UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2013
OR
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-34089
BANCORP OF NEW JERSEY, INC.
(Exact name of registrant as specified in its charter)
New Jersey |
|
20-8444387 |
(State or other jurisdiction of |
|
(I.R.S. Employer Identification No.)
|
|
|
|
1365 Palisade Ave, Fort Lee, New Jersey |
|
07024 |
(Address of principal executive offices) |
|
(Zip Code) |
(201) 944-8600
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act:
Large accelerated filer o |
|
Accelerated filer o |
Non-accelerated filer o |
|
Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes o No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. As of November 7, 2013 there were 5,345,266 outstanding shares of the issuers class of common stock, no par value.
BANCORP OF NEW JERSEY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data)
|
|
September 30, 2013 |
|
December 31, 2012 |
| ||
|
|
|
|
|
| ||
ASSETS |
|
|
|
|
| ||
|
|
|
|
|
| ||
Cash and due from banks |
|
$ |
2,627 |
|
$ |
765 |
|
Interest bearing deposits |
|
20,476 |
|
29,852 |
| ||
Federal funds sold |
|
459 |
|
461 |
| ||
Total cash and cash equivalents |
|
23,562 |
|
31,078 |
| ||
|
|
|
|
|
| ||
Interest bearing time deposits |
|
500 |
|
250 |
| ||
|
|
|
|
|
| ||
Securities available for sale, at fair value (amortized cost of $56,761 and $88,036, respectively) |
|
54,369 |
|
88,480 |
| ||
Securities held to maturity (fair value of $21,613 and $5,482 respectively) |
|
21,610 |
|
5,482 |
| ||
Restricted investment in bank stock, at cost |
|
792 |
|
669 |
| ||
|
|
|
|
|
| ||
Loans receivable |
|
474,225 |
|
435,729 |
| ||
Deferred loan fees and unamortized costs, net |
|
(293 |
) |
(180 |
) | ||
Less: allowance for loan losses |
|
(5,649 |
) |
(5,072 |
) | ||
Net loans |
|
468,283 |
|
430,477 |
| ||
Premises and equipment, net |
|
10,361 |
|
10,224 |
| ||
Accrued interest receivable |
|
2,081 |
|
1,732 |
| ||
Other real estate owned |
|
234 |
|
|
| ||
Other assets |
|
4,197 |
|
2,982 |
| ||
TOTAL ASSETS |
|
$ |
585,989 |
|
$ |
571,374 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
| ||
LIABILITIES: |
|
|
|
|
| ||
Deposits |
|
|
|
|
| ||
Noninterest-bearing |
|
$ |
71,520 |
|
$ |
65,910 |
|
Savings and interest bearing transaction accounts |
|
145,763 |
|
147,346 |
| ||
Time deposits under $100 |
|
50,122 |
|
49,023 |
| ||
Time deposits $100 and over |
|
260,785 |
|
253,456 |
| ||
Total deposits |
|
528,190 |
|
515,735 |
| ||
|
|
|
|
|
| ||
Accrued interest payable and other liabilities |
|
2,904 |
|
1,919 |
| ||
TOTAL LIABILITIES |
|
531,094 |
|
517,654 |
| ||
|
|
|
|
|
| ||
Commitments and Contingencies |
|
|
|
|
| ||
Stockholders equity: |
|
|
|
|
| ||
Common stock, no par value, authorized 20,000,000 shares; issued and outstanding 5,315,266 at September 30, 2013 and 5,206,932 at December 31, 2012 |
|
50,086 |
|
49,689 |
| ||
Retained earnings |
|
6,286 |
|
3,747 |
| ||
Accumulated other comprehensive (loss) income |
|
(1,477 |
) |
284 |
| ||
Total stockholders equity |
|
54,895 |
|
53,720 |
| ||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
585,989 |
|
$ |
571,374 |
|
See accompanying notes to unaudited consolidated financial statements
BANCORP OF NEW JERSEY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
|
|
For the Three Months Ended September 30, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
|
|
|
| ||
INTEREST INCOME |
|
|
|
|
| ||
Loans, including fees |
|
$ |
6,058 |
|
$ |
5,507 |
|
Securities |
|
234 |
|
493 |
| ||
Federal funds sold and other |
|
19 |
|
19 |
| ||
TOTAL INTEREST INCOME |
|
6,311 |
|
6,019 |
| ||
|
|
|
|
|
| ||
INTEREST EXPENSE |
|
|
|
|
| ||
Savings and money markets |
|
177 |
|
155 |
| ||
Time deposits |
|
1,339 |
|
1,404 |
| ||
TOTAL INTEREST EXPENSE |
|
1,516 |
|
1,559 |
| ||
|
|
|
|
|
| ||
NET INTEREST INCOME |
|
4,795 |
|
4,460 |
| ||
Provision for loan losses |
|
225 |
|
260 |
| ||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
|
4,570 |
|
4,200 |
| ||
NON-INTEREST INCOME |
|
|
|
|
| ||
Fees and service charges |
|
43 |
|
44 |
| ||
(Loss) gains on sale of securities |
|
(2 |
) |
238 |
| ||
TOTAL NON-INTEREST INCOME |
|
41 |
|
282 |
| ||
|
|
|
|
|
| ||
NON-INTEREST EXPENSE |
|
|
|
|
| ||
Salaries and employee benefits |
|
1,412 |
|
1,278 |
| ||
Occupancy and equipment expense |
|
587 |
|
534 |
| ||
FDIC premiums and related expenses |
|
88 |
|
86 |
| ||
Data processing |
|
195 |
|
182 |
| ||
Professional fees |
|
83 |
|
180 |
| ||
Other expenses |
|
214 |
|
335 |
| ||
TOTAL NON-INTEREST EXPENSE |
|
2,579 |
|
2,595 |
| ||
Income before provision for income taxes |
|
2,032 |
|
1,887 |
| ||
Income tax expense |
|
807 |
|
745 |
| ||
Net income |
|
$ |
1,225 |
|
$ |
1,142 |
|
|
|
|
|
|
| ||
PER SHARE OF COMMON STOCK |
|
|
|
|
| ||
Basic |
|
$ |
0.23 |
|
$ |
0.22 |
|
Diluted |
|
$ |
0.23 |
|
$ |
0.22 |
|
See accompanying notes to unaudited consolidated financial statements
BANCORP OF NEW JERSEY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
|
|
For the Nine Months Ended September 30, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
|
|
|
| ||
INTEREST INCOME |
|
|
|
|
| ||
Loans, including fees |
|
$ |
17,621 |
|
$ |
15,945 |
|
Securities |
|
845 |
|
1,311 |
| ||
Federal funds sold and other |
|
54 |
|
56 |
| ||
TOTAL INTEREST INCOME |
|
18,520 |
|
17,312 |
| ||
|
|
|
|
|
| ||
INTEREST EXPENSE |
|
|
|
|
| ||
Savings and money markets |
|
590 |
|
348 |
| ||
Time deposits |
|
3,966 |
|
4,185 |
| ||
TOTAL INTEREST EXPENSE |
|
4,556 |
|
4,533 |
| ||
|
|
|
|
|
| ||
NET INTEREST INCOME |
|
13,964 |
|
12,779 |
| ||
Provision for loan losses |
|
685 |
|
885 |
| ||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
|
13,279 |
|
11,894 |
| ||
NON-INTEREST INCOME |
|
|
|
|
| ||
Fees and service charges |
|
134 |
|
124 |
| ||
Fees earned from mortgage referrals |
|
6 |
|
|
| ||
Gains on sale of securities |
|
195 |
|
238 |
| ||
TOTAL NON-INTEREST INCOME |
|
335 |
|
362 |
| ||
|
|
|
|
|
| ||
NON-INTEREST EXPENSE |
|
|
|
|
| ||
Salaries and employee benefits |
|
4,126 |
|
3,760 |
| ||
Occupancy and equipment expense |
|
1,764 |
|
1,495 |
| ||
FDIC premiums and related expenses |
|
266 |
|
239 |
| ||
Data processing |
|
559 |
|
517 |
| ||
Professional fees |
|
383 |
|
408 |
| ||
Other expenses |
|
752 |
|
823 |
| ||
TOTAL NON-INTEREST EXPENSE |
|
7,850 |
|
7,242 |
| ||
Income before provision for income taxes |
|
5,764 |
|
5,014 |
| ||
Income tax expense |
|
2,277 |
|
1,981 |
| ||
Net income |
|
$ |
3,487 |
|
$ |
3,033 |
|
|
|
|
|
|
| ||
PER SHARE OF COMMON STOCK |
|
|
|
|
| ||
Basic |
|
$ |
0.66 |
|
$ |
0.58 |
|
Diluted |
|
$ |
0.65 |
|
$ |
0.58 |
|
See accompanying notes to unaudited consolidated financial statements
BANCORP OF NEW JERSEY, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
|
|
For the Three Months Ended September 30, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
|
|
|
| ||
Net income |
|
$ |
1,225 |
|
$ |
1,142 |
|
Other comprehensive income |
|
|
|
|
| ||
Net unrealized holding (losses) gains on securities arising during the period, net of income tax (benefit) expense of $(43) and $4, respectively |
|
(70 |
) |
8 |
| ||
Reclassification adjustment for loss (gain) on sale of securities included in net income, net of income tax benefit (expense) of $1 and $(84), respectively |
|
1 |
|
(154 |
) | ||
Comprehensive income |
|
$ |
1,156 |
|
$ |
996 |
|
|
|
For the Nine Months Ended September 30, |
| ||||
|
|
2013 |
|
2012 |
| ||
|
|
|
|
|
| ||
Net income |
|
$ |
3,487 |
|
$ |
3,033 |
|
Other comprehensive (loss) income |
|
|
|
|
| ||
Net unrealized holding (losses) gains on securities arising during the period, net of income tax (benefit) expense of $(1.012) and $155, respectively |
|
(1,629 |
) |
275 |
| ||
Reclassification adjustment for gain on sale of securities, net of income tax expense of $(63) and $(84), respectively |
|
(132 |
) |
(154 |
) | ||
Comprehensive income |
|
$ |
1,726 |
|
$ |
3,154 |
|
See accompanying notes to unaudited consolidated financial statements
BANCORP OF NEW JERSEY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
For the Nine Months Ended September 30, |
| ||||
|
|
2013 |
|
2012 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
| ||
Net income |
|
$ |
3,487 |
|
$ |
3,033 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
|
380 |
|
369 |
| ||
Provision for loan losses |
|
685 |
|
885 |
| ||
Amortization of securities premiums |
|
109 |
|
|
| ||
Compensation expense for stock option and restricted stock awards |
|
128 |
|
107 |
| ||
Accretion of net loan origination fees |
|
113 |
|
94 |
| ||
Deferred tax benefits |
|
(313 |
) |
(359 |
) | ||
Gain on the sale of securities |
|
(195 |
) |
(238 |
) | ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Increase in accrued interest receivable |
|
(349 |
) |
(579 |
) | ||
Decrease in other assets |
|
172 |
|
83 |
| ||
Increase in other liabilities |
|
985 |
|
316 |
| ||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
5,202 |
|
3,711 |
| ||
|
|
|
|
|
| ||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
| ||
Purchases of securities available for sale, net |
|
(34,000 |
) |
(69,822 |
) | ||
Purchases of investments in bank stock |
|
(123 |
) |
(120 |
) | ||
Purchases of securities held to maturity, net |
|
(20,009 |
) |
(3,960 |
) | ||
Purchase of interest bearing time deposits |
|
(250 |
) |
|
| ||
Proceeds from called or matured securities available for sale |
|
18,031 |
|
37,750 |
| ||
Proceeds from sales of securities available for sale |
|
47,330 |
|
5,921 |
| ||
Maturities of securities held to maturity |
|
3,881 |
|
5,087 |
| ||
Net increase in loans |
|
(38,838 |
) |
(53,233 |
) | ||
Purchases of premises and equipment |
|
(517 |
) |
(436 |
) | ||
NET CASH USED IN INVESTING ACTIVITIES |
|
(24,495 |
) |
(78,813 |
) | ||
|
|
|
|
|
| ||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
| ||
Net increase in deposits |
|
12,455 |
|
76,311 |
| ||
Proceeds from the exercise of options |
|
270 |
|
|
| ||
Dividends |
|
(948 |
) |
(936 |
) | ||
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
11,777 |
|
75,375 |
| ||
|
|
|
|
|
| ||
Net (decrease) increase in cash and cash equivalents |
|
(7,516 |
) |
273 |
| ||
Cash and cash equivalents, beginning of year |
|
31,078 |
|
32,222 |
| ||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
23,562 |
|
$ |
32,495 |
|
|
|
|
|
|
| ||
Cash paid during the period for: |
|
|
|
|
| ||
Interest |
|
$ |
3,057 |
|
$ |
2,909 |
|
Income taxes |
|
$ |
1,700 |
|
$ |
1,485 |
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash invvesting and finance trasactions: |
|
|
|
|
| ||
Loan transferred to other real estate owned |
|
$ |
234 |
|
$ |
|
|
See accompanying notes to unaudited consolidated financial statements.
BANCORP OF NEW JERSEY, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
Basis of Financial Statement Presentation
The accompanying consolidated financial statements include the accounts of Bancorp of New Jersey, Inc. (the Company), and its direct wholly-owned subsidiary, Bank of New Jersey (the Bank) and the Banks wholly-owned subsidiary, BONJ-New York Corp. All significant inter-company accounts and transactions have been eliminated in consolidation.
The Company was incorporated under the laws of the State of New Jersey to serve as a holding company for the Bank and to acquire all the capital stock of the Bank.
The Companys class of common stock has no par value and the Banks class of common stock has a par value of $10 per share.
The financial information in this quarterly report has been prepared in accordance with U.S. generally accepted accounting principles (GAAP); these financial statements have not been audited. Certain information and footnote disclosures required under GAAP have been condensed or omitted, as permitted by rules and regulations of the Securities and Exchange Commission.
Certain reclassifications have been made to the prior period financial statements to conform to the September 30, 2013 presentation. These reclassifications had no impact on the Companys net income.
Organization
The Company is a New Jersey corporation and bank holding company registered with the Board of Governors of the Federal Reserve System (the Federal Reserve Board). The Bank is a community bank which provides a full range of banking services to individuals and corporate customers in New Jersey. Both the Company and the Bank are subject to competition from other financial institutions. The Bank is regulated by state and federal agencies and is subject to periodic examinations by those regulatory authorities. The Bank conducts a traditional commercial banking business, accepting deposits from the general public, including individuals, businesses, non-profit organizations, and governmental units. The Bank makes commercial loans, consumer loans, and both residential and commercial real estate loans. In addition, the Bank provides other customer services and makes investments in securities, as permitted by law. The Bank has sought to offer an alternative, community-oriented style of banking in an area, that is presently dominated by larger, statewide and national institutions. The Bank continues to focus on establishing and retaining customer relationships by offering a broad range of traditional financial services and products, competitively-priced and delivered in a responsive manner to small businesses, professionals and individuals in its market area. As a community bank, the Bank endeavors to provide superior customer service that is highly personalized, efficient and responsive to local needs. To better serve its customers and expand its market reach, the Bank provides for the delivery of certain of its financial products and services to its local customers and to a broader market through the use of mail, telephone and internet banking. The Bank seeks to deliver these products and services with the care and professionalism expected of a community bank and with a special dedication to personalized customer service.
Note 2. Stockholders Equity and Related Transactions
During the nine months ended September 30, 2013, the Company issued 90,000 shares of restricted common stock to its executive officers and directors, of which 5,000 were forfeited back to the Company. In addition, during the first nine months of 2013, a Director of the Company exercised options to purchase 23,334 shares of common stock at $11.50 per share for a total price of $270,000. No shares of common stock were issued by the Company during the first nine months of 2012.
Note 3. Benefit Plans and Stock-Based Compensation
2006 Stock Option Plan
During 2006, the Banks stockholders approved the 2006 Stock Option Plan. At the time of the holding company reorganization, the 2006 Stock Option Plan was assumed by the Company. The plan allows directors and employees of the Company to purchase up to 239,984 shares of the Companys common stock. At September 30, 2013, incentive stock options to purchase 209,900 shares have been issued to employees of the Bank, of which options to purchase 187,900 shares were outstanding.
Under the 2006 Stock Option Plan, there were no unvested options at September 30, 2013 and no unrecognized expense. Under the 2006 Stock Option Plan, no options were granted, exercised, or forfeited during the first nine months of 2013.
2007 Director Plan
During 2007, the Banks stockholders approved the 2007 Non-Qualified Stock Option Plan for Directors (2007 Director Plan). At the time of the holding company reorganization, the 2007 Director Plan was assumed by the Company. This plan provides for 480,000 options to purchase shares of the Companys common stock to be issued to non-employee directors of the Company. At September 30, 2013, non-qualified options to purchase 460,000 shares of the Companys stock have been issued to non-employee directors of the Company and approximately 361,334 were outstanding at September 30, 2013. Options to purchase 23,334 were exercised during the first nine months of 2013. No options were granted or forfeited during the first nine months of 2013. Options to purchase 30,000 shares of the Companys common stock expired during the first nine months of 2013.
Under the 2007 Director Plan, there were no unvested options at September 30, 2013 and no unrecognized compensation expense.
In connection with both the 2006 Stock Option Plan and the 2007 Director Plan, share based compensation totaled $0 and $36,000 for the three months ended September 30, 2013 and 2012, respectively. For the nine months ended September 30, 2013 and 2012, respectively, share based compensation totaled $0 and $107,000, respectively.
The aggregate intrinsic value of a stock option represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had they exercised their options on September 30, 2013. This amount changes based on the changes in the market value in the Companys stock.
The aggregate intrinsic value of options outstanding as of September 30, 2013 under the 2006 Stock Option Plan and the 2007 Director Plan was approximately $1.8 million.
The aggregate intrinsic value of options outstanding as of December 31, 2012 under the 2006 Stock Option Plan and the 2007 Director Plan was approximately $1.7 million.
2011 Equity Incentive Plan
During 2011, the shareholders of the Company approved the Bancorp of New Jersey, Inc. 2011 Equity Incentive Plan. This plan authorizes the issuance of up to 250,000 shares of the Companys common stock, subject to adjustment in certain circumstances described in the Plan, pursuant to awards of incentive stock options or non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units or performance awards. Employees, directors, consultants, and other service providers of the Company and its affiliates (primarily the Bank) are eligible to receive awards under the Plan, provided, that only employees are eligible to receive incentive stock options. During the nine months ended September 30, 2013, 90,000 shares of restricted stock were issued to the executive officers and directors of the Company subject to forfeiture during a five year vesting term and 5,000 of these shares were forfeited back to the Company. The awards have been recorded at their fair market value at the date of the grant and are being amortized to expense over the vesting period. For the three months and nine months ended September 30, 2013, $55,000 and $128,000 was recorded as expense, respectively, for these awards and approximately $976,000 remains to be expensed over the next 53 months.
Note 4. Earnings Per Share.
Basic earnings per share is calculated by dividing the net income for a period by the weighted average number of common shares outstanding during that period.
Diluted earnings per share is calculated by dividing the net income for a period by the weighted average number of outstanding common shares and dilutive common share equivalents during that period. Outstanding common share equivalents include options and warrants to purchase the Companys common stock.
The following schedule shows earnings per share for the three month periods presented:
|
|
For the three months ended |
| ||||
|
|
September 30, |
| ||||
(In thousands except per share data) |
|
2013 |
|
2012 |
| ||
Net income applicable to common stock |
|
$ |
1,225 |
|
$ |
1,142 |
|
Weighted average number of common shares outstanding - basic |
|
5,306 |
|
5,207 |
| ||
Basic earnings per share |
|
$ |
0.23 |
|
$ |
0.22 |
|
|
|
|
|
|
| ||
Net income applicable to common stock |
|
$ |
1,225 |
|
$ |
1,142 |
|
Weighted average number of common shares outstanding |
|
5,306 |
|
5,207 |
| ||
Effect of dilutive options |
|
102 |
|
8 |
| ||
Weighted average number of common shares and common share equivalents- diluted |
|
5,408 |
|
5,215 |
| ||
Diluted earnings per share |
|
$ |
0.23 |
|
$ |
0.22 |
|
Non-qualified options to purchase 361,334 shares of common stock at a weighted average price of $11.50; 90,000 incentive stock options at a weighted average price of $11.50; incentive stock options to purchase 97,900 shares of common stock at a weighted average price of $9.09; and 85,000 unvested shares of restricted stock were included in the computation of diluted earnings per share for the three months ended September 30, 2013.
Non-qualified options to purchase 414,668 shares of common stock at a weighted average price of $11.50; and 90,000 incentive stock options at a weighted average price of $11.50 were not included in the
computation of diluted earnings per share for the three months ended September 30, 2012 because they were anti-dilutive. Incentive stock options to purchase 97,900 shares of common stock at a weighted average price of $9.09 were included in the computation of diluted earnings per share for the three months ended September 30, 2012.
The following schedule shows earnings per share for the nine month periods presented:
|
|
For the nine months ended |
| ||||
|
|
September 30, |
| ||||
(In thousands except per share data) |
|
2013 |
|
2012 |
| ||
Net income applicable to common stock |
|
$ |
3,487 |
|
$ |
3,033 |
|
Weighted average number of common shares outstanding - basic |
|
5,270 |
|
5,207 |
| ||
Basic earnings per share |
|
$ |
0.66 |
|
$ |
0.58 |
|
|
|
|
|
|
| ||
Net income applicable to common stock |
|
$ |
3,487 |
|
$ |
3,033 |
|
Weighted average number of common shares outstanding |
|
5,270 |
|
5,207 |
| ||
Effect of dilutive options |
|
84 |
|
5 |
| ||
Weighted average number of common shares and common share equivalents- diluted |
|
5,354 |
|
5,212 |
| ||
Diluted earnings per share |
|
$ |
0.65 |
|
$ |
0.58 |
|
Non-qualified options to purchase 361,334 shares of common stock at a weighted average price of $11.50; 90,000 incentive stock options at a weighted average price of $11.50; incentive stock options to purchase 97,900 shares of common stock at a weighted average price of $9.09; and 85,000 unvested shares of restricted stock were included in the computation of diluted earnings per share for the nine months ended September 30, 2013.
Non-qualified options to purchase 414,668 shares of common stock at a weighted average price of $11.50; and 90,000 incentive stock options at a weighted average price of $11.50 were not included in the computation of diluted earnings per share for the nine months ended September 30, 2012 because they were anti-dilutive. Incentive stock options to purchase 97,900 shares of common stock at a weighted average price of $9.09 were included in the computation of diluted earnings per share for the nine months ended September 30, 2012.
Note 5. Securities Available for Sale and Investment Securities
A summary of securities held to maturity and securities available for sale at September 30, 2013 and December 31, 2012 is as follows (in thousands):
|
|
|
|
Gross |
|
Gross |
|
|
| ||||
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Fair |
| ||||
September 30, 2013 |
|
Cost |
|
Gains |
|
Losses |
|
Value |
| ||||
Securities Held to Maturity: |
|
|
|
|
|
|
|
|
| ||||
Obligations of states and political subdivisions |
|
$ |
11,616 |
|
$ |
|
|
$ |
|
|
$ |
11,616 |
|
Government Sponsored |
|
|
|
|
|
|
|
|
| ||||
Enterprise obligations |
|
9,994 |
|
3 |
|
|
|
9,997 |
| ||||
Total securities held to maturity |
|
21,610 |
|
3 |
|
|
|
21,613 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Securities Available for Sale: |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury obligations |
|
6,761 |
|
|
|
(362 |
) |
6,399 |
| ||||
Government Sponsored |
|
|
|
|
|
|
|
|
| ||||
Enterprise obligations |
|
50,000 |
|
|
|
(2,030 |
) |
47,970 |
| ||||
Total securities available for sale |
|
56,761 |
|
|
|
(2,392 |
) |
54,369 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total securities |
|
$ |
78,371 |
|
$ |
3 |
|
$ |
(2,392 |
) |
$ |
75,982 |
|
|
|
|
|
Gross |
|
Gross |
|
|
| ||||
|
|
Amortized |
|
Unrealized |
|
Unrealized |
|
Fair |
| ||||
December 31, 2012 |
|
Cost |
|
Gains |
|
Losses |
|
Value |
| ||||
Securities Held to Maturity: |
|
|
|
|
|
|
|
|
| ||||
Obligations of states and political subdivisions |
|
$ |
5,482 |
|
$ |
|
|
$ |
|
|
$ |
5,482 |
|
|
|
|
|
|
|
|
|
|
| ||||
Securities Available for Sale: |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury obligations |
|
17,985 |
|
285 |
|
(93 |
) |
18,177 |
| ||||
Government Sponsored |
|
|
|
|
|
|
|
|
| ||||
Enterprise obligations |
|
70,051 |
|
488 |
|
(236 |
) |
70,303 |
| ||||
Total securities available for sale |
|
88,036 |
|
773 |
|
(329 |
) |
88,480 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total securities |
|
$ |
93,518 |
|
$ |
773 |
|
$ |
(329 |
) |
$ |
93,962 |
|
The unrealized losses, categorized by the length of time of continuous loss position, and the fair value of related securities available for sale are as follows (in thousands):
|
|
Less than 12 Months |
|
More than 12 Months |
|
Total |
| ||||||||||||
|
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
|
Fair |
|
Unrealized |
| ||||||
|
|
Value |
|
Losses |
|
Value |
|
Losses |
|
Value |
|
Losses |
| ||||||
September 30, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury obligations |
|
$ |
6,399 |
|
$ |
362 |
|
$ |
|
|
$ |
|
|
$ |
6,399 |
|
$ |
362 |
|
Government Sponsored |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Enterprise obligations |
|
47,970 |
|
2,030 |
|
|
|
|
|
47,970 |
|
2,030 |
| ||||||
Total securities available for sale |
|
$ |
54,369 |
|
$ |
2,392 |
|
$ |
|
|
$ |
|
|
$ |
54,369 |
|
$ |
2,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
December 31, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Treasury obligations |
|
$ |
6,749 |
|
$ |
93 |
|
$ |
|
|
$ |
|
|
$ |
6,749 |
|
$ |
93 |
|
Government Sponsored |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Enterprise obligations |
|
32,765 |
|
236 |
|
|
|
|
|
32,765 |
|
236 |
| ||||||
Total securities available for sale |
|
$ |
39,514 |
|
$ |
329 |
|
$ |
|
|
$ |
|
|
$ |
39,514 |
|
$ |
329 |
|
At September 30, 2013 and December 31, 2012, the Company held no securities held to maturity with unrealized losses.
The amortized cost and fair value of securities held to maturity and securities available for sale at September 30, 2013 by contractual maturity are shown below. Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):
|
|
Securities Held to Maturity |
|
Securities Available for Sale |
| ||||||||
|
|
Amortized |
|
Fair |
|
Amortized |
|
Fair |
| ||||
|
|
Cost |
|
Value |
|
Cost |
|
Value |
| ||||
One year or less |
|
$ |
11,616 |
|
$ |
11,616 |
|
$ |
|
|
$ |
|
|
After one to five years |
|
9,994 |
|
9,997 |
|
12,000 |
|
11,717 |
| ||||
After five to ten years |
|
|
|
|
|
44,761 |
|
42,652 |
| ||||
Total |
|
$ |
21,610 |
|
$ |
21,613 |
|
$ |
56,761 |
|
$ |
54,369 |
|
Management evaluates securities for other-than-temporary-impairment (OTTI) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.
In determining OTTI management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than amortized cost; (2) the financial condition and near term prospects of the issuer; (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary-impairment decline exists involves a high degree of subjectivity and judgment and is based on information available to management at a point in time. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.
When OTTI for debt securities occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis, the OTTI would be recognized in earnings equal to the entire difference between the investments amortized cost basis and its fair value at the balance sheet date. If the Company does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the OTTI would be separated into the
amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors would be recognized in other comprehensive income, net of applicable tax benefit. The previous amortized cost basis less the OTTI recognized in earnings would become the new amortized cost basis of the investment.
At September 30, 2013, the Companys available for sale securities portfolio consisted of twenty two securities, all of which were in an unrealized loss position for less than twelve months. No OTTI charges were recorded for the three or nine months ended September 30, 2013 and 2012, respectively. The Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell these securities. Unrealized losses primarily relate to interest rate fluctuations and not credit concerns.
Securities with an amortized cost of $8.5 million and $13.1 million, respectively, and a fair value of $8.1 million and $13.6 million, respectively, were pledged to secure public funds on deposit at September 30, 2013 and December 31, 2012, repectively.
During the third quarter of 2013, the Company sold three securities from its available for sale portfolio. It recognized a gain of approximately $64 thousand from the sale of one of the securities and a loss of approximately $66 thousand from the sale of two of the securities. For the nine months ended September 30, 2013, the Company sold sixteen securities from its available for sale portfolio. It recognized a gain of approximately $541 thousand from the sale of seven securities, a loss of approximately $346 thousand from the sale of eight securities and no gain or loss from the sale of one security, resulting in net gains of approximately $195 thousand from the transactions. The Company did not sell any securities from its held to maturity portfolio during the three months or nine months ended September 30, 2013. During the three months and nine months ended September 30, 2012, the Company sold one security from its available for sale portfolio and recorded a gain of $238,000. The Company did not sell any securities from its held to maturity portfolio during the three months or nine months ended September 30, 2012.
Note 6. Loans.
The components of the loan portfolio at September 30, 2013 and December 31, 2012 are summarized as follows (in thousands):
|
|
September 30, 2013 |
|
December 31, 2012 |
| ||
|
|
|
|
|
| ||
Commercial real estate |
|
$ |
294,949 |
|
$ |
246,545 |
|
Residential mortgages |
|
54,346 |
|
54,332 |
| ||
Commercial |
|
60,079 |
|
64,900 |
| ||
Home equity |
|
63,480 |
|
68,737 |
| ||
Consumer |
|
1,371 |
|
1,215 |
| ||
|
|
|
|
|
| ||
|
|
$ |
474,225 |
|
$ |
435,729 |
|
The Bank grants commercial, mortgage and installment loans to those New Jersey residents and businesses within its local trading area. Its borrowers abilities to repay their obligations are dependent upon various factors, including the borrowers income and net worth, cash flows generated by the underlying collateral, value of the underlying collateral and priority of the Banks lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the Banks control; the Bank is therefore subject to risk of loss. The Bank believes its lending policies and procedures adequately manage the
potential exposure to such risks and that an allowance for loan losses is provided for managements best estimate of probable loan losses.
The activity in the allowance for loan losses and recorded investment in loan receivables as of and for the periods indicated are as follows (in thousands):
For the three months ended and as of:
|
|
Commercial |
|
Residential |
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
Real Estate |
|
Mortgages |
|
Commercial |
|
Home Equity |
|
Consumer |
|
Unallocated |
|
Total |
| |||||||
September 30, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Beginning Balance |
|
$ |
3,577 |
|
$ |
275 |
|
$ |
943 |
|
$ |
537 |
|
$ |
24 |
|
$ |
178 |
|
$ |
5,534 |
|
Charge-offs |
|
(89 |
) |
|
|
|
|
|
|
(22 |
) |
|
|
(111 |
) | |||||||
Recoveries |
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
| |||||||
Provisions |
|
110 |
|
51 |
|
42 |
|
(46 |
) |
22 |
|
46 |
|
225 |
| |||||||
Ending balance |
|
$ |
3,598 |
|
$ |
326 |
|
$ |
986 |
|
$ |
491 |
|
$ |
24 |
|
$ |
224 |
|
$ |
5,649 |
|
Ending balance: individually evaluated for impairment |
|
$ |
220 |
|
$ |
52 |
|
$ |
50 |
|
$ |
150 |
|
$ |
|
|
$ |
|
|
$ |
472 |
|
Ending balance: collectively evaluted for impairment |
|
$ |
3,378 |
|
$ |
274 |
|
$ |
936 |
|
$ |
341 |
|
$ |
24 |
|
$ |
224 |
|
$ |
5,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Loan receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Ending balance |
|
$ |
294,949 |
|
$ |
54,346 |
|
$ |
60,079 |
|
$ |
63,480 |
|
$ |
1,371 |
|
$ |
|
|
$ |
474,225 |
|
Ending balance: individually evaluted for impairment |
|
$ |
4,215 |
|
$ |
5,661 |
|
$ |
50 |
|
$ |
2,392 |
|
$ |
|
|
$ |
|
|
$ |
12,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Ending balance: collectively evaluated for impairment |
|
$ |
290,734 |
|
$ |
48,685 |
|
$ |
60,029 |
|
$ |
61,088 |
|
$ |
1,371 |
|
$ |
|
|
$ |
461,907 |
|
|
|
Commercial |
|
Residential |
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
Real Estate |
|
Mortgages |
|
Commercial |
|
Home Equity |
|
Consumer |
|
Unallocated |
|
Total |
| |||||||
September 30, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Beginning Balance |
|
$ |
2,725 |
|
$ |
439 |
|
$ |
1,274 |
|
$ |
418 |
|
$ |
22 |
|
$ |
223 |
|
$ |
5,101 |
|
Charge-offs |
|
|
|
|
|
(340 |
) |
|
|
|
|
|
|
(340 |
) | |||||||
Recoveries |
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
| |||||||
Provisions |
|
209 |
|
2 |
|
60 |
|
23 |
|
3 |
|
(37 |
) |
260 |
| |||||||
Ending balance |
|
$ |
2,934 |
|
$ |
441 |
|
$ |
995 |
|
$ |
441 |
|
$ |
25 |
|
$ |
186 |
|
$ |
5,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
December 31, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Ending balance |
|
$ |
3,150 |
|
$ |
322 |
|
$ |
1,033 |
|
$ |
383 |
|
$ |
24 |
|
$ |
160 |
|
$ |
5,072 |
|
Ending balance: individually evaluated for impairment |
|
258 |
|
7 |
|
50 |
|
12 |
|
|
|
|
|
327 |
| |||||||
Ending balance: collectively evaluted for impairment |
|
$ |
2,892 |
|
$ |
315 |
|
$ |
983 |
|
$ |
371 |
|
$ |
24 |
|
$ |
160 |
|
$ |
4,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Loans receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Ending balance |
|
$ |
246,545 |
|
$ |
54,332 |
|
$ |
64,900 |
|
$ |
68,737 |
|
$ |
1,215 |
|
$ |
|
|
$ |
435,729 |
|
Ending balance: individually evaluted for impairment |
|
5,261 |
|
2,509 |
|
325 |
|
1,408 |
|
|
|
|
|
9,503 |
| |||||||
Ending balance: collectively evaluated for impairment |
|
$ |
241,284 |
|
$ |
51,823 |
|
$ |
64,575 |
|
$ |
67,329 |
|
$ |
1,215 |
|
$ |
|
|
$ |
426,226 |
|
The following tables present the activity in the allowance for loan losses and recorded investment in loan receivables for the periods indicated (in thousands):
For the nine months ended:
|
|
Commercial |
|
Residential |
|
|
|
|
|
|
|
|
|
|
| |||||||
September 30, 2013 |
|
Real Estate |
|
Mortgages |
|
Commercial |
|
Home Equity |
|
Consumer |
|
Unallocated |
|
Total |
| |||||||
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Beginning Balance |
|
$ |
3,150 |
|
$ |
322 |
|
$ |
1,033 |
|
$ |
383 |
|
$ |
24 |
|
$ |
160 |
|
$ |
5,072 |
|
Charge-offs |
|
(89 |
) |
|
|
|
|
|
|
(22 |
) |
|
|
(111 |
) | |||||||
Recoveries |
|
|
|
|
|
3 |
|
|
|
|
|
|
|
3 |
| |||||||
Provisions |
|
537 |
|
4 |
|
(50 |
) |
108 |
|
22 |
|
64 |
|
685 |
| |||||||
Ending balance |
|
$ |
3,598 |
|
$ |
326 |
|
$ |
986 |
|
$ |
491 |
|
$ |
24 |
|
$ |
224 |
|
$ |
5,649 |
|
|
|
Commercial |
|
Residential |
|
|
|
|
|
|
|
|
|
|
| |||||||
September 30, 2012 |
|
Real Estate |
|
Mortgages |
|
Commercial |
|
Home Equity |
|
Consumer |
|
Unallocated |
|
Total |
| |||||||
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Beginning Balance |
|
$ |
2,408 |
|
$ |
470 |
|
$ |
827 |
|
$ |
368 |
|
$ |
21 |
|
$ |
380 |
|
$ |
4,474 |
|
Charge-offs |
|
|
|
|
|
(340 |
) |
|
|
|
|
|
|
(340 |
) | |||||||
Recoveries |
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
3 |
| |||||||
Provisions |
|
525 |
|
(29 |
) |
506 |
|
73 |
|
4 |
|
(194 |
) |
885 |
| |||||||
Ending balance |
|
$ |
2,934 |
|
$ |
441 |
|
$ |
995 |
|
$ |
441 |
|
$ |
25 |
|
$ |
186 |
|
$ |
5,022 |
|
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past due status as of September 30, 2013 and December 31, 2012, (in thousands):
|
|
|
|
|
|
90 Days or |
|
|
|
|
|
|
|
|
| |||||||
|
|
30-59 Days |
|
60-89 Days |
|
More Past |
|
Total Past |
|
|
|
Total Loans |
|
|
| |||||||
September 30, 2013 |
|
Past Due |
|
Past Due |
|
Due |
|
Due |
|
Current |
|
Receivables |
|
Nonaccrual |
| |||||||
Commercial real estate |
|
$ |
|
|
$ |
|
|
$ |
1,700 |
|
$ |
1,700 |
|
$ |
293,249 |
|
$ |
294,949 |
|
$ |
1,700 |
|
Residential mortgages |
|
|
|
|
|
2,608 |
|
2,608 |
|
51,738 |
|
54,346 |
|
2,608 |
| |||||||
Commercial |
|
|
|
|
|
50 |
|
50 |
|
60,029 |
|
60,079 |
|
50 |
| |||||||
Home equity |
|
90 |
|
|
|
1,332 |
|
1,422 |
|
62,058 |
|
63,480 |
|
1,332 |
| |||||||
Consumer |
|
|
|
|
|
|
|
|
|
1,371 |
|
1,371 |
|
|
| |||||||
Total |
|
$ |
90 |
|
$ |
|
|
$ |
5,690 |
|
$ |
5,780 |
|
$ |
468,445 |
|
$ |
474,225 |
|
$ |
5,690 |
|
|
|
|
|
|
|
90 Days or |
|
|
|
|
|
|
|
|
| |||||||
|
|
30-59 Days |
|
60-89 Days |
|
More Past |
|
Total Past |
|
|
|
Total Loans |
|
|
| |||||||
December 31, 2012 |
|
Past Due |
|
Past Due |
|
Due |
|
Due |
|
Current |
|
Receivables |
|
Nonaccrual |
| |||||||
Commercial real estate |
|
$ |
|
|
$ |
|
|
$ |
1,704 |
|
$ |
1,704 |
|
$ |
244,841 |
|
$ |
246,545 |
|
$ |
1,704 |
|
Residential mortgages |
|
|
|
184 |
|
2,509 |
|
2,693 |
|
51,639 |
|
54,332 |
|
2,509 |
| |||||||
Commercial |
|
119 |
|
|
|
325 |
|
444 |
|
64,456 |
|
64,900 |
|
325 |
| |||||||
Home equity |
|
|
|
|
|
1,408 |
|
1,408 |
|
67,329 |
|
68,737 |
|
1,408 |
| |||||||
Consumer |
|
10 |
|
|
|
|
|
10 |
|
1,205 |
|
1,215 |
|
|
| |||||||
Total |
|
$ |
129 |
|
$ |
184 |
|
$ |
5,946 |
|
$ |
6,259 |
|
$ |
429,470 |
|
$ |
435,729 |
|
$ |
5,946 |
|
If interest on nonaccrual loans had been accrued, such income would have been approximately $74 thousand and $248 thousand, respectively, for the three and nine month periods ended September 30, 2013 and $86 thousand and $260 thousand for the three and nine month periods ended September 30, 2012. Acutal interest income recognized on these loans during the three and nine months ended September 30, 2013 was $0. Actual interest income recognized on these loans during the three and nine months ended September 30, 2012, was $1 thousand and $9 thousand, respectively.
Within its nonaccrual loans at September 30, 2013, the Bank had four residential mortgage loans, one commercial real estate loan, and one home equity loan that met the definition of a troubled debt restructuring
(TDR). TDRs are loans where the contractual terms of the loan have been modified to grant a concession to a borrower experiencing financial difficulties. These modifications could include a reduction in the interest rate of the loan, payment extensions, forgiveness of principal or other actions to maximize collection. At September 30, 2013, nonaccruing TDR loans had an outstanding balance of $4.0 million and had specific reserves of $50 thousand. None of these loans were performing in accordance with their modified terms. During the nine months ended September 30, 2013, two loans totaling $239 thousand to the same person were modified as TDRs. There were no new TDRs for the three months ended September 30, 2013. There were no new TDRs during the three and nine months ended September 30, 2012.
The Bank had no loans greater than ninety days delinquent and accruing interest.
The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Banks internal risk rating system as of September 30, 2013 and December 31, 2012 (in thousands):
|
|
Commercial |
|
Residential |
|
|
|
|
|
|
|
|
| ||||||
September 30, 2013 |
|
Real Estate |
|
Mortgages |
|
Commercial |
|
Home Equity |
|
Consumer |
|
Total |
| ||||||
Pass |
|
$ |
291,131 |
|
$ |
48,865 |
|
$ |
58,529 |
|
$ |
61,148 |
|
$ |
1,371 |
|
$ |
461,044 |
|
Special Mention |
|
2,118 |
|
2,873 |
|
1,500 |
|
1,000 |
|
|
|
7,491 |
| ||||||
Substandard |
|
1,690 |
|
2,608 |
|
50 |
|
1,332 |
|
|
|
5,680 |
| ||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
|
$ |
294,949 |
|
$ |
54,346 |
|
$ |
60,079 |
|
$ |
63,480 |
|
$ |
1,371 |
|
$ |
474,225 |
|
|
|
Commercial |
|
Residential |
|
|
|
|
|
|
|
|
| ||||||
December 31, 2012 |
|
Real Estate |
|
Mortgages |
|
Commercial |
|
Home Equity |
|
Consumer |
|
Total |
| ||||||
Pass |
|
$ |
241,682 |
|
$ |
51,823 |
|
$ |
63,075 |
|
$ |
67,329 |
|
$ |
1,215 |
|
$ |
425,124 |
|
Special Mention |
|
|
|
|
|
1,500 |
|
|
|
|
|
1,500 |
| ||||||
Substandard |
|
4,863 |
|
2,509 |
|
325 |
|
1,408 |
|
|
|
9,105 |
| ||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
|
$ |
246,545 |
|
$ |
54,332 |
|
$ |
64,900 |
|
$ |
68,737 |
|
$ |
1,215 |
|
$ |
435,729 |
|
A loan is considered impaired, in accordance with the impairment accounting guidance (FASB ASC 310-10-35-16), when based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.
Impaired loans and related amounts recorded in the allowance for loan losses are summarized as follows (in thousands):
|
|
|
|
Unpaid |
|
|
| |||
|
|
Recorded |
|
Principal |
|
Related |
| |||
September 30, 2013 |
|
Investment |
|
Balance |
|
Allowance |
| |||
Impaired loans with specific reserves: |
|
|
|
|
|
|
| |||
Commercial real estate |
|
$ |
957 |
|
$ |
957 |
|
$ |
220 |
|
Residential mortgages |
|
973 |
|
1,185 |
|
52 |
| |||
Commercial |
|
50 |
|
50 |
|
50 |
| |||
Home equity |
|
1,000 |
|
1,000 |
|
150 |
| |||
Total impaired loans with specific reserves |
|
2,980 |
|
3,192 |
|
472 |
| |||
|
|
|
|
|
|
|
| |||
Impaired loans with no specific reserves: |
|
|
|
|
|
|
| |||
Commercial real estate |
|
3,258 |
|
3,258 |
|
|
| |||
Residential mortgages |
|
4,688 |
|
4,688 |
|
|
| |||
Commercial |
|
|
|
|
|
|
| |||
Home equity |
|
1,392 |
|
1,493 |
|
|
| |||
Consumer |
|
|
|
|
|
|
| |||
Total impaired loans with no specific reserves |
|
9,338 |
|
9,439 |
|
|
| |||
Total impaired loans |
|
$ |
12,318 |
|
$ |
12,631 |
|
$ |
472 |
|
|
|
|
|
Unpaid |
|
|
| |||
|
|
Recorded |
|
Principal |
|
Related |
| |||
December 31, 2012 |
|
Investment |
|
Balance |
|
Allowance |
| |||
Impaired loans with specific reserves: |
|
|
|
|
|
|
| |||
Commercial real estate |
|
$ |
957 |
|
$ |
957 |
|
$ |
258 |
|
Residential mortgage |
|
629 |
|
840 |
|
7 |
| |||
Commercial |
|
50 |
|
50 |
|
50 |
| |||
Home equity |
|
523 |
|
523 |
|
12 |
| |||
Total impaired loans with specific reserves |
|
2,159 |
|
2,370 |
|
327 |
| |||
|
|
|
|
|
|
|
| |||
Impaired loans with no specific reserves: |
|
|
|
|
|
|
| |||
Commercial real estate |
|
4,304 |
|
4,304 |
|
|
| |||
Residential mortgage |
|
1,880 |
|
1,880 |
|
|
| |||
Commercial |
|
275 |
|
275 |
|
|
| |||
Home equity |
|
885 |
|
986 |
|
|
| |||
Total impaired loans with no specific reserves |
|
7,344 |
|
7,445 |
|
|
| |||
Total impaired loans |
|
$ |
9,503 |
|
$ |
9,815 |
|
$ |
327 |
|
The following table provides information about the Banks impaired loans for the three month periods ended September 30, 2013 and 2012, and the nine month periods ended September 30, 2013 and 2012 (in thousands):
|
|
Three Months Ended |
|
Three Months Ended |
| ||||||||
|
|
September 30, 2013 |
|
September 30, 2012 |
| ||||||||
|
|
Average |
|
Interest |
|
Average |
|
Interest |
| ||||
|
|
Recorded |
|
Income |
|
Recorded |
|
Income |
| ||||
|
|
Investment |
|
Received |
|
Investment |
|
Received |
| ||||
Impaired loans with specific reserves: |
|
|
|
|
|
|
|
|
| ||||
Commercial real estate |
|
$ |
957 |
|
$ |
|
|
$ |
957 |
|
$ |
|
|
Residential mortgages |
|
975 |
|
|
|
797 |
|
1 |
| ||||
Commercial |
|
50 |
|
|
|
220 |
|
|
| ||||
Home equity |
|
1,000 |
|
8 |
|
180 |
|
|
| ||||
Total impaired loans with specific reserves |
|
2,982 |
|
8 |
|
2,154 |
|
1 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Impaired loans with no specific reserves: |
|
|
|
|
|
|
|
|
| ||||
Commercial real estate |
|
3,261 |
|
6 |
|
1,157 |
|
6 |
| ||||
Residential mortgages |
|
4,688 |
|
36 |
|
1,678 |
|
|
| ||||
Commercial |
|
137 |
|
|
|
275 |
|
|
| ||||
Home equity |
|
1,429 |
|
|
|
1,253 |
|
|
| ||||
Consumer |
|
11 |
|
|
|
|
|
|
| ||||
Total impaired loans with no specific reserves |
|
9,526 |
|
42 |
|
4,363 |
|
6 |
| ||||
Total impaired loans |
|
$ |
12,508 |
|
$ |
50 |
|
$ |
6,517 |
|
$ |
7 |
|
|
|
Nine Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, 2013 |
|
September 30, 2012 |
| ||||||||
|
|
Average |
|
Interest |
|
Average |
|
Interest |
| ||||
|
|
Recorded |
|
Income |
|
Recorded |
|
Income |
| ||||
|
|
Investment |
|
Received |
|
Investment |
|
Received |
| ||||
Impaired loans with specific reserves: |
|
|
|
|
|
|
|
|
| ||||
Commercial real estate |
|
$ |
957 |
|
$ |
|
|
$ |
957 |
|
$ |
|
|
Residential mortgages |
|
975 |
|
|
|
798 |
|
9 |
| ||||
Commercial |
|
50 |
|
|
|
135 |
|
|
| ||||
Home equity |
|
750 |
|
24 |
|
135 |
|
|
| ||||
Total impaired loans with specific reserves |
|
2,732 |
|
24 |
|
2,025 |
|
9 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Impaired loans with no specific reserves: |
|
|
|
|
|
|
|
|
| ||||
Commercial real estate |
|
2,892 |
|
18 |
|
1,164 |
|
|
| ||||
Residential mortgages |
|
3,962 |
|
72 |
|
1,767 |
|
18 |
| ||||
Commercial |
|
206 |
|
|
|
275 |
|
|
| ||||
Home equity |
|
1,434 |
|
|
|
1,253 |
|
|
| ||||
Consumer |
|
6 |
|
|
|
|
|
|
| ||||
Total impaired loans with no specific reserves |
|
8,500 |
|
90 |
|
4,459 |
|
18 |
| ||||
Total impaired loans |
|
$ |
11,232 |
|
$ |
114 |
|
$ |
6,484 |
|
$ |
27 |
|
At September 30, 2013, in addition to the six nonaccruing TDR loans, the Bank had five accruing loans which met the definition of a TDR and as such are also classified as impaired.
The following table summarizes information relative to troubled debt restructurings by loan portfolio class as of September 30, 2013 and December 31, 2012 (in thousands):
|
|
Pre-Modification |
|
Post-Modification |
|
|
| |||
|
|
Outstanding |
|
Outstanding |
|
Recorded |
| |||
|
|
Recorded |
|
Recorded |
|
Investment at |
| |||
|
|
Investment |
|
Investment |
|
Period End |
| |||
September 30, 2013 |
|
|
|
|
|
|
| |||
Accruing troubled debt restructurings: |
|
|
|
|
|
|
| |||
Commercial real estate |
|
$ |
3,557 |
|
397 |
|
$ |
397 |
| |
Residential mortgage |
|
184 |
|
3,057 |
|
3,053 |
| |||
Home equity |
|
60 |
|
1,060 |
|
1,060 |
| |||
Total accruing troubled debt restructurings |
|
3,801 |
|
4,514 |
|
4,510 |
| |||
Nonaccruing troubled debt restructurings: |
|
|
|
|
|
|
| |||
Commercial real estate |
|
746 |
|
746 |
|
742 |
| |||
Residential mortgage |
|
2,743 |
|
2,743 |
|
2,514 |
| |||
Home equity |
|
730 |
|
730 |
|
730 |
| |||
Total nonaccruing troubled debt restructurings |
|
4,219 |
|
4,219 |
|
3,986 |
| |||
Total troubled debt restructurings |
|
$ |
8,020 |
|
$ |
8,733 |
|
$ |
8,496 |
|
|
|
|
|
|
|
|
| |||
December 31, 2012 |
|
|
|
|
|
|
| |||
Accruing troubled debt restructurings: |
|
|
|
|
|
|
| |||
Commercial real estate |
|
$ |
3,557 |
|
$ |
3,557 |
|
$ |
3,557 |
|
Total accruing troubled debt restructurings |
|
3,557 |
|
3,557 |
|
3,557 |
| |||
Nonaccruing troubled debt restructurings: |
|
|
|
|
|
|
| |||
Commercial real estate |
|
746 |
|
746 |
|
746 |
| |||
Residential mortgage |
|
2,499 |
|
2,499 |
|
2,285 |
| |||
Home equity |
|
730 |
|
730 |
|
730 |
| |||
Commercial |
|
275 |
|
275 |
|
275 |
| |||
Total nonaccruing troubled debt restructurings |
|
4,250 |
|
4,250 |
|
4,036 |
| |||
Total troubled debt restructurings |
|
$ |
7,807 |
|
$ |
7,807 |
|
$ |
7,593 |
|
During the nine months ended September 30, 2013, two loans totaling $239 thousand to the same person were modified as TDRs. One loan was a single family residential mortgage, and the second was a home equity loan. They are performing in accordance with their modified terms. During the three months ended September 30, 2013, the Bank had no new loans classified as TDRs. During the three and nine month periods ended September 30, 2012, the Bank had no new loans classified as TDRs.
During the nine months ended September 30, 2013 and 2012, there were no defaults of loans modified in troubled debt restructurings during the previous twelve months.
Note 7. Guarantees
The Company does not issue any guarantees that would require liability recognition or disclosure, other than the Banks standby letters of credit. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Generally, all letters of credit, when issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers. The Bank generally holds collateral and/or personal guarantees supporting these commitments. As of September 30, 2013, the Bank had $2.8 million of commercial and similar letters of credit. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payment required under the corresponding guarantees. Management believes that the current amount of the liability as of September 30, 2013 for guarantees under standby letters of credit issued is not material.
Note 8. Fair Value Measurements
Under ASC Topic 820, fair value measurements are not adjusted for transaction costs. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below:
· Level 1 Inputs - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
· Level 2 Inputs - Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.
· Level 3 Inputs - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (that is, supported with little or no market activity).
The level of an asset or liability within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement of that asset or liability.
Management uses its best judgment in estimating the fair value of the Companys financial instruments, however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period end and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial
instruments subsequent to the respective reporting dates may be different than the amounts reported at the respective reporting dates.
For financial instruments measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2013 and December 31, 2012, respectively, are as follows (in thousands):
|
|
|
|
(Level 1) |
|
|
|
|
| ||||
|
|
|
|
Quoted Prices in |
|
(Level 2) |
|
(Level 3) |
| ||||
|
|
|
|
Active Markets for |
|
Significant Other |
|
Significant |
| ||||
Description |
|
September 30, 2013 |
|
Identical Assets |
|
Observable Inputs |
|
Unobservable Inputs |
| ||||
Securities available for sale: |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury obligations |
|
$ |
6,399 |
|
$ |
|
|
$ |
6,399 |
|
$ |
|
|
Government Sponsored |
|
|
|
|
|
|
|
|
| ||||
Enterprise obligations |
|
47,970 |
|
|
|
47,970 |
|
|
| ||||
Total securities available for sale |
|
$ |
54,369 |
|
$ |
|
|
$ |
54,369 |
|
$ |
|
|
|
|
|
|
(Level 1) |
|
|
|
|
| ||||
|
|
|
|
Quoted Prices in |
|
(Level 2) |
|
(Level 3) |
| ||||
|
|
|
|
Active Markets for |
|
Significant Other |
|
Significant |
| ||||
Description |
|
December 31, 2012 |
|
Identical Assets |
|
Observable Inputs |
|
Unobservable Inputs |
| ||||
Securities available for sale: |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury obligations |
|
$ |
18,177 |
|
$ |
|
|
$ |
18,177 |
|
$ |
|
|
Government Sponsored |
|
|
|
|
|
|
|
|
| ||||
Enterprise obligations |
|
70,303 |
|
|
|
70,303 |
|
|
| ||||
Total securities available for sale |
|
$ |
88,480 |
|
$ |
|
|
$ |
88,480 |
|
$ |
|
|
For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2013 and December 31, 2012, respectively, follows (in thousands):
|
|
|
|
(Level 1) |
|
|
|
|
| ||||
|
|
|
|
Quoted Prices in |
|
(Level 2) |
|
(Level 3) |
| ||||
|
|
|
|
Active Markets for |
|
Significant Other |
|
Significant |
| ||||
Description |
|
September 30, 2013 |
|
Identical Assets |
|
Observable Inputs |
|
Unobservable Inputs |
| ||||
Impaired loans |
|
$ |
2,509 |
|
$ |
|
|
$ |
|
|
$ |
2,509 |
|
Other real estate owned |
|
234 |
|
|
|
|
|
234 |
| ||||
|
|
|
|
(Level 1) |
|
|
|
|
| ||||
|
|
|
|
Quoted Prices in |
|
(Level 2) |
|
(Level 3) |
| ||||
|
|
|
|
Active Markets for |
|
Significant Other |
|
Significant |
| ||||
Description |
|
December 31, 2012 |
|
Identical Assets |
|
Observable Inputs |
|
Unobservable Inputs |
| ||||
Impaired loans |
|
$ |
1,982 |
|
$ |
|
|
$ |
|
|
$ |
1,982 |
|
The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value (in thousands):
|
|
Fair Value |
|
Valuation |
|
Unobservable |
|
|
| |
September 30, 2013 |
|
Estimate |
|
Techniques |
|
Input |
|
Range (Weighted Average) |
| |
|
|
|
|
|
|
|
|
|
| |
Impaired Loans |
|
$ |
2,509 |
|
Appraisal of Collateral (1) |
|
Appraisal Adjustments (2) |
|
0% - 25.7% (-7.8%) |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Liquidation Expenses (2) |
|
0% - 78.8% (-61.5%) |
| |
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
|
$ |
234 |
|
Appraisal of Collateral (1) |
|
Appraisal Adjustments (2) |
|
13.6% |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Liquidation Expenses (2) |
|
7.0% |
|
(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.
(2) Appraisals may be adjusted for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.
The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Companys assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Companys disclosures and those of other companies may not be meaningful.
The carrying amounts and fair values set forth below for the Companys financial instruments, excluding financial instruments for which fair value approximates cost, is as follows at September 30, 2013 and December 31, 2012 (in thousands):
|
|
|
|
|
|
(Level 1) |
|
|
|
|
| |||||
|
|
|
|
|
|
Quoted Prices in |
|
|
|
(Level 3) |
| |||||
|
|
|
|
|
|
Active Markets |
|
(Level 2) |
|
Significant |
| |||||
|
|
September 30, 2013 |
|
for Identical |
|
Significant Other |
|
Unobservable |
| |||||||
|
|
Carrying amount |
|
Estimated Fair Value |
|
Assets |
|
Observable Inputs |
|
Inputs |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Securities available for sale |
|
$ |
54,369 |
|
$ |
54,369 |
|
$ |
|
|
$ |
54,369 |
|
$ |
|
|
Securities held to maturity |
|
21,610 |
|
21,613 |
|
|
|
21,613 |
|
|
| |||||
Net loans |
|
468,283 |
|
471,100 |
|
|
|
|
|
471,100 |
| |||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Deposits |
|
528,190 |
|
530,494 |
|
217,283 |
|
313,211 |
|
|
| |||||
|
|
December 31, 2012 |
|
|
|
|
|
|
| |||||||
|
|
Carrying amount |
|
Estimated Fair Value |
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
| |||||
Securities available for sale |
|
$ |
88,480 |
|
$ |
88,480 |
|
$ |
|
|
$ |
88,480 |
|
$ |
|
|
Securities held to maturity |
|
5,482 |
|
5,482 |
|
|
|
5,482 |
|
|
| |||||
Net loans |
|
430,477 |
|
433,268 |
|
|
|
|
|
433,268 |
| |||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
| |||||
Deposits |
|
515,735 |
|
514,744 |
|
207,826 |
|
306,918 |
|
|
| |||||
The following methods and assumptions were used to estimate the fair values of the Companys finanical instruments at September 30, 2013 and December 31, 2012:
Cash and Cash Equivalents and Interest Bearing Time Deposits (Carried at cost)
The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets fair values.
Securities
The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquiditiy and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3). In the absence of such evidence, managements best estimate is used. Managements best estimate consists of both internal and external support on certain Level 3 investments. Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) were used to support fair values of certain Level 3 investments.
Restricted Investment in Bank Stock (Carried at Cost)
The carrying amount of restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities.
Loans Receivable (Carried at Cost)
The fair value of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and the interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.
Impaired loans
Fair value is generally deteremined based upon independent third-party appraisals of the collateral, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
Accrued Interest Receivable and Payable (Carried at Cost)
The carrying amount of accrued interest receivable and accrued interest payable approximates fair value.
Other real estate owned
Other real estate owned assets are adjusted to fair value less estimated selling costs upon transfer of the loans to other real estate owned. Subsequently, other real estate owned assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or managements estimation of the value of the collateral. These assets are included as Level 3 fair values.
Deposits (Carried at Cost)
The fair values disclosed for demand deposits (for example, interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities of time deposits.
Limitation
The preceding fair value estimates were made at September 30, 2013 and December 31, 2012 based on pertinent market data and relevant information on the financial instrument. These estimates do not include any premium or discount that could result from an offer to sell at one time the Companys entire holdings of a particular financial instrument or category thereof. Since no market exists for a substantial portion of the Companys financial instruments, fair value estimates were necessarily based on judgments regarding future expected loss experience, current economic conditions, risk assessment of various financial instruments, and other factors. Given the innately subjective nature of these estimates, the uncertainties surrounding them and the matter of significant judgment that must be applied, these fair value estimates cannot be calculated with precision. Modifications in such assumptions could meaningfully alter these estimates.
Since these fair value approximations were made solely for on- and off-balance-sheet financial instruments at September 30, 2013 and December 31, 2012, no attempt was made to estimate the value of anticipated future business. Furthermore, certain tax implications related to the realization of the unrealized gains and losses could have a substantial impact on these fair value estimates and have not been incorporated into the estimates.
Note 9. Recent Accounting Pronouncements
ASU 2013-02 (Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income)
In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220); Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The objective of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments in this Update require an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (GAAP) to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012. This ASU did not have a significant impact on the Companys consolidated financial statements.
Note 10. Accumulated Other Comprehensive Income
Reclassifications out of accumulated other comprehensive income for the three and nine month periods ended September 30, 2013 are as follows (in thousands);
Details About Accumulated Other |
|
Amount Reclassified from |
|
Affected Line Item in the |
| |
Three months ended September 30, 2013 |
|
|
|
|
| |
Available for Sale Securities |
|
|
|
|
| |
Realized loss on sale of securities |
|
$ |
2 |
|
(Loss) gains on sale of securities |
|
|
|
(1 |
) |
Income tax expense |
| |
Total reclassifications |
|
$ |
1 |
|
Net of tax |
|
|
|
|
|
|
| |
Nine months ended September 30, 2013 |
|
|
|
|
| |
Available for Sale Securities |
|
|
|
|
| |
Realized loss on sale of securities |
|
$ |
195 |
|
(Loss) gains on sale of securities |
|
|
|
(63 |
) |
Income tax expense |
| |
Total reclassifications |
|
$ |
132 |
|
Net of tax |
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations
You should read this discussion and analysis in conjunction with the consolidated unaudited interim consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, and with our audited consolidated financial statements for the year ended December 31, 2012 and Managements Discussion and Analysis of Financial Condition and Results of Operations presented in our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission.
Statements Regarding Forward Looking Information
This document contains forward-looking statements, in addition to historical information. Forward looking statements are typically identified by words or phrases such as believe, expect, anticipate, intend, estimate, project, and variations of such words and similar expressions, or future or conditional verbs such as will, would, should, could, may, or similar expressions. The U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, provide a safe harbor in regard to the inclusion of forward-looking statements in this document and documents incorporated by reference.
You should note that many factors, some of which are discussed elsewhere in this document and in the documents that are incorporated by reference, could affect the future financial results of Bancorp of New Jersey, Inc. and its subsidiaries and could cause those results to differ materially from those expressed in the forward-looking statements contained or incorporated by reference in this document. These factors include, but are not limited, to the following:
· Current economic conditions affecting the financial industry;
· Changes in interest rates and shape of the yield curve;
· Credit risk associated with our lending activities;
· Risks relating to our market area, significant real estate collateral and the real estate market;
· Operating, legal and regulatory risk;
· Fiscal and monetary policy;
· Economic, political and competitive forces affecting the Companys business; and
· That managements analysis of these risks and factors could be incorrect, and/or that the strategies developed to address them could be unsuccessful.
Bancorp of New Jersey, Inc., referred to as we or the Company, cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, all of which change over time, and we assume no duty to update forward-looking statements, except as may be required by applicable law or regulation, and except as required by applicable law or regulation, we do not undertake, and specifically disclaim any obligation, to publicly release any revisions to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. We caution readers not to place undue reliance on any forward-looking statements. These statements speak only as of the date made, and we advise readers that various factors, including those described above, could affect our financial performance and could cause actual results or circumstances for future periods to differ materially from those anticipated or projected.
Critical Accounting Policies, Judgments and Estimates
The consolidated unaudited financial statements have been prepared in conformity with U.S. generally accepted accounting principles. In preparing the consolidated unaudited financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of financial condition and revenues and expenses for the period indicated. Actual results
could differ significantly from those estimates. Management believes the following critical accounting policies encompass the more significant judgments and estimates used in the preparation of the consolidated unaudited financial statements.
Allowance for Loan Losses
The allowance for loan losses (ALLL) represents our best estimate of losses known and inherent in our loan portfolio that are both probable and reasonable to estimate. In determining the amount of the ALLL, we consider the losses inherent in our loan portfolio and changes in the nature and volume of our loan activities, along with general economic and real estate market conditions. We utilize a segmented approach which identifies: (1) impaired loans for which a specific loan loss allowance is established; and (2) performing and classified loans for which a general loan loss allowance is established. We maintain a loan review system which provides for a systematic review of the loan portfolios and with the goal of early identification of impaired loans. The review of residential real estate and home equity consumer loans, as well as other more complex loans, is triggered by identified evaluation factors, including delinquency status, size of loan, type of collateral and the financial condition of the borrower. All commercial loans are evaluated individually for impairment. Specific loan loss allowances are established for impaired loans based on a review of such information and/or appraisals of the underlying collateral. General loan loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions and managements judgment.
Although specific and general loan loss allowances are established in accordance with managements best estimates, actual losses are dependent upon future events, and as such, further provisions for loan losses may be necessary in order to increase the level of the allowance for loan losses. For example, our evaluation of the allowance includes consideration of current economic conditions, and a change in economic conditions could reduce the ability of borrowers to make timely repayments of their loans. This could result in increased delinquencies and increased non-performing loans, and thus a need to make increased provisions to the allowance for loan losses. Any such increase in provisions would result in a reduction to our earnings. A change in economic conditions could also adversely affect the value of properties collateralizing real estate loans, resulting in increased charges against the allowance and reduced recoveries, and require increased provisions to the allowance for loan losses. Furthermore, a change in the composition, or growth, of our loan portfolio could result in the need for additional provisions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Banks allowance for loan losses. These agencies may require the Bank to effect certain changes that result in additions to the allowance based on their judgments about information available to them at the time of their examinations.
Deferred Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the period in which the deferred tax asset or liability is expected to be settled or realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period in which the change occurs. Deferred tax assets are reduced, through a valuation allowance, if necessary, by the amount of such benefits that are not expected to be realized based on current available evidence.
Results of Operations
Three Months Ended September 30, 2013 and 2012 and Nine Months Ended September 30, 2013 and 2012
Our results of operations depend primarily on net interest income, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. Interest-earning assets consist principally of loans and investment securities, while interest-bearing liabilities consist primarily of deposits and borrowings. Net income is also affected by the provision for loan losses and the level of non-interest income as well as by non-interest expenses, including salaries and employee benefits, occupancy and equipment expense, and income tax expense.
Net Income
Net income for the third quarter of 2013 was $1.2 million compared to net income of $1.1 million for the third quarter of 2012, an increase of $83 thousand, or 7.3%. This increase was primarily due to an increase in net interest income, which increased approximately $335 thousand, or 7.5%, and a decrease in the provision for loan losses of $35 thousand, or 13.5%, offset by a decrease in gains on the sales of investment securities of $240 thousand, or 101%, and an increase in income taxes of $62 thousand, or 8.3%.
Net income for the nine months ended September 30, 2013 was approximately $3.5 million compared to net income of approximately $3.0 million for the nine months ended September 30, 2012, an increase of $454 thousand, or 15.0%. The increase was due to an increase in net interest income of $1.2 million and a decrease in the provision for loan losses of $200 thousand, offset by increases in non-interest expenses and income tax expense of $608 thousand and $296 thousand, respectively.
On a per share basis, basic and diluted earnings per share were $0.23 for the third quarter of 2013 as compared to basic and diluted earnings per share of $0.22 for the third quarter of 2012, an increase of $0.01 per share, or 4.5%. Basic and diluted earnings per share were $0.66 and $0.65, respectively, for the nine months ended September 30, 2013 as compared to basic and diluted earnings per share of $0.58 for the nine months ended September 30, 2012, an increase of $.08, or 13.8% for basic earnings per share, and $.07, or 12.1%, per share for diluted earnings per share.
Net Interest Income
Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them. For the three month period ended September 30, 2013, the growth in net interest income has been, primarily, powered by increased interest income from loans, including fees. Interest income on loans increased by $551 thousand for the three months ended September 30, 2013 as compared to the same period last year. This increase in interest income was due to a $60.4 million increase in the average balance of loans during the quarter ended September 30, 2013, up to $469.9 million as compared to the third quarter of 2012 average loan balance of $409.5 million, offset somewhat by a decrease in the average rate earned on loans, from 5.38% for the three months ended September 30, 2012 down to 5.16% for the three months ended September 30, 2013, a decrease of 22 basis points. Interest expense decreased by $43 thousand year over year and was due in most part to the decrease in the average rate paid on interest bearing deposits of 14 basis points, down to 1.32% for the three months ended September 30, 2013 from 1.46% for the three months ended September 30, 2012, offset somewhat by an increase in the average balance of interest bearing deposits of $36.1 million up to $462.1 million for the quarter ended September 30, 2013 from $426.0 million for the quarter ended September 30, 2012.
During the nine months ended September 30, 2013, net interest income reached $14.0 million compared to $12.8 million for the nine months ended September 30, 2012, an increase of $1.2 million, or 9.3%. This increase is attributable to the increase in interest income from loans, including fees and is due in most part to the increase in average loans. Interest income from loans, including fees, securities and federal funds sold reached $18.5 million for the nine months ended September 30, 2013 from $17.3 million for the nine months ended September 30, 2012, an increase of $1.2 million, or 7.0%. At the same time, total interest expense increased by $23 thousand for the nine months ended September 30, 2013 from the nine months ended September 30, 2012. The increase in interest expense was primarily due to the increase in the average balance of interest bearing deposits of $46.7 million, up to $455.3 million for the nine months ended September 30, 2013 from $408.6 million on average for the nine months ended September 30, 2012. The increase in the average balance of interest bearing deposits was offset by a decrease in the average rate paid on interest bearing deposits for the nine months ended September 30, 2013 of 14 basis points to 1.34% from 1.48% for the same period last year.
Provision for Loan Losses
The provision for loan losses is a recorded expense that adjusts the allowance for loan losses to a level, which, in managements best estimate, is necessary to absorb probable losses within the existing loan portfolio. Through the application of our ALLL methodology, the provision for loan losses reflects loan quality trends, including, among other factors, the levels of and trends related to nonaccrual loans, past due loans, potential problem loans, criticized loans, net charge-offs or recoveries and growth in the loan portfolio. Accordingly, the amount of the provision reflects both the necessary increases in the allowance for loan losses related to new loans and newly identified criticized loans, as well as the actions taken related to other loans including, among other things, any necessary increases or decreases in required allowances for specific loans or loan pools. The provision for loan losses was $225 thousand for the three months ended September 30, 2013 as compared to $260 thousand for the three months ended September 30, 2012, a decrease of $35 thousand. During the nine months ended September 30, 2012, the provision for loan losses was $685 thousand as compared to $885 thousand during the nine months ended September 30, 2012, a decrease of $200 thousand. At September 30, 2013, the ALLL was approximately $5.6 million, or 1.19% of total loans, as compared to $5.1 million and 1.16% of total loans at December 31, 2012. In both the three and nine month periods, the decrease in the provision for loan losses reflects the overall credit quality of the loan portfolio and the stabilization of nonperforming loans, as well as other factors impacting allowances for loan losses methodology and calculation. Nonaccruing loans totaled $5.7 million, or 1.20% of total loans at September 30, 2013, $5.9 million, or 1.36% of total loans at December 31, 2012, and $5.9 million, or 1.42% of total loans at September 30, 2012.
Non-interest Income
For the three months and nine months ended September 30, 2013, non-interest income decreased by $241 thousand and $27 thousand, respectively, as compared to the three months and nine months ended September 30, 2012. For each of the periods noted, the decreases were primarily due to decreases in the realized gains on the sales of securities. For the three months ended September 30, 2013, the Company recorded a loss of $2 thousand on the sale of securities compared to a gain of $238 thousand on the sale of securities for the three months ended September 30, 2012, a decrease of $240 thousand. For the nine months ended September 30, 2013, the gain on the sale of securities decreased by $43 thousand to $195 thousand from $238 thousand for the nine months ended September 30, 2012.
Non-interest Expense
Non-interest expense totaled $2.6 million during the third quarter of 2013, and 2012, basically staying flat. Salaries and employee benefits and occupancy and equipment expense increased by $134 thousand and $53 thousand, respectively, to $1.4 million and $587 thousand, respectively, for the three months ended September 30, 2013, from $1.3 million and $534 thousand, respectively, for the three months ended
September 30, 2012. These increases in salaries and employee benefits and occupancy and equipment expense were due in part to general increases in staff, salaries and benefits as well as occupancy costs associated with the new location in Woodcliff Lake. Offsetting these increases somewhat were decreases in other expenses and professional fees, down to $214 thousand and $83 thousand, respectively, for the three months ended September 30, 2013, from $335 thousand and $180 thousand for the three months ended September 30, 2012.
During the nine months ended September 30, 2013, non-interest expense reached approximately $7.9 million from approximately $7.2 million for the nine months ended September 30, 2012, an increase of $608 thousand, or 8.4%. The nine month increases were due in most part to increases in salaries and benefits and occupancy and equipment expenses of $366 thousand and $269 thousand, respectively. The increases in salaries and employee benefits and occupancy and equipment were primarily due to the opening of a branch, Cliffside Park, in March of 2012, which expenses were only partially recognized for the nine months ended September 30, 2012 but were fully recognized during the nine months ended September 30, 2013. Occupancy and equipment expense for the nine months ended September 30, 2013 also include occupancy costs for the new location in Woodcliff Lake.
Income Tax Expense
The income tax provision reached $807 thousand for the quarter ended September 30, 2013 as compared to $745 thousand for the quarter ended September 30, 2012, representing an increase of $62 thousand, or 8.3%. For the nine months ended September 30, 2013, income tax expense was $2.3 million as compared to $2.0 million for the nine months ended September 30, 2012, representing an increase of $296 thousand, or 14.9%. The increase in the income tax expense for both periods of 2013 as compared to 2012 was due to the increase in pretax income for both 2013 periods as compared to the 2012 periods. The effective tax rate for the three and nine month periods ended September 30, 2013, were 39.7% and 39.5%, respectively, compared to 39.5% and 39.5%, respectively, for the same periods in 2012.
FINANCIAL CONDITION
Total consolidated assets increased $14.6 million, or approximately 2.6%, from $571.4 million at December 31, 2012 to $586.0 million at September 30, 2013. Total deposits increased from $515.7 million at December 31, 2012 to $528.2 million at September 30, 2013, an increase of $12.5 million, or approximately 2.4%. Loans receivable, or total loans, increased from $435.7 million at December 31, 2012 to $474.2 million at September 30, 2013, an increase of $38.5 million, or approximately 8.8%.
Loans
Our loan portfolio is the primary component of our total assets. Total loans, which exclude net deferred fees and costs and the allowance for loan losses, increased by 8.8% to reach $474.2 million at September 30, 2013 from $435.7 million at December 31 2012. The growth in the loan portfolio was primarily in commercial real estate loans, which increased by $48.4 million, or 19.6%, offset somewhat by decreases in home equity loans and commercial loans of $5.3 million and $4.8 million, respectively. The decreases in home equity loans and commercial loans were due to loan pay downs and payoffs, some of which are attributable to refinancing of loans at other financial institutions. Residential mortgages and consumer loans basically stayed flat. This growth in the loan portfolio continues to be primarily attributable to recommendations and referrals from members of our board of directors, our shareholders, our executive officers, and selective marketing by our management and staff. We believe that we will continue to have opportunities for loan growth within the Bergen County market of northern New Jersey, due in part, to our customer service and competitive rate structures.
Our loan portfolio consists of commercial loans, commercial and residential real estate loans, consumer loans and home equity loans. Commercial loans are made for the purpose of providing working capital, financing the purchase of equipment or inventory, as well as for other business purposes. Real estate loans consist of loans secured by commercial or residential real property and loans for the construction of commercial or residential property. Consumer loans and home equity loans, are made for the purpose of financing the purchase of consumer goods, home improvements, and other personal needs, and are generally secured by the personal property being owned or being purchased.
Our loans are primarily to businesses and individuals located in Bergen County, New Jersey. We have not made loans to borrowers outside of the United States. We have not made any sub-prime loans. Commercial lending activities are focused primarily on lending to small business borrowers. We believe that our strategy of customer service, competitive rate structures, and selective marketing have enabled us to gain market entry to local loans. Furthermore, we believe that bank mergers and lending restrictions at larger financial institutions with which we compete have also contributed to the success of our efforts to attract borrowers. Additionally, during this current economic climate, our capital position and safety has also become important to potential borrowers.
For more information on the loan portfolio, see Note 6 in Notes to the Consolidated Financial Statements in Part I, Item 1of this Quarterly Report on Form 10-Q.
Loan Quality
As mentioned above, our principal assets are our loans. Inherent in the lending function is the risk of the borrowers inability to repay a loan under its existing terms. Risk elements include nonaccrual loans, past due and restructured loans, potential problem loans, loan concentrations, and other real estate owned.
Non-performing assets include loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more and accruing loans that are 90 days past due, troubled debt restructuring loans and foreclosed assets. When a loan is classified as nonaccrual, interest accruals discontinue and all past due interest, including interest applicable to prior years, is reversed and charged against current income. Until the loan becomes current, any payments received from the borrower
are applied to outstanding principal until such time as management determines that the financial condition of the borrower and other factors merit recognition of such payments of interest.
We attempt to manage overall credit risk through loan diversification and our loan underwriting and approval procedures. Due diligence begins at the time we begin to discuss the origination of a loan with a borrower. Documentation, including a borrowers credit history, materials establishing the value and liquidity of potential collateral, the purpose of the loan, the source and timing of the repayment of the loan, and other factors are analyzed before a loan is submitted for approval. Loans made are also subject to periodic audit and review.
As of September 30, 2013 the Bank had twelve nonaccrual loans totaling approximately $5.7 million, of which seven loans totaling approximately $2.0 million had specific reserves of $322 thousand and five loans totaling approximately $3.7 million had no specific reserve. If interest had been accrued, such income would have been approximately $74 thousand and $248 thousand, respectively, for the three and nine month periods ended September 30, 2013 and $86 thousand and $260 thousand for the three and nine month periods ended September 30, 2012. Acutal interest income recognized on these loans during the three and nine months ended September 30, 2013 was $0. Actual interest income recognized on these loans during the three and nine months ended September 30, 2012, was $1 thousand and $9 thousand, respectively.
Within its nonaccrual loans at September 30, 2013, the Bank had four residential mortgage loans, one commercial real estate loan, and one home equity loan that met the definition of a troubled debt restructuring (TDR). TDRs are loans where the contractual terms of the loan have been modified to grant a concession to a borrower experiencing financial difficulties. These modifications could include a reduction in the interest rate of the loan, payment extensions, forgiveness of principal or other actions to maximize collection. At September 30, 2013, nonaccruing TDR loans had an outstanding balance of $4.0 million and had specific reserves of $50 thousand. None of these loans were performing in accordance with their modified terms.
During the nine months ended September 30, 2013, two loans totaling $239 thousand to the same person were modified as TDRs. One loan was a single family residential mortgage, and the second was a home equity loan. They are performing in accordance with their modified terms. Also during the first quarter of 2013, a loan that was classified as an accruing TDR at December 31, 2012, was modified into two loans. One of the loans is a single family residential mortgage and the second is a home equity loan. The fair value of the single family residential mortgage is greater than the carrying amount of the mortgage and therefore there was no recognition of an impairment. The home equity loan has a specific reserve of $150 thousand connected with it. Both loans are performing in accordance with their modified terms. During the three months ended September 30, 2013, the Bank had no new loans classified as TDRs. During the three and nine month periods ended September 30, 2012, the Bank had no new loans classified as TDRs.
As a community bank, our market area is concentrated in Bergen County, New Jersey, and as a result we have a concentration of loans collateralized by real estate, primarily in our market area at September 30, 2013 and December 31, 2012. The Banks loan portfolio has no foreign loans and no sub-prime loans.
Investment Securities
Securities held as available for sale (AFS) were approximately $54.4 million at September 30, 2013 compared to $88.5 million at December 31, 2012. This decrease in the AFS category was due in most part to the sale of $47.3 million of securities along with the maturity or call of an additional $18.0 million, offset somewhat by the purchase of $34.0 million of securities during the nine months ended September 30, 2013. The sale of the securities available for sale was due to the Banks strategy to reduce its longer term securities as part of its overall interest rate risk management. Securities held to maturity increased $16.1 million to $21.6 million at September 30, 2013 from $5.5 million at December 31, 2012 as a result of securities purchased.
Deposits
Deposits remain our primary source of funds. Total deposits increased to $528.2 million at September 30, 2013 from $515.7 million at December 31, 2012, an increase of $12.5 million, or 2.4%. Time deposits and noninterest bearing transaction accounts increased by $8.4 million and $5.6 million, respectively, while savings and interest bearing transaction accounts decreased by $1.6 million. The Company has no foreign deposits, nor are there any material concentrations of deposits.
Liquidity
Our liquidity is a measure of our ability to fund loans, withdrawals or maturities of deposits, and other cash outflows in a cost-effective manner. Our principal sources of funds are deposits, scheduled amortization and prepayments of loan principal, maturities of investment securities, and funds provided by operations. While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit flow and loan prepayments are greatly influenced by prevailing interest rates, economic conditions, and competition. In addition, if warranted, we would be able to borrow funds.
Our total deposits equaled $528.2 million and $515.7 million, respectively, at September 30, 2013 and December 31, 2012. The increase in deposits and the proceeds of the sales and maturities of securities available for sale funded the increase in loans.
Through the investment portfolio, we have generally sought to obtain a safe, yet slightly higher yield than would have been available to us as a net seller of overnight federal funds, while maintaining liquidity. Through our investment portfolio, we also attempt to manage our maturity gap, by seeking maturities of investments which coincide with maturities of deposits. The investment portfolio also includes securities available for sale to provide liquidity for anticipated loan demand and other liquidity needs.
As of September 30, 2013, we have a $12 million overnight line of credit with First Tennessee Bank and a $10 million overnight line of credit with Atlantic Central Bankers Bank for the purchase of federal funds in the event that temporary liquidity needs arise. There were no amounts outstanding under either facility at September 30, 2013. We are an approved member of the Federal Home Loan Bank of New York, or FHLBNY. The FHLBNY relationship could provide additional sources of liquidity, if required.
We believe that our current sources of funds provide adequate liquidity for our current cash flow needs.
Capital Resources
A significant measure of the strength of a financial institution is its capital base. Our federal regulators have classified and defined our capital into the following components: (1) Tier 1 Capital, which includes tangible shareholders equity for common stock and qualifying preferred stock, and (2) Tier 2 Capital, which includes a portion of the allowance for loan losses, certain qualifying long-term debt, and preferred stock which does not qualify for Tier 1 Capital. Minimum capital levels are regulated by risk-based capital adequacy guidelines, which require certain capital as a percent of our assets and certain off-balance sheet items, adjusted for predefined credit risk factors, referred to as risk-adjusted assets.
Pursuant to federal regulation we are required to maintain, at a minimum, Tier 1 Capital as a percentage of risk-adjusted assets of 4.0% and combined Tier 1 and Tier 2 Capital, or Total Capital, as a percentage of risk-adjusted assets of 8.0%.
In addition to the risk-based guidelines, our regulators require that an institution which meets the regulators highest performance and operation standards maintain a minimum leverage ratio (Tier 1 Capital as a percentage of tangible assets) of 3.0%. For those institutions with higher levels of risk or that are experiencing or anticipating significant growth, the minimum leverage ratio will be evaluated through the ongoing regulatory examination process. We are currently required to maintain a leverage ratio of 4.0%.
The following table summarizes the Banks risk-based capital and leverage ratios at September 30, 2013, as well as the applicable minimum ratios:
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Minimum |
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Regulatory |
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September 30, 2013 |
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December 31, 2012 |
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Requirements |
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Risk-Based Capital: |
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Tier 1 Capital Ratio |
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11.68 |
% |
12.07 |
% |
4.00 |
% |
Total Capital Ratio |
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12.85 |
% |
13.21 |
% |
8.00 |
% |
Leverage Ratio |
|
9.55 |
% |
9.63 |
% |
4.00 |
% |
As we continue to employ our capital and grow our operations, we expect that our capital levels will decrease, but that we will remain a well-capitalized institution.
The Company is subject to similar regulatory capital requirements, and its capital ratios are similar to the Banks capital ratios as presented in the table above.
In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. The final rules modify the calculation of capital ratios and impose higher capital requirements and more restrictive leverage and liquidity ratios than those currently in place. Smaller institutions, such as ours, will become subject to these rules beginning January 1, 2015. Among other things, the final rules call for a minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5%, a minimum ratio of tier 1 capital to risk-weighted assets of 6%, a minimum ratio of total capital to risk-weighted assets of 8%, and a minimum leverage ratio of 4%.
ITEM 3. Quantitative and Qualitative Disclosures about Market/Interest Risk
As a smaller reporting company, the Company is not required to provide the information otherwise required by this Item.
ITEM 4. Controls and Procedures
Evaluation of disclosure controls and procedures.
As of September 30, 2013, the Companys management including the Chief Executive Officer (our Principal Executive Officer) and President and Chief Operating Officer (our Principal Financial Officer), evaluated the Companys disclosure controls and procedures related to the recording, processing, summarization, and reporting of information in the Companys periodic reports that the Company files with the Securities and Exchange Commission.
Based on their evaluation as of September 30, 2013, the Companys Chief Executive Officer and Chief Operating Officer have concluded that the Companys disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.
Changes in internal controls over financial reporting.
There was no change in our internal control over financial reporting identified during the quarter ended September 30, 2013 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
The Company and the Bank are periodically parties to or otherwise involved in legal proceedings arising in the normal course of business, such as claims to enforce liens, claims involving the making and servicing of real property loans, and other issues incident to the Banks business. Management does not believe that there is any pending proceedings against the Company or the Bank which, if determined adversely, would have a material effect on the business, financial position or results of operations of the Company or the Bank.
As a smaller reporting company, the Company is not required to provide the information otherwise required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None
None
The exhibits filed or incorporated by reference as part of this report are listed in the Exhibit Index, which appears at page 39.
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.
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Bancorp of New Jersey, Inc. | |||
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Date: November 14, 2013 |
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By: |
/s/ Albert F. Buzzetti | |
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Albert F. Buzzetti |
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Chief Executive Officer | ||
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(Principal Executive Officer) | ||
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By: |
/s/ Michael Lesler | ||
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Michael Lesler | ||
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President and | ||
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Chief Operating Officer | ||
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(Principal Financial Officer) | ||
EXHIBIT INDEX
Exhibit |
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Number |
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Description |
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31.1 |
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Rule 13a-14(a) Certification of the Principal Executive Officer |
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31.2 |
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Rule 13a-14(a) Certification of the Principal Financial Officer |
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32 |
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Section 1350 Certifications |
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101.INS |
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XBRL Instance Document |
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101.SCH |
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XBRL Taxonomy Extension Schema Document |
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101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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XBRL Taxonomy Extension Labels Linkbase Document |
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document |