 (379) (67) (219)
Deposits in other banks .. 50 (24) (17) 9 5 (51) (2) (48)
------- ------- ------- ------- ------- ------- ------- -------
Total earned ..... 2,637 1,606 353 4,596 (1,345) 1,824 (109) 370
------- ------- ------- ------- ------- ------- ------- -------
Deposits: savings ....... 2,933 719 181 3,833 251 134 3 388
Deposits: other ......... (35) 69 (4) 30 (4) 47 (1) 42
Long-term debt ........... (252) (461) 154 (559) (186) (229) 37 (378)
Other borrowed funds ..... 120 143 19 282 41 482 283 806
------- ------- ------- ------- ------- ------- ------- -------
Total paid ....... 2,766 470 350 3,586 102 434 322 858
------- ------- ------- ------- ------- ------- ------- -------
Net interest earned ...... $ (129) $ 1,136 $ 3 $ 1,010 $(1,447) $ 1,390 $ (431) $ (488)
======= ======= ======= ======= ======= ======= ======= =======
- ------------------------
(1) Changes in rate (change in rate multiplied by old average volume)
(2) Changes in volume (changes in average volume multiplied by old rate)
(3) Changes in rate-volume (changes in rate multiplied by the changes in
average volume)
Year ended - March 31, 1996 compared with 1995
Net interest income increased $1,010,000 for the year ended March 31, 1996
compared with 1995, from $14,360,000 in 1995 to $15,370,000 in 1996. Interest
income increased $4,596,000, from $28,255,000 in 1995 to $32,851,000 in 1996,
which was partially offset by the increase in interest expense of $3,586,000,
from $13,895,000 in 1995 to $17,481,000 in 1996. Net interest spread, the
difference between the average yield on interest-earning assets and the average
cost of interest-bearing liabilities decreased 15 basis points, from 3.35
percent in 1995 to 3.20 percent in 1996. The decreased spread was the result of
the higher cost of funds from 3.64 percent in 1995 to 4.34 percent in 1996, an
increase of 70 basis points. The increased cost of funds was partially offset by
the increase in the yield on interest-bearing assets 55 basis points from 6.99
percent in 1995 to 7.54 percent in 1996.
Interest on loans receivable increased from $19,263,000 for the year ended
March 31, 1995 to $19,345,000 in 1996, an increase of $82,000. The increase was
the result of an increase in the average rate earned on the loan portfolio,
partially offset by a decrease in the average balance of loans receivable. The
average rate earned on loans increased 48 basis points, from 7.66 percent in
1995 to 8.14 percent in 1996. The average balance of loans receivable decreased
$13,939,000 for the year ended March 31,
12
1996 compared with 1995, from $251,553,000 in 1995 to $237,614,000 in 1996.
During 1996, the Corporation sold most of the first mortgage loans which it
originated, both the fixed-rate and adjustable-rate loan products. The
fixed-rate mortgages were sold to facilitate the management of interest-rate
risk, while the adjustable-rate mortgages were sold because of the low yields
during the first few years of the loans' life.
Interest on MBS increased from $7,415,000 for the year ended March 31, 1995
to $11,581,000 in 1996, an increase of $4,166,000. The increase was the result
of the increase in the average balance of MBS and the increase in the average
rate earned on MBS. The average balance of MBS increased from $129,689,000 in
1995 to $171,411,000 in 1996, an increase of $41,722,000. Since most loans
originated during 1996 were sold as noted above, available funds were used to
purchase MBS. The average rate earned on MBS also increased, from 5.72 percent
in 1995 to 6.76 percent in 1996, an increase of 104 basis points.
Interest on investment securities, both available for sale and portfolio,
increased $339,000, from $1,504,000 in 1995 to $1,843,000 in 1996. The increase
in interest income from investments was generally the result of the increase in
the average balance of investments. The average balance of investments in 1995
was $21,053,000 compared with $25,423,000 in 1996, an increase of $4,370,000.
Interest on deposits increased $3,863,000 for the year ended March 31, 1996
compared with 1995 from $12,263,000 in 1995 to $16,126,000 in 1996. The increase
in the cost of deposits was primarily related to the increased cost of savings
certificates. Savings certificates are by far the largest component of deposits
and the most costly component. Certificates have historically provided the prime
source of deposit growth for the Corporation and any future growth will likely
come from this area. Interest on savings certificates increased $4,255,000, from
$7,911,000 in 1995 to $12,166,000 in 1996. The average balance of certificates
increased $34,746,000, from $183,112,000 in 1995 to $217,858,000 in 1996. The
average interest rate on certificates of deposit increased from 4.32 percent in
1995 to 5.58 percent in 1996, an increase of 126 basis points.
The increase in the average balance of savings certificates was generally
attributable to special promotional programs associated with the opening of the
new branch facility on April 1, 1995. The new branch replaced an older facility.
This level of certificate growth is not expected to continue into future
periods.
Interest on long-term debt decreased $559,000 from $757,000 for the year
ended March 31, 1995 to $198,000 in 1996. The decrease is attributable to the
conversion of all of the Convertible Subordinated Debentures (the "Debentures"),
in September 1995, into common stock of the Corporation. The conversion of the
Debentures is discussed more fully in the accompanying notes to consolidated
financial statements.
The interest on other borrowed funds increased $282,000 from $875,000 in
1995 to $1,157,000 in 1996. The Corporation draws from its lines of credit with
the Federal Home Loan Bank to supplement deposit growth and will likely continue
this policy for the foreseeable future. The average balance of other borrowed
funds was $19,577,000 in 1996 an increase of $2,747,000 from 1995's average
balance of $16,830,000.
13
Year ended - March 31, 1995 compared with 1994
Net interest income decreased $488,000 for the year ended March 31, 1995
compared with 1994, from $14,848,000 in 1994 to $14,360,000 in 1995. The
decrease was the result of the increase in interest expense partially offset by
an increase in interest income.
Interest on loans receivable decreased from $20,296,000 for the year ended
March 31, 1994 to $19,263,000 in 1995, a decrease of $1,033,000. The decrease
was the result of a decrease in the average rate earned on the loan portfolio,
partially offset by an increase in the average balance of loans receivable. The
average rate earned on loans decreased 69 basis points, from 8.35 percent in
1994 to 7.66 percent in 1995. The average balance of loans receivable increased
$8,397,000 for the year ended March 31, 1995 compared with 1994, from
$243,156,000 in 1994 to $251,553,000 in 1995.
Interest on MBS increased from $6,193,000 for the year ended March 31, 1994
to $7,415,000 in 1995, an increase of $1,222,000. MBS continue to be the
Corporation's primary focus of investment. The increase was basically the result
of the increase in the average balance of MBS and a slight increase in the
average rate earned on MBS. The average balance of MBS increased from
$110,044,000 in 1994 to $129,689,000 in 1995, an increase of $19,645,000. The
average rate earned on MBS also increased, from 5.63 percent in 1994 to 5.72
percent in 1995, an increase of 9 basis points.
Interest on investments increased $229,000 for the year ended March 31, 1995
compared with 1994, from $1,275,000 in 1994 to $1,504,000 in 1995. The increase
was primarily the result of the increase in the average rate earned on
investments. The average rate earned on investments increased from 6.13 percent
in 1994 to 7.14 percent in 1995.
Income from interest-bearing deposits in other banks decreased from $121,000
for the year ended March 31, 1994 to $73,000 in 1995, a decrease of $48,000.
Funds are being directed to more profitable investments.
Interest on deposits increased $430,000 for the year ended March 31, 1995
compared with 1994, from $11,833,000 in 1994 to $12,263,000 in 1995. The cause
for the increase was equally distributed between increased volume and increased
rate. The average balance of deposits increased from $348,865,000 for the year
ended March 31, 1994 to $355,365,000 in 1995, an increase of $6,500,000. The
average cost of deposits increased from 3.39 percent for the year ended March
31, 1994 to 3.45 percent in 1995, an increase of 6 basis points.
Interest on long-term debt decreased $378,000, from $1,135,000 for the year
ended March 31, 1994 to $757,000 in 1995. The decrease was generally the result
of paying-off a $5.4 million loan bearing interest at 7.90 percent.
Interest on other borrowed funds increased $806,000 from $69,000 in 1994 to
$875,000 in 1995. The Corporation drew more extensively on its line of credit
with the Federal Home Loan Bank.
Additional borrowings were used to supplement deposit growth.
Provision for Possible Loan Losses
Risk Elements of Loans. The Corporation's loan portfolio is mainly comprised
of loans extended in the State of New Jersey to individuals for the purpose of
financing homeownership and to real estate contractors and developers. Based
upon the concentration of lending in these areas, the Corporation's loan
portfolio is subject to certain inherent risks. The key risk elements which must
be regularly
14
monitored are the level of unemployment, general market value of real estate,
level of home sales and resales and the general economic conditions in the state
of New Jersey.
Allowance for Loan Losses. The allowance for loan losses is generally
established through a provision for loan losses based on management's evaluation
of the risk inherent in its loan portfolio and the general economy. In
determining the provision for loan losses, management regularly evaluates the
risk of prospective losses in the loan portfolio and the possible amount of such
losses taking into consideration the collateral value of property underlying the
mortgage loans, the history of net loan write-offs, the credit condition of the
borrower, business and economic conditions and trends and the degree of risk
inherent in the composition of the loan portfolio. Evaluating the underlying
value of properties collateralizing the loans is one of the most important
factors to be considered in determining the level of loan loss provision
required, especially in connection with non-accrual loans. Appraisals provide
the primary source of information for determining the value of properties on
non-accrual mortgage loans. Appraisals on non-accrual loans in excess of
$500,000 are generally updated every 24 months, unless circumstances indicate
the need for more timely updates. As a result, loans placed in non-accrual
status do not necessarily require significant valuation allowances because the
underlying value of the property is adequate to support the carrying value of
the loan. The Corporation provides general valuation allowances on non-accrual
loans even when the mortgage value of the property is adequate to satisfy the
carrying value of the loan. Recognition of interest on the accrual method is
generally discontinued when interest or principal payments are 90 days or more
in arrears, or when other factors indicate that the collection of such amounts
is doubtful. At the time a loan is placed on non-accrual status, previously
accrued and uncollected interest is reversed against interest income in the
current period. The Corporation's non-accrual loans at March 31, 1996, 1995,
1994, 1993 and 1992 amounted to $7,782,000, $5,442,000, $8,787,000, $9,752,000,
and $11,576,000, respectively. There were no loans more than 90 days delinquent
at these dates that were still accruing interest. In addition to the loans
delinquent 90 days or more, loans amounting to $365,000 have been classified at
March 31, 1996, indicating concern that the loans will not be paid in accordance
with their terms. Based on current information, management believes that it is
not appropriate to place these loans on nonaccrual status at this time.
A general valuation allowance is provided on the overall loan portfolio,
including loans in current status. The general valuation allowance is determined
based upon a detailed history of loan write-offs by type of loan. This
historical analysis provides the basis for determining the value of the factor
to be applied to the carrying value of the loans to calculate the valuation
allowance to be provided. Besides the historical information, other factors such
as the following are considered in determining the value of the factor to be
used: type of loan, payment status of the loan, current economic factors,
including real estate market and level of unemployment, and input from bank
examiners regarding experience of peer groups.
The Corporation, in determining the amount of the allowance for loan losses,
uses various estimates which are particularly susceptible to changes in
economic, operating or other conditions that may be beyond its control.
Accordingly, there can be no assurance when evaluating the loan portfolio in the
future, the Corporation will not increase the allowance for loan losses. In
addition, state and federal regulatory agencies, as an integral part of their
examination process, periodically review the Corporation's allowance for loan
losses and valuation of real estate owned. Such agencies may require the
Corporation to recognize additions to the allowance based on their judgments
about information available to them at the time of their examination.
15
An analysis of activity in the allowance for loan losses for each of the 5
years ended March 31, 1996 is presented in the table below.
For the Year Ended March 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
Balance, beginning of year ............ $ 2,890 $ 2,652 $ 2,882 $ 2,081 $ 2,554
------- ------- ------- ------- -------
Provisions charged to operations ...... 250 200 300 807 835
------- ------- ------- ------- -------
Recovery on loans ..................... 48 81 76 40 122
Loans written-off ..................... (177) (291) (133) (472) (1,200)
------- ------- ------- ------- -------
Net write-offs .................... (129) (210) (57) (432) (1,078)
Amounts transferred among loan and real
estate allowance accounts ............. 20 248 (473) 426 (230)
------- ------- ------- ------- -------
Balance, end of year .................. $ 3,031 $ 2,890 $ 2,652 $ 2,882 $ 2,081
======= ======= ======= ======= =======
Ratio of net write-offs during the
year to average loans
outstanding during the year ......... 0.05% 0.09% 0.02% 0.19% 0.43%
======= ======= ======= ======= =======
Loan write-offs for the years ended March 31, 1996, 1995 and 1994 were not
significant. Loans amounting to $472,000 were charged-off to the allowance for
loan losses during the year ended March 31, 1993, of which $118,000 related to a
single loan. During the year ended March 31, 1992, the Corporation charged-off
$1,200,000 to the allowance for loan losses. The charge-offs were generally
related to loans extended to two borrowers, which were determined to meet the
criteria for treatment as in substance foreclosure. A charge of $1,000,000 was
made to the allowance for loan losses which had been specifically provided for
these loans. The remaining fair value of the properties was recorded as real
estate acquired in settlement of loans.
The following table presents a summary of the allowance for loan losses by
type of loan.
March 31,
---------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands)
Balance at the end of the year applicable
to:
Real estate loans:
Mortgage........................ $2,750 $2,710 $2,354 $2,633 $1,706
Construction.................... 157 127 290 157 84
Commercial loans ................. 123 52 4 91 285
Consumer loans.................... 1 1 4 1 6
------ ------ ------ ------ ------
$3,031 $2,890 $2,652 $2,882 $2,081
===== ===== ===== ===== =====
Non-Interest Income
Non-interest income increased $436,000 from $1,094,000 in 1995 to
$1,530,000 in 1996. The increase was basically the result of the increase in
gains from the sales of loans $201,000 and a decrease in the loss from real
estate operations, $195,000. Gains from the sales of loans increased from
$207,000 in 1995 to $408,000 in 1996. The Corporation, as noted previously, sold
most of the first mortgage loans which it originated in 1996. Losses from real
estate operations decrease from $347,000 in 1995
16
to $152,000 in 1996. The Corporation has significantly reduced its exposure to
real estate projects as noted below.
Non-interest income decreased $764,000, from $1,858,000 in 1994 to
$1,094,000 in 1995. The decrease was basically the result of the decrease in
gains from the sale of loans $1,045,000, partially offset by a reduction in
losses from real estate operations, $339,000. Gains from the sales of loans
decreased from $1,252,000 in 1994 to $207,000 in 1995, while losses from real
estate operations decreased from $686,000 in 1994 to $347,000 in 1995.
In addition to the non-accrual loans previously discussed, the Corporation
has other non-performing assets comprised of: investments in and loans to
non-consolidated entities, real estate held for development and resale and real
estate acquired in settlement of loans. The table below presents a summary of
these other non-performing assets at March 31, 1996, 1995, 1994, 1993 and 1992.
These assets are the subject of regular management evaluations to consider if
additional allowances would be necessary to properly reflect the value of these
assets. Regular evaluations address, among other considerations, current market
conditions, carrying costs and holding period.
March 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands)
Real estate held for development and
resale.............................. $684 $1,334 $2,729 $2,908 $3,000
Real estate acquired in settlement of
loans............................... 27 720 1,055 3,630 3,373
Investments and loans to non-
consolidated entities............... -- -- 50 754 3,009
---- ------ ------ ------ ------
Total................................. $711 $2,054 $3,834 $7,292 $9,382
==== ====== ====== ====== ======
The Corporation has significantly reduced its real estate operations in
order to focus on its core business. During fiscal 1995, the Corporation
concluded its last real estate joint venture. In 1994, the Corporation accepted
a deed in lieu of foreclosure in connection with a joint venture. During fiscal
1993, a loan extended to one of the joint ventures was eliminated; the
Corporation charged-off its portion of the loan balance $2,130,000 against real
estate valuation allowances previously provided and the joint venture partner
provided the necessary resources to pay off its portion of the loan balance.
Real Estate Held for Development and Resale is made up of a wholly owned land
development project located in New Jersey.
Non-Interest Expense
Non-interest expenses increased $32,000, from $8,500,000 in 1995 to
$8,532,000 in 1996.
Non-interest expenses decreased $422,000, from $8,922,000 in 1994 to
$8,500,000 in 1995. The decrease was primarily attributable to reductions in
salary expense, $152,000, and other expenses, $300,000, caused by the
significant decrease in the origination and sale of loans. Salaries decreased
from $3,829,000 in 1994 to $3,677,000 in 1995 and other expenses decreased from
$1,573,000 in 1995 to $1,273,000.
17
Interest Rate Sensitivity
The Corporation monitors interest rate sensitivity. Management seeks to
maximize returns, while maintaining an appropriate relationship of interest rate
sensitivity among its interest sensitive assets and liabilities. The adoption of
the Corporation's policy to sell certain loans being originated was made in
order to better manage interest rate risk. The sale of certain fixed-rate
mortgage loans being originated allows cash, which would have been used to fund
long-term fixed-rate mortgage loans, to be alternatively invested in
mortgage-backed securities with substantially shorter maturities. In addition,
revenues are generated from the sales and servicing of the loans.
The table below referred to as a "gap" analysis, is a presentation of the
Corporation's interest rate sensitivity at March 31, 1996. A "positive" gap
results when the amount of interest rate sensitive assets exceeds that of
interest rate sensitive liabilities. A "negative" gap results when the amount of
interest rate sensitive liabilities exceeds that of interest rate sensitive
assets. The Corporation had a negative one year gap of $101,399,000 or 21.65
percent of total assets at March 31, 1996. It should be noted that the
Corporation does not utilize assumptions with respect to loan prepayments or
deposit decay rates for purposes of calculating its gap ratio. To the extent
that the Corporation remains vulnerable to future increases in interest rates,
the Corporation's results of operations would be adversely affected in a rising
interest rate environment.
18
Interest Rate Sensitivity Table
March 31, 1996
Greater Greater Greater Greater Greater Greater
Than Than Than Than Than Than Greater
Less Than 3 Mos 6 Mos 1 Yr 3 Yr 5 Years 10 Yrs Than
3 Mos to 6 Mos to 1 Yr to 3 Yr to 5 Yr to 10 Yrs to 20 Yrs 20 Yrs Total
----- -------- ------- ------- ------- --------- --------- ------ -----
(In Thousands)
First mortgage loans:
Residential:
Fixed-rate ...............$ 12 $ 12 $ 18 $ 564 $ 1,162 $ 45,467 $ 13,448 $ 14,556 $ 75,239
Adjustable-rate .......... 15,272 16,464 24,571 17,446 300 14,587 -- -- 88,640
Non-residential:
Fixed-rate ............... 72 256 37 53 48 136 16 4,330 4,948
Adjustable-rate .......... 3,192 5,223 9,434 4,183 639 50 -- -- 22,721
Home equity loans .......... 15,484 39 506 601 1,503 3,799 5,578 -- 27,510
Non-mortgage loans:
Consumer loans ........... 291 110 96 277 19 -- -- -- 793
Commercial loans ......... 199 -- -- -- -- -- 59 -- 258
--------- --------- --------- --------- --------- --------- --------- --------- ---------
34,522 22,104 34,662 23,124 3,671 64,039 19,101 18,886 220,109
Investment securities,
including interest-bearing
deposits in other banks
and FHLB stock ............ 4,984 -- 4,552 2,005 10,229 4,998 -- 3,561 30,329
Mortgage-backed securities:
Fixed-rate ............... 228 1,480 -- 2,792 6,926 25,546 -- -- 36,972
Adjustable-rate .......... 84,276 20,616 49,667 -- -- -- -- -- 154,559
Cash and other assets ...... 12,543 -- -- -- 534 -- -- 13,226 26,303
--------- --------- --------- --------- --------- --------- --------- --------- ---------
$ 136,553 $ 44,200 $ 88,881 $ 27,921 $ 21,360 $ 94,583 $ 19,101 $ 35,673 $ 468,272
========= ========= ========= ========= ========= ========= ========= ========= =========
Deposits:
Savings certificates .....$ 35,267 $ 67,051 $ 77,773 $ 27,767 $ 13,613 $ 247 $ -- $ -- $ 221,718
Money market accounts .... 49,758 -- -- -- -- -- -- -- 49,758
Passbook accounts ........ 69,627 -- -- -- -- -- -- -- 69,627
NOW accounts ............. 45,466 -- -- -- -- -- -- -- 45,466
--------- --------- --------- --------- --------- --------- --------- --------- ---------
200,118 67,051 77,773 27,767 13,613 247 -- -- 386,569
Other borrowed funds ....... 22,500 -- -- -- -- -- -- -- 22,500
Other liabilities .......... 3,591 -- -- -- -- -- -- -- 3,591
Stockholders' equity ....... -- -- -- -- -- -- -- 55,612 55,612
--------- --------- --------- --------- --------- --------- --------- --------- ---------
$ 226,209 $ 67,051 $ 77,773 $ 27,767 $ 13,613 $ 247 $ -- $ 55,612 $ 468,272
========= ========= ========= ========= ========= ========= ========= ========= =========
Interest rate
sensitivity gap .........$ (89,656) $ (22,851) $ 11,108 $ 154 $ 7,747 $ 94,336 $ 19,101 $ (19,939)
========= ========= ========= ========= ========= ========= ========= =========
Cumulative gap .............$ (89,656) $(112,507) $(101,399) $(101,245) $ (93,498) $ 838 $ 19,939
========= ========= ========= ========= ========= ========= =========
Cumulative interest
sensitivity gap as a
percentage of total assets.. (19.15%) (24.03%) (21.65%) (21.62%) (19.97%) 0.18% 4.26%
========= ========= ========= ========= ========= ========= =========
19
The table above has been prepared using the following general assumptions:
(a) Loans, MBS, investments, savings certificates and borrowed funds are
reflected based on contractual maturity dates or repricing dates, whichever
is shorter.
(b) Cash and other assets reflected in the period less than one year include
cash and interest receivable; amounts in the 3-5 year period represents
investments in real estate which are projected to be disposed of within 5
years; the balance included in the 20 year period represents assets which
are not interest-rate sensitive.
(c) Interest rates on money market accounts, passbook accounts and NOW accounts
may be adjusted at management's discretion.
(d) Other liabilities will generally be liquidated within one year.
(e) Stockholders' equity is not considered interest-rate sensitive.
The Corporation's loan and MBS portfolios have been and remain less
sensitive to general interest rate changes than its deposit base; this is the
result of having a substantial portion of these portfolios comprised of
long-term, fixed-rate loans, while the deposit base is comprised of accounts
with substantially shorter maturities adjusting more readily with current market
conditions. At March 31, 1996, 1995, and 1994, fixed-rate loans and MBS
represented 32.98 percent, 44.0 percent, and 44.1 percent, respectively, of the
Corporation's combined total portfolio of loans and MBS; the remaining
portfolios were primarily comprised of loans and MBS subject to adjustment every
one or three years or with adjustments to the prime rate. The Corporation's
portfolio of fixed-rate MBS has an overall average contractual maturity of less
than ten years.
The following table presents the contractual maturity of loans receivable at
March 31, 1996. In addition, loans due after one year are identified as having
predetermined or adjustable interests rates.
Maturities and Sensitivities of Loans to Changes in Interest Rates
Loans Due After One Year
------------------------
Due After
Due In One Year Floating
1 Year Through Due After Predetermined Interest
Loan Category or Less Five Years Five Years Total Interest Rate Rate
- ------------- ------- ---------- ---------- ----- ------------- ----
(In Thousands)
Real estate:
Mortgage............... $ 952 $3,931 $211,927 $216,810 $91,261 $124,597
Construction/land...... 2,248 -- -- 2,248 -- --
Commercial............... 199 -- 59 258 59 --
Consumer................. 497 296 -- 793 296 --
------ ------ ---------- --------- ------- ----------
$3,896 $4,227 $211,986 $220,109 $91,616 $124,597
===== ===== ======= ======= ====== =======
Certificates of deposit of $100,000 or more at March 31, 1996 mature as follows:
Maturity
Amount
------
(In Thousands)
3 Months or less............. $ 1,366
4 Months to 6 months......... 3,607
7 Months to 12 months........ 4,182
Over 12 months............... 2,536
------
$11,691
======
20
Liquidity
The Corporation is restricted from receiving cash dividends from CJSB (its
only material source of revenue). CJSB's ability to pay dividends or make other
capital distributions to the Corporation is governed by OTS regulations. CJSB, a
Tier 1 institution as defined by OTS regulations, is permitted under these
regulations, after prior notice to (and no objection by) the OTS, to make
capital distributions during a calendar year up to 100 percent of its net income
to date during the calendar year plus the amount that would reduce by one-half
its "surplus capital ratio," which is the percentage by which the ratio of its
regulatory capital to assets exceeds the ratio of its fully phased-in capital
requirement to assets at the beginning of the calendar year.
The Corporation has lines of credit with the Federal Home Loan Bank of New
York ("FHLB") aggregating $45.4 million. The credit lines are used for numerous
purposes, including providing additional liquidity. The terms of the credit
lines are more fully discussed in the accompanying notes to consolidated
financial statements. The Corporation, as previously noted, drew more
extensively on its credit lines in 1996 than in 1995 and will likely continue
its current level of borrowings into the foreseeable future.
The following table presents certain information regarding short-term
borrowings as of and for the year ended March 31, 1996.
(Dollars in
Thousands)
Average balance outstanding......................... $19,577
Average interest rate............................... 5.91%
Balance outstanding at March 31, 1996............... $22,500
Average interest rate at March 31, 1996............. 5.54%
Maximum outstanding at any month-end
during the year ended March 31, 1996................ $25,000
CJSB is required by current OTS regulations to maintain a liquidity ratio
(minimum level of liquid assets to total assets) of 5 percent. Liquidity is a
measure of ability to meet savings withdrawals and payment of short-term
borrowings, and is comprised of cash and eligible investments. Principal sources
of liquidity include deposits, loan principal repayments, proceeds from sales of
loans, advances from the Federal Home Loan Bank, other borrowings and net
interest income. CJSB has maintained a liquidity ratio in excess of this
requirement and at March 31, 1996 the liquidity ratio was 6.77 percent versus
8.29 percent one year earlier. Liquidity reduces interest rate exposure during
periods of increasing interest rates, but also provides a lower yield during
periods of decreasing interest rates. The consolidated statements of cash flows
outline the flow of funds during each of the years presented. The principal use
of this liquidity has been to meet ongoing commitments for daily savings
fluctuations, loan originations and purchases, including purchases of
mortgage-backed securities and liquidity maintenance. The Corporation
anticipates that it will have the appropriate resources to meet such commitments
during the current fiscal year.
21
Capital
In September 1995, all of the outstanding Convertible Subordinated
Debentures were converted into 704,127 shares of the Corporation's common stock.
The transaction is more fully described in the accompanying notes to
consolidated financial statements.
There are no regulatory capital requirements applicable to the Corporation.
The OTS has established three separate capital requirements which apply to CJSB,
each mandating a minimum capitalization level; the minimum requirements at March
31, 1996 were as follows: tangible capital 1.5 percent, core capital 3.0 percent
and risk-based capital 8.0 percent.
At March 31, 1996 and 1995, CJSB had the following regulatory capital
ratios.
1996 1995
-------------------------- ---------------
(Dollars in Thousands)
Tangible capital........................ $43,457 9.56% $36,400 8.59%
Core capital............................ 43,457 9.56 36,400 8.59
Risk-based capital...................... 45,721 23.63 38,834 19.95
Impact of Inflation and Changing Prices
The Corporation's assets and liabilities are virtually all monetary in
nature. As a result, interest rates have a more significant impact on
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or magnitude as the price of goods
and services since such prices are affected by inflation.
Recent Accounting Pronouncements
Reference should be made to notes to consolidated financial statements
concerning new pronouncements and their impact on the Corporation.
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Public Accountants
To the Board of Directors and Stockholders of
Central Jersey Financial Corporation
We have audited the accompanying consolidated statements of financial
condition of Central Jersey Financial Corporation and Subsidiary (CJFC) as of
March 31, 1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 1996. These financial statements are the responsibility of
CJFC'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 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 provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Central Jersey
Financial Corporation and Subsidiary as of March 31, 1996 and 1995, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended March 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, CJFC changed its method
of accounting for income taxes in the year ended March 31, 1994.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
New York, New York
May 23, 1996
23
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
March 31,
--------------------------------
1996 1995
------------ ------------
ASSETS
Cash and due from depository institutions......................... $ 8,804,911 $ 7,693,873
Investment securities: available for sale (market value:
$8,267,000 at 1996 and $8,081,000 at 1995....................... 8,266,858 8,080,992
Investment securities; portfolio (market value: $18,925,000 at
1996 and $12,514,000 at 1995).................................... 18,501,517 12,479,573
Mortgage-backed securities: portfolio (market value:
$193,005,000 at 1996 and $143,659,000 at 1995)................... 191,530,667 144,925,603
Loans held for sale............................................... 2,231,803 956,472
Loans receivable, less allowance for possible losses:
$3,031,000 at 1996 and $2,890,000 at 1995........................ 220,109,248 245,222,022
Interest receivable on loans, net................................. 1,506,442 1,542,876
Real estate held for development and resale, less allowance for
possible losses: $3,342,000 at 1996 and $3,348,000 at 1995....... 507,490 1,002,830
Real estate acquired in settlement of loans, less allowance for
possible losses: $219,000 at 1996 and $401,000 at 1995........... 26,674 720,163
Investment in capital stock of Federal Home Loan Bank of New York,
at cost......................................................... 3,560,600 3,366,800
Premises and equipment, net....................................... 5,363,567 5,277,199
Excess of cost over fair value of net assets acquired,
less accumulated amortization: $4,418,000 at 1996 and
$4,054,000 at 1995.............................................. 3,791,467 4,154,827
Other assets...................................................... 4,070,726 4,461,191
----------- -----------
Total assets $468,271,970 $439,884,421
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits.......................................................... $386,569,400 $361,213,130
Other borrowed funds.............................................. 22,500,000 22,500,000
Long-term debt.................................................... -- 9,605,000
Advances from borrowers for taxes and insurance................... 1,542,477 1,728,841
Accrued income taxes and other liabilities........................ 2,048,126 2,575,895
----------- -----------
Total liabilities 412,660,003 397,622,866
----------- -----------
COMMITMENTS AND CONTINGENCIES
Serial preferred stock: authorized, 15,000,000 shares for
issuance in series: issued and outstanding, none................. -- --
Common stock: no par value; authorized 25,000,000 shares; issued
and outstanding 2,668,269 at 1996 and 1,964,142 shares at 1995... 2,668,269 1,964,142
Paid-in capital................................................... 18,510,912 10,146,128
Retained earnings-substantially restricted........................ 34,319,114 30,272,371
Net unrealized gain (loss) on securities available for sale....... 113,672 (121,086)
----------- -----------
Total stockholders' equity 55,611,967 42,261,555
----------- -----------
Total liabilities and stockholders' equity $468,271,970 $439,884,421
=========== ===========
See notes to consolidated financial statements
24
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended March 31,
----------------------------------------------------------------
1996 1995 1994
------------------- --------------------- -------------------
Interest income
Interest on loans receivable............. $19,344,809 $19,262,803 $20,295,637
Interest on mortgage-backed securities... 11,581,221 7,414,998 6,192.889
Interest on investment securities........ 1,843,214 1,504,709 1,275,361
Interest on deposits in other banks...... 81,426 73,168 121,587
---------- ---------- -----------
Total interest income................. 32,850,670 28,255,678 27,885,474
---------- ---------- -----------
Interest expense
Interest on deposits..................... 16,126,128 12,263,042 11,832,842
Interest on other borrowed funds......... 1,157,091 874,606 69,306
Interest on long-term debt............... 197,543 757,578 1,135,292
----------- ---------- ----------
Total interest expense................ 17,480,762 13,895,226 13,037,440
----------- ---------- ----------
Net Interest Income........................ 15,369,908 14,360,452 14,848,034
Provision for loan losses.................. 250,000 200,000 300,000
---------- ---------- ----------
Net interest income after provision for loan
losses................................. 15,119,908 14,160,452 14,548,034
---------- ---------- ----------
Non-interest income (loss)
Fee income............................... 957,480 1,002,289 1,130,245
Income on investment in Federal Home Loan
Bank.................................. 246,428 231,584 263,892
Loss on sales of investments, net........ -- -- (76,112)
Gain on sales of loans, net.............. 407,759 207,186 1,251,859
Loss from real estate operations......... (151,726) (346,740) (686,315)
Equity in loss of non-consolidated entities -- -- (47,598)
Other.................................... 69,762 -- 21,986
---------- ---------- ----------
Total non-interest income............. 1,529,703 1,094,319 1,857,957
---------- ---------- ----------
Non-interest expenses
Salaries................................. 3,571,606 3,677,011 3,828,810
Employee benefits........................ 744,608 785,989 784,050
Data processing fees and equipment costs. 921,962 826,684 821,139
Federal deposit insurance................ 843,750 805,534 861,079
Net occupancy............................ 539,814 503,349 466,048
Amortization of excess cost over fair
value of net assets acquired.......... 363,360 363,360 363,357
Advertising.............................. 136,855 264,805 224,848
Other.................................... 1,409,721 1,273,499 1,573,199
---------- ---------- ----------
Total non-interest expenses 8,531,676 8,500,231 8,922,530
---------- ---------- ----------
Income before income taxes................. 8,117,935 6,754,540 7,483,461
Income tax expense......................... 2,914,202 2,489,235 2,832,929
---------- ---------- ----------
Income before cumulative effect of a change in
accounting principle..................... 5,203,733 4,265,305 4,650,532
Cumulative effect on prior years (to
March 31, 1993) of adopting SFAS No. 109
"Accounting for Income Taxes"............ -- -- 1,500,000
---------- ---------- ----------
Net income................................. $ 5,203,733 $ 4,265,305 $ 6,150,532
========== ========== ==========
25
CONSOLIDATED STATEMENTS OF OPERATIONS - Cont'd
Year Ended March 31,
---------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
Per share amounts:
Earnings per common share and common share
equivalent assuming no dilution:
Income before cumulative effect of a change in
accounting principle....................................... $2.15 $2.12 $2.34
Cumulative effect on prior years (to March 31, 1993) of
adopting SFAS No. 109 "Accounting for Income Taxes" -- -- 0.75
Net income.................................................. 2.15 2.12 3.09
Earnings per common share - assuming full dilution:
Income before cumulative effect of a change in accounting
principle.................................................. 1.96 1.75 1.89
Cumulative effect on prior years (to March 31, 1993) of
adopting SFAS No. 109 "Accounting for Income Taxes"........ -- -- 0.55
Net income.................................................. 1.96 1.75 2.44
Average shares outstanding:
Assuming no dilution.......................................... 2,422,200 2,013,464 1,989,071
Assuming full dilution........................................ 2,724,132 2,719,444 2,721,715
See notes to consolidated financial statements.
26
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Net
Unrealized
Retained Gain/(Loss)
Earnings on Securities
Common Paid-in Substantially Available for
Stock Capital Restricted Sale Total
---------- ----------- ------------ ------------- ------------
Balance, March 31, 1993.............. $1,400,919 $10,106,325 $21,410,627 $32,917,871
Net income........................... -- -- 6,150,532 6,150,532
Cash dividends, $0.31 per share...... -- -- (603,524) (603,524)
Common stock split................... 350,555 (350,555) (5,432) (5,432)
Options exercised.................... 2,284 19,254 -- 21,538
Debentures converted into common stock 2,000 25,921 -- 27,921
--------- ---------- -------- ----------
Balance, March 31, 1994.............. 1,755,758 9,800,945 26,952,203 38,508,906
Net income........................... -- -- 4,265,305 4,265,305
Cash dividends, $0.39 per share...... -- -- (761,695) (761,695)
Common stock dividend................ 175,996 -- (183,442) (7,446)
Options exercised.................... 6,297 28,523 -- 34,820
Debentures converted into common stock 26,091 316,660 -- 342,751
Net unrealized (loss) on securities
available for sale -- -- -- $(121,086) (121,086)
-------- --------- --------- --------- ----------
Balance, March 31, 1995.............. 1,964,142 10,146,128 30,272,371 (121,086) 42,261,555
Net income........................... -- -- 5,203,733 -- 5,203,733
Cash dividends, $0.46 per share...... -- -- (1,156,990) -- (1,156,990)
Debentures converted into common stock 704,127 8,364,784 -- -- 9,068,911
Change in net unrealized gain/(loss)
on securities available for sale... -- -- -- 234,758 234,758
------- --------- --------- ------- ----------
Balance, March 31, 1996.............. $2,668,269 $18,510,912 $34,319,114 $113,672 $55,611,967
========= ========== ========== ======= ==========
See notes to consolidated financial statements.
27
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
Cash flows from:
Operating activities
Net income ................................ $ 5,203,733 $ 4,265,305 $ 6,150,532
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for losses on loans and real
estate, including real estate
acquired in settlement of loans ..... 276,634 350,000 595,000
Accretion of discounts on loans
acquired in business combination .... (207,237) (313,579) (350,661)
Amortization of premiums, discounts and
deferred fees ....................... 470,057 327,750 229,491
Deferred income taxes ................. 216,181 645,033 (787,550)
Amortization of excess cost over fair
value of net assets acquired ........ 363,360 363,360 363,357
Depreciation of premises and
equipment ........................... 351,380 243,204 243,404
Equity in results of non-consolidated
entities ............................ -- -- 7,459
Purchase of trading account securities -- -- (15,527,613)
Proceeds from sales of trading account
securities .......................... -- -- 15,451,501
Loss on sales of trading account
securities .......................... -- -- 76,112
Loans originated for sale ............. (25,961,939) (22,154,813) (88,754,514)
Proceeds from sales of loans held
for sale ............................ 25,094,367 23,884,297 90,075,403
Net gain on the sale of loans ......... (407,759) (207,186) (1,251,859)
Gain on sales of real estate acquired
in settlement of loans .............. -- -- (2,266)
Net (increase) decrease in interest
receivable and other assets ......... (413,384) 2,501,425 (1,604,767)
Net decrease in other liabilities ..... (527,769) (797,726) (1,008,605)
------------ ------------ ------------
Net cash provided by operating
activities ..................... 4,457,624 9,107,070 3,904,424
------------ ------------ ------------
Investing activities
Net (increase) decrease in interest-
bearing deposits in other banks ........ -- 2,142,000 (1,842,000)
Purchases of investment securities:
available for sale ..................... -- (8,298,750) --
Sales of investment securities:
available for sale ...................... 6,817 -- --
Purchases of investment securities:
portfolio ............................... (8,078,267) (3,945,917) (8,836,633)
Maturities of investment securities:
portfolio ............................... 2,049,992 12,203,345 4,707,720
Purchases of mortgage-backed securities:
portfolio ............................... (85,071,190) (56,420,104) (45,308,585)
Maturities of mortgage-backed securities:
portfolio ............................... 38,149,333 25,874,347 34,125,696
Loans originated, less principal
collected ............................... 24,906,704 (7,661,279) 3,362,595
28
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Year Ended March 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
Loans purchased ............................ -- (347,933) (1,718,179)
Distributions from investments in non-
consolidated entities .................... -- 47,919 --
Decrease in real estate held for
development and resale ................... 495,340 1,325,124 158,876
Proceeds from sales of real estate
acquired in settlement of loans .......... 813,317 1,267,053 2,291,315
Purchases of premises and equipment, net ... (437,748) (1,869,781) (93,047)
Purchase of Federal Home Loan Bank stock ... (193,800) (343,500) (81,400)
------------ ------------ ------------
Net cash used by investing activities .... (27,359,502) (36,027,476) (13,233,642)
------------ ------------ ------------
Financing activities
Net increase in deposits ................... 25,356,270 8,384,337 4,631,245
Net increase in short-term borrowings ...... -- 20,700,000 1,800,000
Net proceeds from issuance of long-term debt -- -- 9,263,998
Principal repayments on long-term debt ..... -- -- (5,400,000)
Net increase (decrease) in advances from
borrowers ................................ (186,364) 200,779 41,454
Cash dividends paid on common stock ........ (1,156,990) (769,141) (608,956)
Options exercised .......................... -- 34,820 21,538
------------ ------------ ------------
Net cash provided by
financing activities................ 24,012,916 28,550,795 9,749,279
------------ ------------ ------------
Increase in cash and cash equivalents ........ 1,111,038 1,630,389 420,061
Cash and cash equivalents at beginning of year 7,693,873 6,063,484 5,643,423
------------ ------------ ------------
Cash and cash equivalents at end of year ..... $ 8,804,911 $ 7,693,873 $ 6,063,484
============ ============ ============
29
Notes to Consolidated Financial Statements
1. Summary of significant accounting policies
Central Jersey Financial Corporation (the "Corporation") is a thrift
holding company organized under the laws of the State of New Jersey in 1989. The
Corporation's sole subsidiary is Central Jersey Savings Bank, SLA ("CJSB"), a
state chartered savings and loan association organized under the laws of the
State of New Jersey. CJSB operates six branches in Middlesex County, New Jersey,
providing individual and corporate financial services. The Corporation
originates loans primarily to finance the acquisition and development of real
estate within the state of New Jersey. As a result, the Corporation's operations
and credit risk are concentrated in the state of New Jersey and are dependent on
the real estate market and general economics of the state.
The accounting and reporting policies of the Corporation and subsidiary
follow generally accepted accounting principles and general practices applicable
to both the banking and bank related industries. 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 financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The policies which materially affect the determination of financial
position, results of operations and cash flows are summarized below.
Principles of consolidation - The consolidated financial statements include
the accounts of the Corporation and its wholly-owned subsidiary, CJSB (which
includes its subsidiary service corporation). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Investment securities and mortgage-backed securities - The Corporation,
classifies its investment securities and mortgage-backed securities into one of
the three following categories prescribed in Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities".
o Debt securities that the Corporation has the positive intent and
ability to hold to maturity are classified as "held-to-maturity"
securities and reported at amortized cost under the captions -
investment securities: portfolio and mortgage-backed securities:
portfolio.
o Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as "trading"
securities and reported at fair value, with unrealized gains and losses
included in earnings.
o Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as "available-for-sale"
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of
shareholders' equity net of tax.
Gains and losses on sales of securities were based on the specific
identification method and are reflected under the heading noninterest income
(loss) in the accompanying financial statements.
30
Premiums are amortized and discounts are accreted over the estimated life
of the securities using a method whose result approximates the interest method.
Loans held for sale - The Corporation has a policy to sell most mortgage
loans currently being originated. Management determines which types of loans
will be sold by considering such factors as interest-rate sensitivity,
alternative investments, liquidity and capital requirements. Loans held for sale
are carried at the lower of cost or market value determined in the aggregate.
Gains and losses resulting from the sale of loans is determined on the
specific identification method and reflect sales proceeds less the investment in
the loan (including unearned discounts, premiums and deferred fees at time of
sale).
Generally, loans are sold without recourse. Loans sold which the
Corporation will service are not included with loans receivable or any other
asset in the accompanying consolidated financial statements. Fees earned for
servicing loans for others are reported as income when the related loan payments
are collected. Loan servicing costs are charged to expense as incurred.
Loans - Loans are stated at principal amounts outstanding, net of unearned
discount and deferred loan origination fees and costs. Interest income on loans
is accrued and credited to interest income monthly as earned. Loan origination
fees, commitment fees, if the commitment is exercised, and certain direct loan
origination costs are deferred and the net amount is amortized as an adjustment
of the related loan's yield. Net loan fees are generally amortized over the
contractual lives of the related loans.
Loan performance evaluation - Most of the Corporation's loan portfolio is
comprised of large groups of smaller-balance homogeneous loans which are
collectively evaluated for impairment. The Corporation adopted Statement of
Financial Accounting Standard No. 114 "Accounting by Creditors for Impairment of
a Loan" (SFAS No. 114), on April 1, 1995. Under SFAS No. 114, which specifically
excludes large groups of smaller-balance homogenous loans, a loan is considered
impaired, based on current information and events, if it is probable that the
Corporation will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement. The
measurement of impaired loans is generally based on the present value of
expected future cash flows discounted at the historical effective interest rate,
except that all collateral-dependent loans are measured for impairment based on
the fair value of the collateral. The Corporation's impaired loans are almost
entirely comprised of collateral-dependent loans.
Non-performing loans - The Corporation, on April 1, 1995, adopted Statement
of Financial Accounting Standard No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" (SFAS No. 118). The
Corporation's policy continues to provide that the recognition of interest on
the accrual method is generally discontinued when interest or principal payments
are ninety days or more in arrears, or when other factors indicate that the
collection of such amounts is doubtful. At the time a loan is placed on
non-accrual status, previously accrued and uncollected interest is reversed
against interest income in the current period. Interest on such loans, if
appropriate, is recognized as income when payments are received. A loan is
returned to accrual status when factors indicating doubtful collectability no
longer exist. The adoption of SFAS Nos. 114 and 118 did not have a material
effect on the financial statements upon adoption.
Allowance for loan losses - An allowance for loan losses is generally
established through charges to earnings in the form of a provision for loan
losses. The provision for loan losses charged to operating
31
expenses is based upon a review of the loan portfolio, including contracts with
off-balance-sheet-risk, past loan experience, economic conditions and such other
factors that, in management's judgment, warrant current recognition in providing
an adequate allowance. Loans which are determined to be uncollectible are
charged against the allowance account and subsequent recoveries, if any, are
credited to the account.
Real estate held for development and resale - Real estate held for
development and resale consists of an investment in a land development project
and is accounted for at the lower of carrying value or fair value minus
estimated costs to sell. A valuation allowance is provided which is regularly
evaluated to determine its adequacy. The evaluations address, among other
considerations, current market conditions and trends, business and economic
conditions and trends, carrying costs and holding period.
Real estate acquired in settlement of loans - Real estate acquired in
settlement of loans includes property acquired through foreclosure or that prior
to the adoption of SFAS No. 114 met certain criteria as to the nature and
quality of the collateral securing the loans to be considered in-substance
foreclosure and is generally carried at the lower of carrying value or fair
value minus estimated costs to sell. When the property is acquired, any excess
of carrying value over the fair value is charged to the allowance for loan
losses. Subsequent write-downs, if any, are included in losses from real estate
operations.
Premises and equipment - Premises and equipment are stated at cost.
Depreciation is provided principally on the straight-line method over the
estimated useful lives of the assets. Buildings and improvements are depreciated
over ten to fifty years and other fixed assets over three to twenty years;
leasehold improvements are amortized on the straight-line basis over the term of
the related lease or their estimated useful lives, whichever is shorter. Repair
and maintenance costs are expensed as incurred, and major renewals and
betterments are capitalized. Gains and losses resulting from the disposition of
premises and equipment are included in the results of operations.
Excess of cost over fair value of net assets acquired - The excess of cost
over fair value of net assets acquired in business combinations is being
amortized on a straight-line basis over a period of twenty-five years.
Income taxes - On April 1, 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). The adoption of SFAS No. 109 was accounted for as the cumulative effect,
through March 31, 1993, of a change in accounting method and is presented
separately in the accompanying statement of operations for the year ended March
31, 1994. The objectives of SFAS No. 109 are to recognize the amount of income
taxes payable or refundable for the current year and the amount of deferred
income tax liabilities and assets attributable to the future tax consequences of
temporary differences. The measurement of current and deferred income tax
liabilities and assets is based on current tax law. Deferred tax liabilities and
assets will be adjusted for any future changes in tax laws or rate, with the
effect included in the results from continuing operations in the year of change.
The Corporation and CJSB file a consolidated Federal income tax return, and
the amount of income tax expense or benefit is computed and allocated on a
separate return basis.
Earnings per share - Earnings per share were computed by dividing net
income by the weighted average number of common shares and common share
equivalents outstanding during the period. Stock options are considered common
stock equivalents and were included in the calculations of the average number of
common shares outstanding using the treasury stock method. Fully diluted
earnings per share,
32
primarily related to shares issuable in connection with the convertible
debentures, were computed using the if converted method.
Statement of cash flows - The statement of cash flows is presented using
the indirect method of presentation. Cash equivalents, for the purposes of this
statement, are defined as cash and due from depository institutions.
Reclassification - Certain captions in the financial statements presented
for prior periods have been reclassed to conform with the 1996 presentation.
2. Investment securities: available for sale
The amortized cost and estimated market values of investment securities:
available for sale at March 31, 1996 and 1995 were as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
March 31, 1996
- --------------
Obligations of U.S. government agencies...... $8,093,723 $172,230 $ -- $8,265,953
Other securities............................. 905 -- -- 905
--------- -------- ------ ---------
$8,094,628 $172,230 $ -- $8,266,858
========= ======= ====== =========
March 31, 1995
- --------------
Obligations of U.S. government agencies...... $8,194,356 $12,167 ($133,253) $8,073,270
Other securities............................. 7,722 -- -- 7,722
--------- ------ --------- ---------
$8,202,078 $12,167 ($133,253) $8,080,992
========= ====== ========= =========
33
The amortized cost, estimated market value and the average yield of
investment securities: available for sale at March 31, 1996 by contractual
maturity were as follows:
Estimated
Amortized Market Average
Cost Value Yield
---- ----- -----
Due in one year or less
Other securities.................................. $ 905 $ 905 4.75%
Due after one year through five years
Obligations of U.S. government agencies........... 8,093,723 8,265,953 8.36
--------- ---------
$8,094,628 $8,266,858 8.36
========= =========
3. Investment securities: portfolio
The amortized cost and estimated market values of investment securities:
portfolio at March 31, 1996, 1995 and 1994 were as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
March 31, 1996
- --------------
Collateralized mortgage obligations issued
by U.S. government agencies................. $ 5,978,238 $105,512 $ -- $ 6,083,750
Obligations of U.S. government agencies....... 12,523,279 321,384 (3,725) 12,840,938
---------- ------- -------- ----------
$18,501,517 $426,896 $ (3,725) $18,924,688
========== ======= ======== ==========
March 31, 1995
- --------------
Collateralized mortgage obligations issued by
U.S. government agencies.................... $5,972,495 $ 6,424 $(18,919) $ 5,960,000
Obligations of U.S. government agencies....... 6,457,080 55,471 (8,646) 6,503,905
Other securities.............................. 49,998 2 -- 50,000
------------ -------- --------- ------------
$12,479,573 $61,897 $(27,565) $12,513,905
========== ====== ======== ==========
34
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
March 31, 1994
- --------------
Collateralized mortgage obligations issued by
U.S. government agencies.................... $7,847,907 $122,426 $ -- $7,970,333
Obligations of U.S. government agencies....... 4,008,497 249,550 -- 4,258,047
Commercial Paper.............................. 8,730,000 -- -- 8,730,000
Other securities.............................. 156,607 465 -- 157,072
---------- ------- --------- ----------
$20,743,011 $372,441 $ -- $21,115,452
========== ======= ========= ==========
The amortized cost, estimated market value and the average yield of
investment securities: portfolio at March 31, 1996 by contractual maturity were
as follows:
Estimated
Amortized Market Average
Cost Value Yield
---- ----- -----
Due in one year or less
Obligations of U.S. government agencies........... $ 4,551,968 $ 4,581,563 7.92%
---------- ----------
4,551,968 4,581,563 7.92
---------- ----------
Due after one year through five years
Obligations of U.S. government agencies........... 2,972,766 3,071,875 7.48
Collateralized mortgage obligations issued by
U.S. government agencies......................... 994,792 1,015,000 7.54
---------- ----------
3,967,558 4,086,875 7.50
---------- ----------
Due after five years through ten years
Obligations of U.S. government agencies.......... 4,998,545 5,187,500 7.77
---------- ----------
4,998,545 5,187,500 7.77
---------- ----------
Due after ten years
Collateralized mortgage obligations issued by
U.S. government agencies......................... 4,983,446 5,068,750 5.28
---------- ----------
4,983,446 5,068,750 5.28
---------- ----------
$18,501,517 $18,924,688 7.45
========== ==========
35
Sales of investments held in a trading account resulted in realized gains
of $500 and realized losses of $76,612 for the year ended March 31, 1994. No
sales of investments were made during the years ended March 31, 1996 and 1995.
4. Mortgage-backed securities: portfolio
The amortized cost and estimated market values of mortgage-backed
securities: portfolio at March 31, 1996, 1995, and 1994 were as follows:
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
---- ----- ------ ------------
March 31, 1996
- --------------
Issued by U.S. government agencies........ $180,054,191 $1,648,508 $(201,622) $181,501,077
Other.................................... 11,476,476 55,751 (28,769) 11,503,458
----------- --------- -------- -----------
$191,530,667 $1,704,259 $(230,391) $193,004,535
=========== ========= ======== ===========
March 31, 1995
- --------------
Issued by U.S. government agencies........ $137,328,196 $518,793 $(1,669,287) $136,177,702
Other..................................... 7,597,407 414 (116,054) 7,481,767
----------- ------- ---------- -----------
$144,925,603 $519,207 $(1,785,341) $143,659,469
=========== ======= =========== ===========
March 31, 1994
- --------------
Issued by U.S. government agencies........ $106,770,041 $891,071 $(794,253) $106,866,859
Other..................................... 7,982,666 15,546 (18,608) 7,979,604
----------- ------- -------- -----------
$114,752,707 $906,617 $(812,861) $114,846,463
=========== ======= ======== ===========
36
The amortized cost, estimated market value and average yield of
mortgage-backed securities: portfolio at March 31, 1996 by contractual maturity
were as follows:
Estimated
Amortized Market Average
Cost Value Yield
---- ----- -----
Due one year or less
Issued by U.S. Government agencies................ $1,708,032 $1,696,121 7.59%
--------- ---------
Due after one year through five years
Issued by U.S. government agencies................ 9,638,833 9,677,089 6.82
Other............................................. 1,260,069 1,251,923 6.96
--------- ---------
10,898,902 10,929,012 6.83
---------- ----------
Due after five years through ten years
Issued by U.S. Government agencies................ 24,936,837 25,188,773 7.26
Other............................................. 609,232 608,435 8.89
---------- ----------
25,546,069 25,797,208 7.30
---------- ----------
Due after ten years
Issued by U.S. government agencies................ 143,770,489 144,939,094 6.88
Other............................................. 9,607,175 9,643,100 7.24
----------- -----------
153,377,664 154,582,194 6.91
----------- -----------
$191,530,667 $193,004,535 6.96
=========== ===========
Certain mortgage-backed securities have been pledged as collateral in
connection with Other Borrowed Funds.
The Corporation did not sell any mortgage-backed securities during the
three years ended March 31, 1996.
37
5. Loans receivable
Loans receivable at March 31, 1996 and 1995 consisted of the following:
1996 1995
---- ----
First mortgage real estate loans:
Conventional............................. $154,636,304 $174,828,462
Commercial............................... 29,496,029 31,455,809
Construction and land.................... 11,505,329 11,129,443
FHA insured and VA guaranteed............ 7,005,926 8,410,600
----------- -----------
202,643,588 225,824,314
Home equity loans........................ 27,509,954 28,658,579
Other consumer loans..................... 792,676 814,296
Other commercial loans................... 276,206 327,858
----------- -----------
231,222,424 255,625,047
Less:
Loans in process...................... 7,569,129 6,824,443
Discount on loans receivable acquired
through business combinations....... -- 207,237
Deferred loan fees..................... 594,936 661,166
Net premium on loans purchased......... (82,368) (179,957)
---------- ----------
223,140,727 248,112,158
Allowance for loan losses.............. 3,031,479 2,890,136
----------- -----------
$220,109,248 $245,222,022
=========== ===========
Home equity loans consist of conventional equity loans and equity-line
accounts.
Included in loans receivable at March 31, 1996, 1995 and 1994 are loans,
amounting to $7,782,000, $5,442,000 and $8,787,000, respectively, on which the
accrual of interest has been suspended. Interest income that would have been
recorded in each of the years ended March 31, 1996, 1995 and 1994 had these
loans been in accrual status amounted to $497,000, $430,000 and $591,000,
respectively. Interest income of $178,000, $62,000 and $65,000 from loans on
which the accrual of interest has been suspended was included in net income for
the years ended March 31, 1996, 1995 and 1994, respectively.
38
At March 31, 1996, the recorded investment in loans for which impairment
has been recognized in accordance with SFAS No. 114 totaled $7,782,000 for which
valuation allowances of $1,467,000 have been provided. For the year ended March
31, 1996, the average recorded investment in impaired loans was approximately
$6,177,000.
Loans to related parties at March 31, 1995 amounted to $2,596,000. No new
loans were extended to related parties while repayments were $330,000 for the
year ended March 31, 1996. The balance of related party loans was $2,266,000 at
March 31, 1996.
Loans serviced for others, not included in the Corporation's loans
receivable balance, amounted to $115,468,000, $121,802,000 and $123,304,000 at
March 31, 1996, 1995 and 1994, respectively.
6. Allowance for losses on loans
The table below summarizes the activity in the allowance for loan losses
during each of the three years ended March 31, 1996.
1996 1995 1994
----------------- ----------------- -----------------
Balance, beginning of year......... $ 2,890,136 $ 2,652,433 $ 2,881,585
Provisions charged to operations... 250,000 200,000 300,000
Recoveries on loans................ 47,652 80,978 75,927
Less, loans written-off............ (176,669) (291,195) (132,571)
Transfers among allowance accounts. 20,360 247,920 (472,508)
--------- --------- --------
Balance, end of year $3,031,479 $2,890,136 $2,652,433
========= ========= =========
39
7. Allowance for losses on real estate
The table below summarizes the activity in the allowance for losses on real
estate during each of the three years ended March 31, 1996.
Investments In And Loans Real Estate Held For Real Estate Acquired In
To Non-consolidated Entities Development And Resale Settlement of Loans
---------------------------- ---------------------- -------------------
Balance March 31, 1993.......... $ 653,405 $ 3,218,789 $ 387,354
Provisions charged to operations 30,000 30,000 235,000
Recoveries...................... -- -- 56,205
Real estate written-off......... (843,300) -- (334,871)
Transfers among allowance accounts 167,348 115,342 189,818
--------- ---------- ----------
Balance March 31, 1994.......... 7,453 3,364,131 533,506
Provisions charges to operations -- 127,000 23,000
Recoveries...................... -- -- 5,248
Real estate written-off......... (1,781) -- (61,356)
Transfers among allowance accounts (5,672) (143,335) (98,913)
--------- --------- ---------
Balance March 31, 1995.......... -- 3,347,796 401,485
Provisions charged to operations -- -- 26,634
Recoveries...................... -- -- 689
Real estate written-off......... -- (5,660) (189,047)
Transfers among allowance accounts -- -- (20,360)
----------- --------- ---------
Balance March 31, 1996.......... $ -- $3,342,136 $ 219,401
=========== ========= =========
The Corporation's participation in joint ventures was concluded during the
year ended March 31, 1995. Results of operations for the joint ventures amounted
to a net loss of $566 and net income of $556,000, respectively, for each of the
years ended March 31, 1995 and 1994.
8. Premises and equipment
Premises and equipment at March 31, 1996 and 1995 consisted of the
following:
1996 1995
---- ----
Land......................................... $2,523,852 $2,309,306
Buildings and improvements................... 3,515,360 3,485,627
Furniture and equipment...................... 1,239,035 1,157,678
--------- ---------
7,278,247 6,952,611
Less: accumulated depreciation and
amortization................................. 1,914,680 1,675,412
--------- ---------
$5,363,567 $5,277,199
========= =========
40
9. Deposits
Deposits with corresponding average nominal rates of interest at March 31,
1996 and 1995 consisted of the following:
1996 % 1995 %
---- --- ---- --
Savings certificates.......... $221,717,909 5.34% $201,670,384 5.09%
Money market accounts......... 49,758,269 2.84 54,767,563 3.04
Passbook accounts............. 69,627,578 2.75 67,131,970 2.75
Regular NOW accounts.......... 41,633,888 2.00 34,658,951 2.00
Business NOW accounts......... 3,831,756 0.00 2,984,262 0.00
----------- -----------
$386,569,400 $361,213,130
=========== ===========
The weighted average nominal interest rate on all deposits at March 31,
1996 and 1995 was 4.14% and 3.94%, respectively.
Deposits of $100,000 or more at March 31, 1996 amounted to $25,301,000.
Scheduled maturities of savings certificates for succeeding fiscal years
are $180,091,400 in 1997, $18,598,200 in 1998, $9,168,700 in 1999, $10,302,300
in 2000, $3,310,700 in 2001 and $246,609 thereafter.
Interest expense for each of the three years ended March 31, 1996 was as
follows:
1996 1995 1994
---- ---- ----
Savings certificates................. $12,166,301 $7,911,120 $7,689,584
Money market accounts................ 1,477,061 1,770,722 1,748,346
Passbook accounts.................... 1,812,557 1,940,699 1,796,860
NOW accounts......................... 670,209 640,501 598,052
---------- ---------- ----------
$16,126,128 $12,263,042 $11,832,842
========== ========== ==========
10. Other borrowed funds
The Corporation has a $22,696,750 overnight line of credit from the Federal
Home Loan Bank of New York ("FHLB"). Advances under the overnight credit
agreement are available on an overnight basis with principal and interest due on
the next business day. Interest rates are determined at time of advance. The
Corporation also has a $22,696,750 one-month overnight repricing line of credit
from the FHLB. The one-month overnight repricing line provides for monthly
advances with interest payable on each
41
business day and principal payable at maturity. Interest rates are determined at
time of advance and adjusted each business day thereafter. Amounts drawn on the
credit lines are collateralized with mortgage-backed securities having an
aggregate market value of 125 percent of the advance. The credit agreements
extend to September 1996, renewable at the option of the FHLB. Advances and
annual interest rates on the overnight line of credit and the one-month
overnight repricing line of credit at March 31, 1996 were $7,500,000, 5.50
percent, and $15,000,000, 5.56 percent, respectively. At March 31, 1995,
advances under the overnight line of credit amounted to $22,500,000, bearing
interest at 6.25 percent per annum.
11. Long-term debt
The Corporation issued $10,000,000 of Convertible Subordinated Debentures
(the "Debentures") pursuant to an indenture dated April 5, 1993 (the
"Indenture"). The Debentures were unsecured, bore interest at a rate of 7.00
percent per annum and were due April 1, 2003. On September 26, 1995, the
Corporation, in accordance with the terms of the Indenture, redeemed all of the
then outstanding Debentures, amounting to $9,605,000. These Debentures were
converted into common stock of the Corporation at a conversion price of $13.64
per share, resulting in the issuance of 704,127 shares. Previously, Debentures
amounting to $365,000 and $30,000 were converted into 26,091 shares and 2,000
shares of the Corporation's common stock during each of the years ended March
31, 1995 and 1994, respectively.
12. Pension plan
The Corporation has a defined contribution benefit plan covering
substantially all employees. The Plan provides for the Corporation to contribute
3.00 percent of an employee's salary to the Plan. Employees may also make
contributions to the Plan within prescribed statutory limitations. The
Corporation made contributions to the Plan amounting to $106,000, $110,000 and
$114,000, respectively, during each of the years ended March 31, 1996, 1995 and
1994.
13. Financial instruments with off-balance sheet risk
The Corporation, in the normal course of meeting the financing needs of its
customers, is a party to financial instruments with off-balance sheet risk.
These financial instruments include commitments to extend credit, standby
letters of credit and financial guarantees. These instruments involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the statement of financial position. Credit risk represents the possibility of a
loss occurring from the failure of another party to perform in accordance with
the terms of the contract. The contract amount of these instruments reflects the
extent of involvement the Corporation has in particular classes of financial
instruments.
The Corporation's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit and financial guarantees is represented by the
contractual amount of those instruments. The Corporation uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.
42
The contractual amounts of the Corporation's off-balance sheet financial
instruments at March 31, 1996 and 1995 are presented below.
1996 1995
---------------------- -------------------------
Commitments to extend credit................... $25,914,000 $25,113,000
Commitments to originate loans:
At fixed rates............................ 9,405,000* 1,965,000
At adjustable rates....................... 1,096,000 2,371,000
Standby letters of credit...................... 817,000 921,000
Loans sold with recourse....................... 2,343,000 3,077,000
- ---------------------
(*) The weighted average interest rate on commitments to originate fixed-rate
loans at March 31, 1996 was 7.39 percent
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. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Corporation evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Corporation, upon extension of credit is based on
management's credit evaluation of the customer.
Standby letters of credit and financial guarantees are conditional
commitments issued by the Corporation to guarantee the performance of a customer
to a third party. Standby letters of credit were primarily issued in connection
with performance bonds, while financial guarantees relate to loans sold with
recourse. Most conditional commitments extend for more than 5 years and expire
in decreasing amounts through 2017. The credit risk involved in conditional
commitments is essentially the same as that involved in extending loans to
customers. Standby letters of credit are unsecured; financial guarantees are
collateralized with real property.
14. Contingencies
The Corporation is involved in various legal proceedings which arise out of
the general operations of its business. These lawsuits primarily involve claims
to enforce liens on real and personal property, condemnation proceedings on real
property and other matters incidental to the Corporation's business. The
Corporation does not believe that the resolution of these lawsuits would have a
material adverse effect on its financial condition or results of operations
15. Stockholders' equity
The Corporation paid a 10 percent common stock dividend on September 2,
1994, resulting in the issuance of 175,996 shares of common stock and the
payment of $7,446 in lieu of issuing fractional shares.
On October 22, 1993, the Corporation affected a five-for-four common stock
split, resulting in the issuance of 350,555 shares of common stock and the
payment of $5,432 in lieu of issuing fractional shares.
43
At March 31, 1996, approximately 240,000 shares of the Corporation's common
stock were reserved for issuance in connection with the 1984 Stock Option and
Incentive Plan, the 1993 Stock Option and Incentive Plan and the 1993
Non-Employee Director Stock Option Plan.
CJSB is subject to various regulatory capital requirements administered by
federal and state banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on CJSB's
financial statements. The Office of Thrift Supervision ("OTS"), CJSB's primary
regulator, has three separate capital requirements each mandating a minimum
capitalization level. The following table presents CJSB's capital position at
March 31, 1996 and 1995 compared with the minimum OTS capital requirements.
Minimum
Regulatory
1996 1995 Requirement
-------------------------- --------------------------- -------------
(Dollars in Thousands)
Tangible capital........... $43,457 9.56% $36,400 8.59% 1.50%
Core capital............... 43,457 9.56 36,400 8.59 3.00
Risk based capital......... 45,721 23.63 38,834 19.95 8.00
The Corporation is restricted from receiving cash dividends from CJSB (its
only material source of revenue). CJSB's ability to pay dividends or make other
capital distributions to the Corporation is governed by OTS regulations. CJSB, a
Tier 1 institution as defined by OTS regulations, is permitted under these
regulations, after prior notice to (and no objection by) the OTS, to make
capital distributions during a calendar year up to 100 percent of its net income
to date during the calendar year plus the amount that would reduce by one-half
its "surplus capital ratio," which is the percentage by which the ratio of its
regulatory capital to assets exceeds the ratio of its fully phased-in capital
requirement to assets at the beginning of the calendar year.
At the time of CJSB's conversion from a mutual to a stock organization,
eligible deposit account holders were granted a priority in the event of future
liquidation of CJSB by establishing a liquidation account equal to retained
earnings at March 31, 1984 ($5,608,000). In the event of future liquidation, and
only in such event, an eligible deposit account holder, who continues to
maintain their deposit account, shall be entitled to receive a distribution from
the liquidation account in the proportionate amount of the then current adjusted
balance for deposit accounts then held before any liquidation may be made with
respect to capital stock. No dividends may be paid to stockholders if such
dividends would reduce stockholders' equity below the amount required for the
liquidation account.
16. Stock options
The Corporation has two stock option plans, the 1993 Stock Option and
Incentive Plan and the 1993 Non-Employee Director Stock Option Plan. The Plans
provide for the issuance of 171,875 shares of the Corporation's common stock to
officers, directors and other key employees. Awards may be made in the form of
incentive or non-incentive stock options or stock appreciation rights having a
maximum term of ten years from date of grant. There remain 69,218 options
outstanding under the 1984 Stock Option and Incentive Plan which Plan was
canceled, whereby no further grants are permitted under this Plan.
44
Transactions under the Plans during each of the three years ended March 31,
1996 were as follows:
Average
Option Price
Shares Per Share
------ ---------
Balance March 31, 1993.......... 77,705
Granted......................... 38,120 $12.314*
Exercised....................... (3,141) 6.858
Canceled........................ (137) 11.909
--------
Balance March 31, 1994.......... 112,547
Granted......................... 24,585 20.174*
Exercised....................... (6,406) 5.435
Canceled........................ (138) 13.818
--------
Balance March 31, 1995.......... 130,588
Granted......................... 28,082 22.250*
------
Balance March 31, 1996.......... 158,670
=======
* Fair market value at date of grant.
At March 31, 1996, the average option price per share was $11.32 and
137,992 options were exercisable. Options available for future grant at March
31, 1996 and 1995 amounted to 81,377 options and 109,446 options, respectively.
17. Income Taxes
The components of income tax expense for each of the three years ended
March 31, 1996 were as follows:
1996 1995 1994
---------------------- ------------------- ----------------
Current
Federal....................... $2,474,578 $1,623,824 $1,928,668
State......................... 223,443 220,378 191,811
--------- --------- ---------
2,698,021 1,844,202 2,120,479
Deferred......................... 216,181 645,033 712,450
--------- --------- ---------
$2,914,202 $2,489,235 $2,832,929
========= ========= =========
45
A reconciliation of income taxes computed at the statutory federal income
tax rate to the provision for income taxes in the accompanying consolidated
statements of operations for each of the three years ended March 31, 1996 is as
follows:
1996 1995 1994
------------------- ------------------- ------------------
Expected statutory income
tax expense......................... $2,760,098 $2,296,544 $2,544,377
Increase (reduction) of
income taxes resulting
from:
Acquisition accounted for
as a purchase..................... 123,541 123,541 123,541
State taxes, net of federal
income tax effect................. 147,472 143,202 126,595
Other............................... (116,909) (74,052) 38,416
--------- --------- ---------
$2,914,202 $2,489,235 $2,832,929
========= ========= =========
The sources of temporary differences and the resulting deferred income tax
effect for each of the three years ended March 31, 1996 were as follows:
1996 1995 1994
-------------------- ------------------- ------------------
Provisions for losses on loans
and other real estate recognized
on tax return in amounts less than
amounts recorded in the consolidated
financial statements.............. $ 87,826 $ 379,533 $ 311,619
Loan fees and interest income
recognized on tax return in
excess of amounts recorded in the
consolidated financial statements. 36,161 104,267 277,407
Amortization of loan discount....... 70,461 116,024 119,225
Other............................... 21,733 45,209 4,199
------- ------- -------
$216,181 $645,033 $712,450
======= ======= =======
46
The deferred tax assets and liabilities resulting from temporary
differences at March 31, 1996 and 1995 were as follows:
1996 1995
-------------------- ---------------------
Deferred tax assets:
Provision for losses on loans and
real estate..................... $2,457,217 $2,602,172
Deferred loan fees and interest... 241,299 276,787
Loan discount..................... -- 76,678
Other............................. 28,413 58,564
--------- ---------
2,726,929 3,014,201
--------- ---------
Deferred tax liabilities:
Accelerated depreciation.......... (90,112) (160,950)
Unrealized gains on securities.... (58,558) --
--------- ---------
(148,670) (160,950)
--------- ---------
Valuation allowance................. (407,344) (407,597)
--------- ---------
Net deferred tax asset.............. $2,170,915 $2,445,654
========= =========
Retained earnings at March 31, 1996 includes approximately $6,372,000 of
special bad debt deduction for which no provision for income tax has been made.
Reduction of such amount for purposes other than bad debt losses will result in
income for tax purposes only, and will be subject to income tax at the then
current rate.
18. Supplementary cash flow data
The Corporation exchanged mortgage loans for the properties underlying the
mortgages amounting to $186,000, $1,032,000, and $514,000, respectively, during
each of the three years ended March 31, 1996, 1995 and 1994. The value of the
properties at the time of exchange was $126,000, $857,000, and $404,000,
respectively, for each of the three years ended March 31, 1996, 1995 and 1994,
and was recorded as Real Estate Acquired in Settlement of Loans. The difference
between loan balances and the value of the underlying properties was charged to
the allowance for loan losses. In addition, the Corporation, during the year
ended March 31, 1994, accepted a deed in lieu of foreclosure in connection with
a loan, amounting to $1,262,000, extended to a joint venture. The value of the
underlying property at the time of accepting the deed was $420,000 and was
included in Real Estate Acquired in Settlement of Loans. The difference between
the loan balance and the value of the underlying property was charged to
allowances provided for such losses.
Cash paid during each of the three years ended March 31, 1996 for interest
on deposits and borrowed funds amounted to $17,476,000, $13,896,000 and
$13,079,000, respectively. Cash payments made in each of the three years ended
March 31, 1996 for federal and state income taxes amounted to $2,610,000,
$1,845,000 and $3,375,000, respectively.
47
19. Fair value of financial instruments
The estimated fair value of the Corporation's financial instruments at
March 31, 1996 and 1995 and the assumptions used to determine those estimates
are presented below. The determination of fair value is based on information
available at a specific point in time and does not provide for estimating the
value of anticipated future operations and excludes all nonfinancial
instruments. As a result and for other reasons, the aggregate fair value of
financial instruments does not represent the overall value of the Corporation
taken as a whole.
The following methods and assumptions were used to estimate the fair value
of significant financial instruments at March 31, 1996 and 1995:
Financial assets: The carrying amounts of cash and amounts due from
depository institutions were considered a reasonable estimate of fair value. The
fair values of investment securities and mortgage-backed securities were based
on quoted market prices or dealer quotes. Fair values of loans held for sale
were estimated using quoted rates based upon secondary market sources for
securities backed by similar loans. Loans receivable were segmented into
homogeneous groups by loan type, fixed-rate or adjustable and range of
maturities. The fair value of these loan groups were estimated using quoted
rates based upon secondary market sources for securities backed by similar
loans, adjusted for differences in loan characteristics and estimated
prepayments.
Financial liabilities: The fair value of NOW accounts, savings accounts,
and certain money market deposits were by definition the amounts payable on
demand at March 31, 1996 and 1995. The fair value of fixed-maturity certificates
of deposit was estimated using the rates currently offered for deposits of
similar remaining maturities. Rates currently available to the Corporation for
debt with similar terms and remaining maturities were used to estimate fair
value of existing borrowed funds.
Off-balance sheet financial instruments: The fair value of commitments to
extend credit and originate loans was estimated using the fees currently charged
to enter into similar agreements. For fixed-rate loan commitments, fair value
also considered the difference between current levels of interest rates and the
committed rates. The fair value of standby letters of credit and guarantees was
based on fees currently charged for similar agreements or on the estimated cost
to terminate them at March 31, 1996 and 1995. The fair value of these
off-balance sheet financial instruments was determined to be not significant.
48
The estimated fair value of financial instruments at March 31, 1996 and
1995 were as follows:
1996 1995
-------------------- --------------------
Financial Assets:
Cash and due from depository institutions................ $ 8,805,000 $ 7,694,000
Investment securities.................................... 27,192,000 20,595,000
Mortgage-backed securities............................... 193,005,000 143,659,000
Loans held for sale...................................... 2,232,000 956,000
Loans receivable......................................... 226,250,000 245,277,000
Financial Liabilities:
Deposits................................................. $384,849,000 $360,792,000
Borrowed funds and long-term debt........................ 22,500,000 30,679,000
20. Parent Company
Condensed financial statements of Central Jersey Financial Corporation,
parent company, are presented below:
Condensed Statements of Financial Condition
March 31,
---------------------------------------------------
1996 1995
------------------------- ------------------------
Assets
Cash.......................................... $ 678 $ 190
Investment securities: available for sale.... 8,266,858 8,080,992
Investment in common stock of CJSB............ 47,220,593 42,899,098
Other......................................... 123,838 886,275
---------- ----------
Total assets.................................. $55,611,967 $51,866,555
========== ==========
Liabilities and stockholders' equity
Convertible subordinated debentures .......... $ -- $ 9,605,000
Stockholders' equity.......................... 55,611,967 42,261,555
---------- ----------
Total liabilities and stockholders' equity.... $55,611,967 $51,866,555
========== ==========
49
20. Parent Company (continued)
Condensed Statements of Operations
For the years ended March 31,
----------------------------------------------------------
1996 1995 1994
------------------ ------------------ -----------------
Interest income..................... $ 577,040 $ 520,221 $ 386,915
Dividends from CJSB................. 643,000 425,000 --
Loss on sales of investments........ -- -- (76,612)
--------- --------- ---------
1,220,040 945,221 310,303
--------- --------- ---------
Interest expense.................... 197,543 757,578 764,678
Other expense....................... 16,500 29,840 16,328
--------- --------- ---------
214,043 787,418 781,006
--------- --------- ---------
Income before income taxes and
equity in undistributed income of
CJSB.............................. 1,005,997 157,803 (470,703)
Income tax provision (benefit)...... 123,759 -- (157,812)
--------- --------- --------
882,238 157,803 (312,891)
Equity in undistributed income of
CJSB............................... 4,321,495 4,107,502 6,463,423
--------- --------- ---------
Net income.......................... $5,203,733 $4,265,305 $6,150,532
========= ========= =========
50
20. Parent Company (continued)
Condensed Statements of Cash Flows
For the years ended March 31,
-----------------------------------------------------------
1996 1995 1994
------------------ ------------------ ------------------
Operating activities
Net income...................................... $5,203,733 $4,265,305 $6,150,532
Adjustments to reconcile net come to net cash
provided by operating activities
Equity in undistributed income of CJSB....... (4,321,495) (4,107,502) (6,463,423)
Purchases of trading account securities...... -- -- (15,527,613)
Proceeds from sales of trading account
securities.................................. -- -- 15,451,001
Loss on sales of trading account securities... -- -- 76,612
Amortization of premiums on investments....... 100,633 104,394 --
(Increase) decrease in other assets........... 167,790 (67,402) (18,485)
--------- --------- ----------
Net cash provided by (used by) operating activities 1,150,661 194,795 (331,376)
--------- --------- ----------
Investing activities
Purchases of investment securities:
available for sale............................ -- (8,298,750) --
Proceeds from sales of investment securities:
available for sale............................ 6,817 -- --
Purchases of investment securities: portfolio.. -- -- (8,836,634)
Maturities of investment securities: portfolio.. -- 8,828,912 475,000
-------- --------- ----------
Net cash provided by (used by) investing activities 6,817 530,162 (8,361,634)
-------- --------- ----------
Financing activities
Cash dividends paid on common stock............. (1,156,990) (769,141) (608,956)
Exercise of stock options....................... -- 34,820 21,538
Proceeds from convertible debenture offering.... -- -- 9,264,127
---------- --------- ---------
Net cash provided by (used by) financing activities (1,156,990) (734,321) 8,676,709
---------- --------- ---------
Net increase (decrease) in cash................... 488 (9,364) (16,301)
Cash, beginning of year........................... 190 9,554 25,855
---------- --------- ---------
Cash, end of year................................. $ 678 $ 190 $ 9,554
========== ========= =========
51
21. Recent accounting pronouncements
The Financial Accounting Standards Board ("FASB"), in May 1995, issued
Statement of Financial Accounting Standard No. 122 ("SFAS No. 122") "Accounting
for Mortgage Servicing Rights," an amendment to FASB Statement No. 65,
"Accounting for Certain Mortgage Banking Activities." SFAS No. 122 requires
banking enterprises to recognize as a separate asset rights to service mortgage
loans for others however the servicing rights are acquired. The capitalized
value of the servicing rights must be assessed for impairment based on the fair
value of those rights. Any impairment noted should be recognized through the
establishment of a valuation allowance. The provisions of SFAS No. 122 shall be
applied prospectively in fiscal years beginning after December 15, 1995. The
Corporation will adopt SFAS No. 122 for fiscal 1997 and does not believe that it
will have a material effect on its financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation" effective for financial statements and transactions entered into
in fiscal years that begin after December 15, 1995. SFAS No. 123 encourages
entities to account for employee stock options using a fair value based method.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." Entities
electing to remain with the accounting in Opinion 25 must make pro forma
disclosures of net income and earnings per share, as if the fair value based
method of accounting had been applied.
The Corporation intends to continue accounting for stock-based compensation
under APB No. 25 and will include the pro forma disclosures required by SFAS No.
123 in financial statements issued for fiscal years beginning April 1, 1996.
52
22. Quarterly financial data (unaudited)
For the Year Ended March 31, 1996
---------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Interest income....................... $8,012,929 $8,257,831 $8,346,286 $8,233,623
Interest expense...................... 4,347,082 4,464,219 4,398,264 4,271,197
Net interest income................... 3,665,847 3,793,612 3,948,022 3,962,426
Provision for loan losses............. 50,000 100,000 50,000 50,000
Provision for losses on real estate... -- 11,613 -- 15,021
Net income............................ 1,210,629 1,338,156 1,339,089 1,315,859
Per share amounts:
Earnings per common share and
common share equivalent -
assuming no dilution.............. $0.59 $0.60 $0.49 $0.48
Earnings per common share and
common share equivalent -
assuming full dilution............ 0.49 0.49 0.49 0.48
Dividends declared.................. 0.10 0.12 0.12 0.12
53
For the Year Ended March 31, 1995
---------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Interest income................... $6,582,246 $7,075,868 $7,147,960 $7,449,604
Interest expense.................. 3,145,502 3,476,412 3,551,129 3,722,183
Net interest income............... 3,436,744 3,599,456 3,596,831 3,727,421
Provision for loan losses......... 50,000 50,000 50,000 50,000
Provision for losses on real estate 10,000 15,000 50,000 75,000
Net income........................ 970,184 1,013,803 1,116,893 1,164,425
Per share amounts:
Earnings per common share and
common share equivalent -
assuming no dilution.......... $0.49 $0.50 $0.55 $0.58
Earnings per common share and
common share equivalent -
assuming full dilution........ 0.40 0.42 0.45 0.47
Dividends declared.............. 0.09 0.10 0.10 0.10
23. Subsequent Event
The Corporation, on May 22, 1996, entered into a definitive merger
agreement (the "Agreement") with Summit Bancorp ("Summit"). The Agreement
provides for Summit to acquire the Corporation in a tax-free exchange of stock.
Under the terms of the Agreement, each of the Corporation's common shares would
be exchanged for 0.875 shares of Summit common stock if the average price of
Summit common stock over a certain pricing period is equal to or greater than
$32.57. If the average price of Summit common stock is less than $32.57 but
equal to or greater than $28.75, the Corporation has the right to terminate the
Agreement unless Summit increases the exchange ratio to equal the quotient
obtained by the dividing $28.50 by the average price. If the average price of
Summit common stock is less than $28.75, the Corporation shall have the right to
terminate the Agreement.
Summit was given an option to purchase up to 530,986 shares of the
Corporation's common stock if certain conditions occur. The Agreement also
allows the Corporation to declare quarterly common stock dividends until the
closing date up to the equivalent common stock dividend rate declared by Summit.
The transaction is expected to be completed in the fourth quarter of
calendar 1996, subject to the approval of the Corporation's shareholders,
regulatory approvals and the market price of Summit.
54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There were no changes in or any disagreements with accountants concerning
matters of accounting principles or practices, or financial statement
disclosure, occurring within 24 months prior to, or in any subsequent period to,
the most recent financial statements.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth each nominee and continuing director's name,
age, principal occupation during the past five years, the year he or she first
became a director, the year in which his or her current term will expire
(assuming nominees are elected at the Annual Meeting) and the number of shares
and percentage of the Company's Common Stock beneficially owned on June 28,
1996. The following table also sets forth, for all executive officers and
directors as a group and for each executive officer listed in the Summary
Compensation Table under the caption "Executive Compensation," the number of
shares and the percentage of the Company's Common Stock beneficially owned on
June 28, 1996.
Position With Shares of
The Company and Common
Principal Occupation Year First Current Stock
During The Past Elected Term to Beneficially Percent of
Name Age (1) Five Years(2) Director Expire Owned(3) Class
- -------------------------- ------- ------------- ---------- -------- -------- ------
BOARD NOMINEES FOR TERMS TO EXPIRE IN 1999
Domenick Carratello 59 Owner of Mickey's Gourmet 1993 1996 13,157(5) (6)
Bakery
John J. Doherty 47 Vice President and Chief 1988 1996 16,701(7) (6)
Financial Officer (1989 to
present); Vice President &
Chief Financial Officer of
Association since 1987;
Previously an accountant with
Coopers & Lybrand
Arthur E. Fritsch, Jr. (4) 48 Vice President of E.W. Price 1988 1996 23,898(8) (6)
Agency, Inc., an insurance
agency
Robert V. Noreika 52 Owner of Clarkesburg Inn 1993 1996 1,711(5) (6)
Restaurant
55
Position With Shares of
The Company and Common
Principal Occupation Year First Current Stock
During The Past Elected Term to Beneficially Percent of
Name Age (1) Five Years(2) Director Expire Owned(3) Class
- -------------------------- ------- ------------- ---------- -------- -------- ------
DIRECTORS CONTINUING IN OFFICE
Salvatore Alfieri 38 Attorney and Partner with the 1993 1997 2,949(5) (6)
law firm of Cleary, Alfieri &
Grasso
James J. Kelly 61 Retired. Former Owner and 1987 1997 91,154(9) 3.4%
Chief Operations Officer of
K-D Electrical Contractors
Emile L. LeLand, Jr. 59 Senior Vice President (1989 1988 1997 34,829(10) 1.3%
to present); Senior Vice
President of the Association
since 1984; and an officer of
the Association since 1979.
L. Doris Fritsch (4) 74 President and Chief Executive 1964 1998 170,470(11) 6.3%
Officer (1989 to present);
President & Chief Executive
Officer of Association since
1964 and employee of
Association since 1943
William B. Lewis 72 Retired. Former Executive 1991 1998 3,696(12) (6)
Vice President and Director
of Nutley Savings Bank,
SLA. Former Deputy
Commissioner of Banking,
Savings and Loan Division,
New Jersey Dept. of Banking
Chester J. Pardun, Jr. 70 Retired. Former Secretary 1982 1998 62,744(13) 2.4%
and Treasurer of C. J.
Pardun & Sons, a
construction company
DIRECTOR EMERITUS (14)
Arthur E. Fritsch, Sr. (4) 77 President of E.W. Price 1951 -- 1,323(17) (6)
Agency, Inc., an insurance
agency. Trustee of the
Washington Monumental
Cemetery Association
56
Position With Shares of
The Company and Common
Principal Occupation Year First Current Stock
During The Past Elected Term to Beneficially Percent of
Name Age (1) Five Years(2) Director Expire Owned(3) Class
- -------------------------- ------- ------------- ---------- -------- -------- ------
CERTAIN EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
William M. Sievewright 67 Senior Vice President (1991 4,579(15) (6)
to present); employee of
Association since May 1991;
previously, Senior Vice
President of Shadow Lawn
Savings Bank
All executive officers
and directors as a
group (20 persons) 468,074(16) 16.7%
- -----------------------
(1) At March 31, 1996.
(2) No nominee, director or director emeritus is a director of any other
company with a class of securities registered pursuant to Section 12 of the
Exchange Act or subject to the requirements of Section 15(d) of the
Exchange Act or of any company registered as an investment company under
the Investment Company Act of 1940.
(3) Unless otherwise noted in this Proxy Statement, all shares are owned
directly by individuals or by their spouses and minor children, over which
shares the individuals effectively exercise sole or shared voting and
investment power.
(4) L. Doris Fritsch, Arthur E. Fritsch, and Arthur E. Fritsch, Jr. are wife,
husband and son.
(5) Includes 1,412 shares subject to stock options exercisable within 60 days
of June 28, 1996. Excludes 173 shares owned as unexercisable stock options.
(6) Less than one percent.
(7) Includes 14,987 shares Mr. Doherty has a right to purchase pursuant to
stock options exercisable within 60 days of June 28, 1996.
(8) Includes 1,541 shares Mr. Fritsch has a right to acquire pursuant to Stock
Options exercisable within 60 days of June 28, 1996 and 7,862 shares owned
by the E.W. Price Agency of which Mr. Fritsch is a 50% owner. Excludes 218
shares Mr. Fritsch owns as unexercisable stock options.
(9) Includes 1,323 shares Mr. Kelly has a right to acquire pursuant to Stock
Options exercisable within 60 days of June 28, 1996. Excludes 218 shares
owned as unexercisable stock options and 4,917 shares owned by Mr. Kelly's
adult children, as to which shares Mr. Kelly disclaims beneficial
ownership.
(10) Includes 25,408 shares Mr. LeLand has a right to purchase pursuant to stock
options exercisable within 60 days of June 28, 1996.
(11) Includes 118,640 shares owned solely by L. Doris Fritsch and 51,830 shares
Mrs. Fritsch has a right to purchase pursuant to the exercise of stock
options exercisable within 60 days of June 28, 1996.
(12) Includes 130 shares Mr. Lewis has a right to acquire pursuant to stock
options exercisable within 60 days of June 28, 1996. Excludes 218 shares
Mr. Lewis owns as unexercisable stock options.
(13) Includes 1,323 shares Mr. Pardun has a right to acquire pursuant to stock
options exercisable within 60 days of June 28, 1996 and 8,285 shares owned
by his wife and daughter. Excludes 218 shares Mr. Pardun owns as
unexercisable stock options.
(14) In such capacity, Mr. Fritsch may attend meetings of the Board of Directors
but he is not entitled to vote.
(15) Includes 3,544 shares Mr. Sievewright has a right to purchase pursuant to
stock options exercisable within 60 days of June 28, 1996. Excludes 2,310
shares Mr. Sievewright owns as unexercisable stock options.
57
(16) Includes 139,513 shares of Common Stock which officers, directors and
director emeritus as a group have a right to acquire pursuant to stock
options exercisable within 60 days of June 28, 1996. Excludes 12,991 shares
of Common Stock which are unexercisable stock options.
(17) Includes 1,323 shares Mr. Fritsch has a right to acquire pursuant to stock
options exercisable within 60 days of June 28, 1996. Excludes 218 shares
owned as unexercisable stock options.
Section 16(a) Beneficial Ownership Reporting Compliance
The Common Stock of the Company is registered pursuant to Section 12(g)
of the Exchange Act. The executive officers and directors of the Company and
beneficial owners of greater than 10% of the Company's Common Stock ("10%
beneficial owners") are required to file reports on Forms 3, 4 and 5 with the
SEC disclosing changes in beneficial ownership of the Common Stock. Based on the
Company's review of Forms 3, 4 and 5 filed by officers, directors and 10%
beneficial owners of Common Stock, no executive officer, director or 10%
beneficial owners of Common Stock failed to file such ownership reports on a
timely basis during the fiscal year ended March 31, 1996 except Director
Carratello who inadvertently omitted reporting 2,230 shares (purchased in 1990)
on Form 3 in 1992 upon becoming a director and each subsequent Form 4 filing.
ITEM 11. EXECUTIVE COMPENSATION
Directors' Compensation
Each non-officer director of the Company or the Association receives an
attendance fee of $850 for each Board meeting attended with two excused absences
permitted without loss of fee for those meetings; provided, however, that only
one attendance fee is paid in the usual case when Company and Association Board
meetings are held on the same day. Non-officer directors also receive an
attendance fee of $450 for each special meeting attended. All members of the
Salary Committee receive $200 for each meeting attended. The Company paid a
total of $89,800 in directors' and committee fees for the fiscal year ended
March 31, 1996.
Executive Compensation
The Company has no full-time employees, relying upon employees of the
Association for the limited services required by the Company. All Compensation
paid to directors, officers and employees is paid by the Association.
58
The following table sets forth, for the fiscal years ended March 31,
1996, 1995 and 1994, certain information as to the total remuneration received
by the chief executive officer as well as by each of the other most highly
compensated executive officers of the Company whose total annual salary and
bonus exceeded $100,000 during these periods for services rendered in all
capacities to the Company (the "Named Officers").
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
--------------------------------------------- ----------------------------
Awards
----------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
Securities
Other Annual Restricted Underlying All Other
Name and Principal Compensation Stock Options/ Compensation
Position Year Salary($) Bonus($) ($)(1) Award(s)($) SARs(#)(2) ($)(3)
-------- ---- --------- -------- ------ ----------- ---------- -------
L. Doris Fritsch 1996 $252,390 $ -- $ -- -- 7,200 $4,500
President and Chief 1995 242,960 -- -- -- 6,000 4,500
Executive Officer 1994 236,687 -- -- -- 7,500 7,100
Emile L. LeLand, Jr. 1996 159,469 20,000 -- -- 3,600 4,500
Director and Senior 1995 153,540 -- -- -- 3,300 4,500
Vice President 1994 149,594 -- -- -- 4,125 4,488
John J. Doherty 1996 108,743 -- -- -- 3,600 3,262
Director, Vice 1995 104,850 -- -- -- 3,300 3,145
President and Chief 1994 102,461 -- -- -- 4,125 3,074
Financial Officer
William M. 1996 96,617 -- -- -- 250 2,899
Sievewright 1995 99,372 -- -- -- 1,100 2,981
Senior Vice President 1994 134,492 -- -- -- 4,125 4,035
- ------------------
(1) No Named Officer received perquisites (i.e. personal benefits) in excess of
the lesser of $50,000 or 10% of such individual's reported salary and
bonus.
(2) Includes adjustments for stock dividends paid by the Company on September
2, 1994 and a five-for-four stock split on October 22, 1993.
(3) Includes contributions to the Company's 401(k) Plan.
Employment Agreements and Change of Control Arrangements
The Association has in effect employment agreements with President L.
Doris Fritsch, Senior Vice President Emile L. LeLand, Jr. and Vice President
John J. Doherty. President Fritsch's employment agreement with the Association
as last amended on March 20, 1996 is for a three year term commencing on that
date and is extended for an additional year at each annual meeting of the Board
of Directors upon resolution of the Board. President Fritsch's minimum annual
salary is $231,000. The Agreement also provides for certain death and disability
benefits. President Fritsch's agreement also provides that after reaching age
70, she may elect to terminate her full-time employment and become a consultant
to the Association for a period of three years at the annual rate of $50,000 or
one third of her highest compensation during any of the three preceding years.
59
Senior Vice President LeLand is employed pursuant to an employment
agreement with the Association last amended on March 20, 1996. The Amendment
provides for a term of three years, which term is to be extended one additional
year at each annual meeting of the Board of Directors upon resolution of the
Board. Mr. LeLand's minimum annual salary is $146,000. The Agreement also
provides for certain death and disability benefits.
Vice President Doherty is employed pursuant to an employment agreement
last amended on March 20, 1996. The amendment provides that Mr. Doherty's
employment would be for a term of three years, which term is to be extended one
additional year at each annual meeting of the Board of Directors upon resolution
of the Board. Mr. Doherty's minimum salary is $100,000 per year. The Agreement
also provides for certain death and disability benefits.
The agreements with President Fritsch, Senior Vice President LeLand, and
Vice President Doherty also provide for severance payments in the event the
employee is terminated without "cause" or the agreement is not renewed by the
Association, with special provisions applying following any "change of control"
of the Association. The severance payments following a "change of control" are
2.99 times the employee's "base amount" as defined in Section 280G of the Code,
which will qualify the severance payment for deductibility by the Association
for federal income tax purposes and should be made no later than 10 days after
the termination date. Mrs. Fritsch and Mr. LeLand are also entitled to continue
coverage under the Association's employee benefit plan for a period of four
years after termination. Vice President Doherty's agreement provides that if the
"change of control" is approved by more than 80% of the Board of Directors, the
severance payments will be reduced to 1.5 times his annual compensation. The
term "change of control" includes (i) the termination of the registration of all
classes of the Company's securities under Section 12 of the Exchange Act (ii)
the acquisition by any person or any persons acting in concert of more than 25%
of the outstanding Common Stock or securities of the Company or the Association
entitled to vote in elections of directors, (iii) the election to the Board of
Directors of a majority of directors who have not been nominated by the Company,
(iv) during any period of two consecutive years when the individuals who were
members of the Board of Directors of the Company at the beginning of such period
shall cease for any reason to constitute a majority of the Board, (v) any
"change of control" of the Association or the Company within the meaning of the
applicable federal banking law, or (vi) the acquisition of all or substantially
all of the assets of the Company or the Association.
Benefits
Insurance and Medical Reimbursement. The Association's full-time
officers, without contribution or expense to them, are provided with
hospitalization, major medical, and dental benefits, life insurance, and
disability insurance under group plans which are available generally and on the
same basis to all full-time employees. The Association's directors who are not
full-time employees are provided with the hospitalization, major medical and
dental benefits given to full-time employees.
Savings Plan. Effective as of April 1, 1992, the Association established
the Central Jersey Savings Bank, SLA 401(k) Plan (the "Plan") for the benefit of
its employees. All permanent employees who have been employed for at least 90
days are eligible to participate in the Plan. Under the terms of the Plan, an
employee may choose to defer a portion of pre-tax wages, which the Association
then contributes to the Plan. The Plan operates on a calendar year basis.
Employees may elect to defer up to 15 percent of total compensation, subject to
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), that
limit an employee's pre-tax contributions to an annual amount that for 1995 was
$9,240. The Code also imposes a limitation on the amount of annual additions to
a participant's account that generally affects only certain highly-compensated
employees. In order to pass the non-
60
discrimination test imposed by the Code, the Association may make discretionary
contributions to the Plan to be allocated ratably to the employees based on
amount of compensation. Amounts contributed to the Plan are invested according
to the investment choices made by the employee based on the menu of investments
offered in the Plan. Each eligible employee is always fully vested in his or her
own contributions and all contributions, if any, made by the Association. The
current trustees of the Plan are John J. Doherty, William M. Sievewright and
James H. Wainwright.
Benefits are generally payable after termination of employment with the
Association. Employed participants may also obtain a distribution of benefits
after attaining age 59-1/2 or on account of suffering certain hardships as
defined in the Plan. In addition, participants may obtain loans from the Plan.
Stock Option Plans. In connection with the conversion of the Association
from mutual to stock form, the Board of Directors of the Association adopted the
Central Jersey Savings Bank, SLA 1984 Stock Option and Incentive Plan (the "1984
Plan"). Pursuant to the 1984 Plan, an aggregate of 139,855 shares of Common
Stock had been reserved for issuance by the Company upon the exercise of stock
options granted to officers, directors and other key employees. Options granted
under the 1984 Plan may be incentive options within the meaning of Section 422
of the Code or such options may be non-incentive stock options. The exercise
price for incentive stock options is not less than the fair market value of the
Common Stock on the day of grant, and all options have a maximum term of 10
years. Non-incentive stock options are granted at an exercise price to be
determined at the time of grant but not less than eighty percent (80%) of the
fair market value of the Common Stock on the day of grant.
The 1984 Plan also contains provisions for stock appreciation rights
("SARs") which may be granted alone or in connection with stock options. The
exercise of SARs, if granted in connection with stock options, requires the
optionee to surrender his stock option for cancellation upon exercise, and the
optionee will receive cash or Common Stock equal to the difference between the
exercise price of the option and the then fair market value of the shares of
Common Stock subject to option.
As the 1984 Plan expired in 1994, the Board adopted, and the
shareholders approved at the 1993 Annual Meeting of Stockholders, the 1993 Stock
Option and Incentive Plan (the "1993 Plan"). The 1993 Plan authorizes the
granting of options and/or SARs covering a total of 100,000 shares of Common
Stock. Options granted under the 1993 Plan may either be incentive stock options
or non-qualified stock options. All options granted under the 1993 Plan will
have a maximum term of 10 years. Subject to the Stock Option Committee's
authority to accelerate exercisability, options granted under the 1993 Plan (i)
are not exercisable until one year after the date such options are granted and
(ii) then generally are exercisable in installments of 20% per annum. The
exercise price for options under the 1993 Plan may not be less than fair market
value for incentive stock options and 80% of fair market value with respect to
non-incentive stock options.
In addition, at the 1993 Annual Meeting of Stockholders, the
stockholders approved a Non- Employee Director Stock Option Plan ("Director
Plan"). The Director Plan authorizes the issuance of stock options covering up
to 25,000 shares of the Company's common stock. Each non-employee director who
first becomes a director of the Company during the term of the Director Plan
will receive a stock option covering 1,000 shares of Common Stock on the date of
his first election as a director. Thereafter, on each August 20 during the term
of the Director Plan, each outside director will receive an option to purchase
100 shares of Common Stock. No outside director shall receive options to
purchase more than 2,000 shares pursuant to the Director Plan. Each option
granted under the Plan generally will have an exercise price equal to fair
market value on the date of grant and a term of 10 years. Generally, options
granted under the Director Plan (i) are not exercisable until one year after the
date of grant and (ii) then generally are exercisable in installments of 33-1/3%
per annum.
61
The following tables set forth certain information regarding the grant
of stock options and SARs to the Named Officers during fiscal 1996 and the
amount and value of unexercised stock options and SARs held at March 31, 1996 by
each of the Named Officers.
OPTION/SAR GRANTS
Option/SAR Grants in Last Fiscal Year
-------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of Stock
Individual Grants Price Appreciation for
- ------------------------------------------------------------------------------ Option Term(1)
----------------------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- ------------ ------------ ----------- ------ ------ -------- --------
L. Doris Fritsch 7,200 26.4% $22.25 8/23/05 $100,749 $255,318
Emile L. LeLand, Jr. 3,600 13.2 22.25 8/23/05 50,374 127,659
John J. Doherty 3,600 13.2 22.25 8/23/05 50,374 127,659
William M. Sievewright 250 0.9 22.25 8/23/05 3,498 8,865
- ------------------
(1) Based on actual option term and annual compounding.
OPTION/SAR EXERCISES AND YEAR END VALUE TABLE
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Value
-------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Options/SARs Options\SARs
at FY-End (#)(1) at FY-End (2)($)
Shares Acquired
Name on Exercise (#) Value Realized($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- --------------- ----------------- ------------------------- -------------------------
L. Doris Fritsch -- -- 51,830/0 $682,502/0
Emile L. LeLand, Jr. -- -- 25,408/0 329,310/0
John J. Doherty -- -- 14,987/0 125,006/0
William M. Sievewright -- -- 3,544/2,310 32,912/18,399
- ------------------
(1) Includes adjustment for stock dividends paid by the Company on September 2,
1994 and a five-for-four stock split on October 22, 1993.
(2) Market value of the underlying securities at year-end minus the exercise
price.
62
Long Term Incentive Plans. The Company does not sponsor any long term
incentive plans and has made no awards or payments under any such plans during
the fiscal year ended March 31, 1996.
Compensation Committee Interlocks and Insider Participation
The Company does not have a formal Compensation Committee, but its
functions are served by the Association's Salary Committee of the Board. The
Salary Committee's members are Arthur E. Fritsch (as Director Emeritus), Chester
J. Pardun, Jr. and Salvatore Alfieri. None of such individuals is or was an
officer or employee of the Company or the Association. As stated above, Mr.
Fritsch is the President of E.W. Price Agency, an insurance agency which
provides insurance products for the Company and the Association, and is the
husband of the Company's Chief Executive Officer.
Compensation Report
Decisions on compensation of executive officers of the Company and the
Association generally are made by the Board's Salary Committee (the
"Committee"). Members of the Committee are Salvatore Alfieri, Chester J. Pardun,
Jr. and, ex officio, Arthur E. Fritsch. Mr. Fritsch excluded himself from any
discussions regarding the compensation of L. Doris Fritsch, President and Chief
Executive Officer due
to his relationship with her.
The goals of the Company's and the Association's compensation policies for
executive officers are to provide a competitive level of base salary and other
benefits to attract, retain and motivate high caliber personnel.
Executive officers receive performance and salary reviews each year. Salary
increases are based on an evaluation of the extent to which a particular
executive officer is determined to have assisted the Company in meeting its
business objectives and in contributing to the growth and performance of the
Company. The salaries of Mrs. Fritsch, Messrs. LeLand, Doherty and Sievewright
and other executive officers were established based on an evaluation of their
past experience and/or their contributions to the Company.
The Company believes that its Stock Option Plan plays an important role in
the long-term compensation of executive officers. All stock options are granted
at an exercise price equal to the market price on the grant date. Mrs. Fritsch
and Messrs. LeLand, Doherty and Sievewright have received stock options during
fiscal 1996 as part of their compensation. See "Stock Option Plans" above.
Pursuant to the Company's 401(k) Retirement Plan, the Association makes a
contribution of 3% of the individual's pre-tax income to the Plan. The Company
believes that this Plan is an important element in executive long-term
compensation and fosters the retention and motivation of qualified executives.
Salary Committee:
Salvatore Alfieri
Arthur E. Fritsch
Chester J. Pardun, Jr.
63
Performance Graph
The following performance graph is for the period from March 31, 1991
through March 31, 1996. The performance graph compares the cumulative total
shareholder return on the Company's Common Stock with (a) the cumulative total
shareholder return on stocks included in the Nasdaq total market index and (b)
the cumulative total shareholder return on stocks included in the Nasdaq bank
index prepared for Nasdaq by the Center for Research of Securities Prices (CRSP)
at the University of Chicago. Comparison with the Nasdaq stock market and bank
indices assumes the investment of $100 as of April 1, 1991. The cumulative total
return for the company is computed assuming the reinvestment of dividends at the
frequency with which dividends were paid during the period.
[GRAPHIC OMITTED]
- ---------------------------------------------------------------------------------------------
3/31/92 3/31/93 3/31/94 3/31/95 3/31/96
Central Jersey Financial Corporation $110.90 $246.90 $286.10 $354.80 $519.90
CRSP Index for Nasdaq Stock Market 127.50 146.50 158.10 175.90 238.90
CRSP Index for Nasdaq Bank Stocks 148.70 213.60 217.50 240.20 339.80
- ---------------------------------------------------------------------------------------------
64
There can be no assurance that the Company's future stock performance will
be the same or similar to the historical stock performance shown in the graph
below. The Company will neither make nor endorse any predictions as to stock
performance.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Persons and groups owning in excess of 5% of the Company's Common Stock are
required to file certain reports with the Securities and Exchange Commission
("SEC") pursuant to the Securities Exchange Act of 1934, as amended ("Exchange
Act"). At June 28, 1996, L. Doris Fritsch, President and Director of the
Company, beneficially owned an aggregate of 170,470 shares (6.3%) of the
Company's Common Stock. Of the aggregate shares 51,830 shares are shares that L.
Doris Fritsch has a right to acquire pursuant to stock options. Security
ownership of the Named Officers and of the directors is included under Item 10.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Association grants loans to the Company's officers, directors and
employees on the security of their personal residences as well as consumer loans
and loans against savings deposits. Loans to such persons are made in the
ordinary course of business and upon substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with the Association's other customers and do not involve more than
the normal risk of collectibility or present any other unfavorable features.
Director Emeritus Arthur E. Fritsch is the president of E.W. Price Agency
and Director Arthur E. Fritsch, Jr. is the vice president. E.W. Price, an
insurance agency, is owned by the Fritsch family. The Association and its
affiliates paid premiums to E.W. Price of $197,195, $199,623 and $195,806 for
the fiscal years ending March 31, 1996, 1995 and 1994, respectively. All
transactions between the Association, its affiliates and the agency are made in
the ordinary course of business at the same terms and rates made to unaffiliated
parties.
Director Alfieri is a partner in the law firm of Cleary, Alfieri & Grasso,
to whom the Association paid legal fees of $90,197 in fiscal year 1996. Such
fees were paid in the ordinary course of business at the same terms and rates
charged to unaffiliated parties.
65
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following audited consolidated financial statements and
related documents are set forth in this Annual Report on Form
10-K on the following pages:
Report of Independent Public Accounts.................................23
Central Jersey Financial Corporation and Subsidiary
Consolidated Statements Of Financial Condition.................24
Consolidated Statements Of Operations..........................25
Consolidated Statements Of Stockholders' Equity................27
Consolidated Statements Of Cash Flows..........................28
Notes To Consolidated Financial Statements.....................30
There are no financial statement schedules that are
required to be included in Part II, Item 8.
(b) There were no reports on Form 8-K filed by the Registrant
during the last quarter of the fiscal year ended
March 31, 1996
(c) Exhibits:
The following exhibits are filed as part of this report:
2.1 Agreement and Plan of Merger, dated May 22, 1996,
between Summit Bancorp and Registrant
2.2 Central Jersey Financial Corporation Stock Option
Agreement
10.1 Amendment to Employment Agreement with L. Doris Fritsch
10.2 Amendment to Employment Agreement with Emile L. Leland, Jr.
10.3 Amendment to Employment Agreement with John J. Doherty
11. Calculation of Earnings Per Share.
21. Subsidiaries of the Registrant.
23. Consent of Independent Accountants.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CENTRAL JERSEY FINANCIAL CORPORATION
July 16, 1996 By: /s/L. Doris Fritsch
-------------------
L. Doris Fritsch, President,
Chief Executive Officer,
Director and Duly Authorized
Representative
Pursuant to the requirement 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.
Signature Title Date
--------- ----- ----
/s/L. Doris Fritsch
- -----------------------
L. Doris Fritsch President, Chief July 16, 1996
Executive Officer
and Director
/s/Emile L. LeLand, Jr.
- -----------------------
Emile L. LeLand, Jr. Senior Vice President July 16, 1996
and Director
/s/John J. Doherty
- -----------------------
John J. Doherty Vice President, July 16, 1996
Chief Financial Officer
and Director
- -----------------------
Arthur E. Fritsch, Jr. Director July ___, 1996
Signature Title Date
--------- ----- ----
/s/James J. Kelly
- -----------------------
James J. Kelly Director July 16, 1996
/s/Chester J. Pardun
- -----------------------
Chester J. Pardun Director July 16, 1996
/s/William B. Lewis
- -----------------------
William B. Lewis Director July 16, 1996
/s/Salvatore Alfieri
- -----------------------
Salvatore Alfieri Director July 16, 1996
/s/Domenick Carratello
- -----------------------
Domenick Carratello Director July 16, 1996
- -----------------------
Robert V. Noreika Director July ___, 1996