FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 1996
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Commission file number 0-17839
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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
incorporation or organization) Identification No.)
591 Cranbury Road
East Brunswick, New Jersey 08816
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(Address of principal executive offices) (Zip Code)
(908) 254-6600
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Registrant's telephone number, including area code
Not Applicable
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Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, No Par Value--2,668,269 shares as of July 31, 1996
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This Form 10-Q is comprised of a total of 13 pages.
The exhibit index is located on page 11.
CENTRAL JERSEY FINANCIAL CORPORATION
AND SUBSIDIARY
CONTENTS
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Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Financial Condition as of
June 30, 1996 and March 31, 1996 1
Consolidated Statements of Operations for each
of the three-month periods ended
June 30, 1996 and 1995 2
Consolidated Statements of Cash Flows for each of the
three-month periods ended June 30, 1996 and 1995 3
Notes to Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 6-8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes In Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
CENTRAL JERSEY FINANCIAL CORPORATION
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Consolidated Statements of Financial Condition
June 30, March 31,
(Unaudited) 1996 1996
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Assets
Cash and due from depository institutions $ 10,617,272 $ 8,804,911
Investment securities; available for sale 8,139,121 8,266,858
Investment securities; portfolio 23,467,251 18,501,517
Mortgage-backed securities; portfolio 192,551,331 191,530,667
Loans held for sale 2,243,825 2,231,803
Loans receivable, net 213,605,817 220,109,248
Interest receivable on loans, net 1,537,732 1,506,442
Real estate held for development and resale, net 357,490 507,490
Real estate acquired in settlement of loans, net 249,424 26,674
Investment in capital stock of Federal Home Loan Bank of New York 3,560,600 3,560,600
Premises and equipment, net 5,296,805 5,363,567
Excess of cost over fair value of net assets acquired 3,700,627 3,791,467
Other assets 3,961,527 4,070,726
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Total assets $ 469,288,822 $ 468,271,970
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Liabilities and stockholders' equity
Deposits $ 385,556,360 $ 386,569,400
Other borrowed funds 22,800,000 22,500,000
Advances from borrowers for taxes and insurance 1,565,821 1,542,477
Accrued income taxes and other liabilities 3,377,244 2,048,126
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Total liabilities 413,299,425 412,660,003
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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 2,668,269 2,668,269
Paid-in capital 18,510,912 18,510,912
Retained earnings - substantially restricted 34,761,832 34,319,114
Net unrealized gain on securities available for sale 48,384 113,672
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Total stockholders' equity 55,989,397 55,611,967
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Total liabilities and stockholders' equity $ 469,288,822 $ 468,271,970
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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CENTRAL JERSEY FINANCIAL CORPORATION
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Consolidated Statements of Operations Three Months Ended
June 30,
(Unaudited) 1996 1995
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Interest income
Interest on loans receivable $ 4,477,156 $ 5,022,003
Interest on mortgage-backed securities 3,334,501 2,522,567
Interest on investment securities 496,784 454,345
Interest on deposits in other banks 17,715 14,014
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Total interest income 8,326,156 8,012,929
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Interest expense
Interest on deposits 3,924,793 3,929,169
Interest on long-term debt -- 185,761
Interest on other borrowed funds 284,470 232,152
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Total interest expense 4,209,263 4,347,082
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Net interest income 4,116,893 3,665,847
Provision for loan losses 50,000 50,000
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Net interest income after provision for loan losses 4,066,893 3,615,847
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Non-interest income (loss)
Fee income 248,012 243,484
Income on investment in Federal Home Loan Bank 55,330 65,892
Gain on sales of loans, net 121,218 99,332
Loss from real estate operations (62,955) (42,471)
Other 1,193 --
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Total non-interest income 362,798 366,237
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Non-interest expenses
Salaries 918,351 879,845
Employee Benefits 207,277 188,863
Data processing fees and equipment costs 205,195 221,047
Federal deposit insurance 221,529 201,584
Net occupancy 119,711 106,253
Amortization of excess costs over fair value of net assets
acquired 90,840 90,840
Advertising 14,324 54,840
Other 622,303 353,488
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Total non-interest expenses 2,399,530 2,096,760
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Income before income taxes 2,030,161 1,885,324
Income tax expense 840,328 674,695
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Net income $ 1,189,833 $ 1,210,629
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Per share amounts:
Earnings per common share and common share
equivalent - assuming no dilution $ 0.43 $ 0.59
Earnings per common share - assuming full dilution $ 0.43 $ 0.49
Average shares outstanding:
Assuming no dilution 2,762,734 2,034,907
Assuming full dilution 2,767,574 2,741,289
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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CENTRAL JERSEY FINANCIAL CORPORATION
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Consolidated Statements of Cash Flows Three Months Ended
June 30,
(Unaudited) 1996 1995
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Cash flows from:
Operating activities
Net income $ 1,189,833 $ 1,210,629
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 65,000 50,000
Accretion of discounts on loans acquired in business combination - (51,809)
Amortization of premiums, discounts and deferred fees 97,082 91,655
Amortization of excess cost over fair value of net assets acquired 98,840 90,840
Depreciation of premises and equipment 69,720 78,208
Loans originated for sale (9,270,765) (6,254,672)
Proceeds from sales of loans held for sale 9,379,961 6,047,986
Net gain on the sale of loans (121,218) (99,332)
Net decrease in interest receivable and other assets 90,356 430,531
Net increase in other liabilities 1,329,118 879,168
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Net cash provided by operating activities 2,919,927 2,473,204
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Investing activities
Net increase in interest-bearing deposits in other banks - (21,000)
Purchase of investment securities: available for sale (11) -
Purchase of investment securities: portfolio (5,000,000) (4,998,437)
Maturities of investment securities: portfolio 20,105 50,000
Purchases of mortgage-backed securities: portfolio (13,017,958) (26,619,227)
Maturities of mortgage-backed securities: portfolio 11,910,481 4,398,900
Loans originated, less principal collected 6,260,668 5,029,788
Decrease in real estate held for development and resale 135,000 144,000
Proceeds from sales of real estate acquired in settlement of loans 40,500 -
Purchases of premises and equipment, net (2,958) (56,390)
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Net cash provided by (used by) investing activities 345,827 (22,072,366)
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Financing activities
Net increase (decrease) in deposits (1,013,040) 22,757,328
Net increase (decrease) in other borrowed funds 300,000 (2,600,000)
Net increase in advances from borrowers 6,762 22,748
Cash dividends paid on common stock (747,115) (196,415)
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Net cash provided by (used by) financing activities (1,453,393) 19,983,661
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Increase in cash and cash equivalents 1,812,361 384,499
Cash and cash equivalents at beginning of year 8,804,911 7,693,873
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Cash and cash equivalents at end of period $ 10,617,272 $ 8,078,372
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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CENTRAL JERSEY FINANCIAL CORPORATION
Notes To Consolidated Financial Statements
1. Central Jersey Financial Corporation (the "Corporation") is a thrift
holding company having one subsidiary, Central Jersey Savings Bank,
SLA ("CJSB"). CJSB is a state chartered savings and loan association.
2. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting principally
of normal accruals) necessary for a fair presentation of the
Corporation's consolidated financial condition, results of operations
and cash flows for all periods presented herein.
3. The unaudited consolidated results of operations for each of the
periods presented in this Form 10-Q are not necessarily indicative of
the results to be expected for the full year.
4. The financial statements as presented, herein, should be read in
conjunction with the notes to the consolidated financial statements
included in the Corporation's Annual Report on Form 10-K for the year
ended March 31, 1996.
5. Loans receivable
June 30, March 31,
1996 1996
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First mortgage real estate loans
Conventional........................... $149,688,386 $154,636,304
Commercial............................. 28,962,854 29,496,029
Construction and land.................. 11,346,494 11,505,329
FHA insured and VA guaranteed.......... 6,602,944 7,005,926
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196,600,678 202,643,588
Home equity loans.............................. 26,774,201 27,509,954
Other consumer loans........................... 823,670 792,676
Other commercial loans......................... 265,016 276,206
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224,463,565 231,222,424
Less:
Loans in process....................... 7,387,940 7,569,129
Deferred loan fees..................... 523,263 594,936
Net premium on loans purchased......... (57,543) (82,368)
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216,609,905 223,140,727
Allowance for loan losses.............. 3,004,088 3,031,479
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$213,605,817 $220,109,248
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Included in loans receivable at June 30, 1996 and March 31, 1996 are loans
amounting to $7,291,000 and $7,782,000, respectively, on which the accrual of
interest has been suspended.
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Notes to Consolidated Financial Statements, continued
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6. Earnings per share were computed by dividing net income by the
weighted average number of common shares and common share equivalents
outstanding during the respective periods. Stock options are
considered common stock equivalents and were included in the
calculation of the average number of common shares outstanding using
the treasury stock method. Fully diluted earnings per share,
primarily related to shares issuable in connection with the
convertible subordinated debentures for the 1995 period, were
computed using the if converted method.
7. The Corporation exchanged mortgage loans for the properties
underlying the mortgages amounting to $320,000 and $97,000,
respectively, during each of the three-month periods ended June 30,
1996 and 1995. The value of the properties at the time of exchange
was $267,000 and $86,000, respectively, for each of the three-month
periods ended June 30, 1996 and 1995, and were recorded as Real
Estate Acquired in Settlement of Loans. The differences between loan
balances and the value of the underlying properties were charged to
allowances provided for such losses.
Cash paid during each of the three-month periods ended June 30, 1996
and 1995 for interest on deposits and borrowed funds were $4,212,000
and $4,350,000, respectively. Cash payments made for federal and
state income taxes during the three months ended June 30, 1996 and
1995 amounted to $540,000 and $225,000, respectively.
8. The Corporation, as previously announced, entered into a definitive
merger agreement (the "Agreement") with Summit Bancorp ("Summit"), on
May 22, 1996. The Agreement provides for Summit to acquire the
Corporation in a tax-free exchange of stock.
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
stock.
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CENTRAL JERSEY FINANCIAL CORPORATION
Management's Discussion and Analysis Of Results
Of Operations And Financial Condition
Overview
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Net income decreased $20,796 for the three months ended June 30, 1996
compared with the same period in 1995, from $1,210,629 to $1,189,833. The
decrease in net income was primarily the result of the increase in non-interest
expense, $302,770, including costs incurred in connection with the proposed
merger of the Corporation and Summit Bancorp, amounting to approximately
$236,000, and the increase in income tax expense, $165,633. These factors were
partially offset by the increase in net interest income, $451,046.
Net Interest Income
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The principal component of the Corporation's income is net interest
income, 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.
Net interest income increased from $3,665,847 for the three months ended
June 30, 1995 to $4,116,893 for the three months ended June 30, 1996, an
increase of $451,046. The increase in net interest income was the result of an
increase in interest income, $313,227 and a decrease in interest expense,
$137,819.
Interest on loans receivable decreased from $5,022,003 for the three
months ended June 30, 1995 to $4,477,156 for the three months ended June 30,
1996, a decrease of $544,847. The decrease was generally the result of the
decrease in the average balance of the loan portfolio. The average balance of
loans decreased $24,565,326 from $246,678,456 for the three months ended June
30, 1995 to $222,113,130 for the three months ended June 30, 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
mortgage loans were sold because of the low yields during the first few years of
the loans' life.
Interest on MBS increased from $2,522,567 for the three months ended
June 30, 1995 to $3,334,501 for the three months ended June 30, 1996, an
increase of $811,934. 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 $155,992,126 for the three months ended June 30,
1995 to $192,040,999 for the three months ended June 30, 1996, an increase of
$36,048,873. Because most loans originated during the 1996 period were sold,
available funds were used to purchase MBS. The average rate earned on MBS
increased by approximately 48 basis points from 6.47 percent for the three
months ended June 30, 1995 to 6.95 percent for the three months ended June 30,
1996.
Interest on investment securities, both available for sale and
portfolio, increased from $454,345 for the three months ended June 30, 1995 to
$496,784 for the three months ended June 30, 1996, an increase of $42,439. The
average balance of investment securities increased $5,914,075 from $23,150,529
for the three months ended June 30, 1995 to $29,064,604 for the three months
ended June 30, 1996. The average rate earned on investments decreased 101 basis
points, from 7.85 percent for the three months ended June 30, 1995 to 6.84
percent for the three months ended June 30, 1996.
-6-
Interest expense on deposits for the three months ended June 30, 1996
amounted to $3,924,793 which was basically unchanged from the same period in
1995, $3,929,169. The average balance of deposits increased $13,471,086 from
$372,591,794 in 1995 to $386,062,880 in 1996. The average interest rate paid on
deposits decreased 15 basis points from 4.22 percent in 1995 to 4.07 percent in
1996 as a result of lower market interest rates.
Interest expense on other borrowed funds increased $52,318 for the three
months ended June 30, 1996 compared with the same period in 1995, from $232,152
in 1995 to $284,470 in 1996. The Corporation drew more extensively on its line
of credit during the three months ended June 30, 1996. The average balance of
other borrowed funds for the three months ended June 30, 1996 amounted to
$20,984,615 compared with $14,819,780 for the same period in 1995, an increase
of $6,164,835. The average interest rate paid on other borrowings decreased from
6.27 percent for the three months ended June 30, 1995 to 5.42 percent for the
three months ended June 30, 1996, a decrease of 85 basis points.
Interest expense on long-term debt decreased $185,761 for the three
months ended June 30, 1996 compared with the same period in 1995. The decrease
was the result of converting all of the Convertible Subordinated Debentures into
common stock of the Corporation in September 1995.
Non-Interest Income
- -------------------
Gains on the sales of loans increased $21,886, from $99,332 for the
three months ended June 30, 1995 to $121,218 for the same period in 1996. The
Corporation, as noted previously, sold most of the first mortgage loans which it
originated. Losses from real estate operations increased $20,484 from $42,471
for the three months ended June 30, 1995 to $62,955 for the same period in 1996.
The increase was generally the result of an increase of $15,000 in the provision
for losses on real estate, determined based on the Corporation's regular
quarterly evaluations of its valuation allowances.
Non-Interest Expense
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Non-interest expenses increased $302,770, from $2,096,760 for the three
months ended June 30, 1995 to $2,399,530 for the same period in 1996. Other
non-interest expenses increased $268,815, from $353,488 for the three months
ended June 30, 1995 to $622,303 for the same period in 1996. The increase in
other non-interest expenses was primarily the result of costs incurred in
connection with the proposed merger of the Corporation with Summit Bancorp which
amounted to approximately $236,000. Substantial additional merger related costs
will be incurred prior to closing the merger, projected for the fourth quarter
of calendar 1996.
Advertising expenses decreased $40,516, from $54,840 for the three
months ended June 30, 1995 to $14,324 for the same period in 1996. The decrease
was the result of a general reduction in media advertising.
Income Tax Expense
- ------------------
The provision for income taxes as a percentage of income before income
taxes increased from 36 percent for the three-month period ended June 30, 1995
to 41 percent for the comparable 1996 period. The increase was generally
attributable to the merger related costs, previously discussed, which are not
deductible for income tax purposes.
Financial Condition
- -------------------
There were no significant changes in the Corporation's consolidated
financial position between June 30, 1996 and March 31, 1996. The Corporation
remains well capitalized. CJSB's regulatory capital at June 30, 1996 exceeded
the current capital requirements established by the Office of Thrift Supervision
("OTS").
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Other
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Currently, CJSB pays an insurance premium to the Federal Deposit
Insurance Corporation ("FDIC") equal to 0.23 percent of its total deposits. In
August 1995, the FDIC lowered the insurance premium for members of the Bank
Insurance Fund ("BIF"), primarily commercial banks, to a range of between 0.04
percent and 0.31 percent of deposits. In November 1995, the FDIC again lowered
BIF premiums further with the result that most commercial banks will pay the
statutory minimum of $2,000 annually. This reduction in insurance premiums for
BIF members could place Savings Association Insurance Fund ("SAIF") members,
primarily savings associations, such as CJSB, at a material competitive
disadvantage to BIF members and, for the reasons set forth below, could have a
material adverse effect on the results of operations and financial condition of
CJSB in future periods.
The 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.
Several alternatives to mitigate the effect of the BIF/SAIF insurance
premium disparity have recently been proposed by the U.S. Congress, federal
regulators, industry lobbyists and the Administration. One plan that has gained
support of several sponsors would require all SAIF member institutions,
including CJSB, to pay a one-time fee of up to 85 basis points on the amount of
deposits held by the member institution to recapitalize the SAIF. If this
proposal is enacted by Congress, the effect would be to immediately reduce the
capital of the SAIF-member institutions by the amount of the fee, and such
amount would be immediately charged to earnings, unless the institutions are
permitted to amortize the expense of the fee over a period of years. Management
of CJSB is unable to predict whether this proposal or any similar proposal will
be enacted or whether ongoing SAIF premiums will be reduced to a level equal to
that of BIF premiums.
On August 2, 1996, the U.S. Congress passed the Small Business Job
Protection Act of 1996. If signed by the President and enacted into law, this
bill would, among other things, equalize the taxation of thrifts and banks.
Previously, thrifts had been able to deduct a portion of their bad-debt reserves
set aside to cover potential loan losses ("bad-debt reserves"). Furthermore, the
bill will repeal current law mandating recapture of thrifts' bad debt reserves
if they convert to banks. Bad debt reserves set aside through 1987 will not be
taxed, however, any reserves taken since January 1, 1988, will be taxed over a
six-year period beginning in 1997. Institutions can delay paying these taxes for
two years if they meet a residential-lending test. Based upon a preliminary
review of the bill and its potential impact, it is not expected to have a
material adverse effect on the consolidated financial condition or results of
operations of the Corporation taken as a whole.
-8-
PART II OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
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.
Item 2. Changes in Securities
---------------------
Not applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable
Item 5. Other Information
-----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 11 - Statement Re: Computation of Per Share
Earnings
(b) Report on Form 8-K: The Corporation, on July 29, 1996,
filed a Current Report on Form 8-K. The Form 8-K was filed
pursuant to Item 5, relating to the Corporation's report
of financial condition and results of operations for the
three months ended June 30, 1996.
-9-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL JERSEY FINANCIAL CORPORATION
(Registrant)
Date August 12, 1996 /s/John J. Doherty
--------------- --------------------------------------
John J. Doherty
Vice President, Principal Financial
Officer, and Duly Authorized Signatory
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