Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the fiscal year ended December 31, 2008
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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)
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| New Jersey
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20-8444387 |
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification) |
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1365 Palisade Avenue, Fort Lee, NJ
(Address of principal executive offices)
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07024
(Zip Code) |
201-944-8600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
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Title of each class
Common stock
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Name of each exchange on which registered
NYSE Alternext |
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
YES o NO þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Exchange Act. YES o NO þ
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 þ NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendments to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerate 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:
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| Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act.) YES o NO þ
The aggregate market value of the registrant’s voting stock held by non-affiliates of the
registrant as of June 30, 2008 was approximately $58,115,979 based on the most recent sale price as
reported to the registrant.
The number of shares outstanding of the registrant’s Common Stock, no par value, outstanding as of
March 10, 2009 was 5,065,281.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement, to be filed with the Securities and
Exchange Commission in connection with its 2009 Annual Meeting of Shareholders to be held May 21,
2009, are incorporated by reference in Part III of this annual report on Form 10-K.
PART I
FORWARD-LOOKING STATEMENTS
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 provides 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 subsidiary 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:
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Current economic crisis affecting the financial industry; |
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Volatility in interest rates and shape of the yield curve; |
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Increased credit risk and risks associated with the real estate market; |
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Operating, legal and regulatory risk; |
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Economic, political and competitive forces affecting the Company’s line of business;
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The risk that management’s analysis of these risks and forces 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. We caution readers not to place undue reliance on any
forward-looking statements. These statements speak only as of the date made, and they 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. 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.
ITEM 1. BUSINESS
General
The Company is a one-bank holding company incorporated under the laws of the State of New Jersey in
November, 2006 to serve as a holding company for Bank of New Jersey, referred to as the “Bank.”
(Unless the context otherwise requires, all references to the “Company” in this Annual Report shall
be deemed to refer also to the Bank). The Company was organized at the direction of the Board of
Directors of the Bank for the purpose of acquiring all of the capital stock of the Bank. On July
31, 2007, the Company became the bank holding company of the Bank pursuant to a plan of acquisition
that was approved by the boards of directors of the Company and the Bank and adopted by the
stockholders of the Bank at a special meeting held July 19, 2007.
Pursuant to the plan of acquisition, the holding company reorganization was affected through a
contribution of all of the outstanding shares of Bank’s class of common stock to the Company in a
one-to-one exchange for shares of the Company’s class of common stock. Upon consummation of the
reorganization, the Bank became the wholly-owned subsidiary of the Company and all of the former
shareholders of the Bank became shareholders of the Company. The Company did not engage in any
operations, other than organizational activities, or issue any shares of its class of common stock
prior to consummation of the holding company reorganization. As a result, the financial statements
included in Part II, Item 8 of this annual report include the effect of the holding company
reorganization and represent consolidated financial statements. The only significant activities of
the Company are the ownership and supervision of the Bank.
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The Bank is a commercial bank formed under the laws of the State of New Jersey on May 10, 2006.
The Bank operates from its main office at 1365 Palisade Avenue, Fort Lee, New Jersey, 07024, and
its additional four branch offices located at 204 Main Street, Fort Lee, New Jersey, 07024, 401
Hackensack Avenue, Hackensack, New Jersey, 07601, 458 West Street, Fort Lee, New Jersey, 07024, and
320 Haworth Avenue, Haworth, New Jersey, 07641. A sixth location at 4 Park Street, Harrington
Park, New Jersey, 07640, has received approval from the New Jersey Department of Banking and
Insurance. The Bank awaits approval from the Federal Deposit Insurance Corporation, “FDIC”. The
branch is expected to open during first quarter, 2009 upon receiving all regulatory approvals. All
branch locations are in Bergen County, New Jersey.
The Company is subject to the supervision and regulation of the Board of Governors of the Federal
Reserve System, referred to as the “FRB.” The Bank is supervised and regulated by the FDIC and the
New Jersey Department of Banking and Insurance, referred to as the “Department.” The Bank’s
deposits are insured by the FDIC up to applicable limits. The operation of the Company and the
Bank are subject to the supervision and regulation of the FRB, FDIC, and the Department. The
principal executive offices of the Bank are located at 1365 Palisade Avenue, Fort Lee, NJ, 07024
and the telephone number is (201) 944-8600.
Business of the Company
The Company’s primary business is ownership and supervision of the Bank. The Company, through 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, which is presently dominated by larger, statewide and national institutions. Our goal
is to establish and retain 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 the local market. As a locally owned and operated
community bank, the Bank seeks to provide superior customer service that is highly personalized,
efficient, and responsive to local needs. To better serve our customers and expand our market
reach, we provide for the delivery of certain financial products and services to local customers
and to a broader market through the use of mail, telephone, and internet banking. The Bank strives
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.
The specific objectives of the Bank are:
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To provide local businesses, professionals, and individuals with banking services
responsive to and determined by the local market; |
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Direct access to Bank management by members of the community, whether during or after
business hours; |
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To attract deposits and loans by competitive pricing; and |
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To provide a reasonable return to shareholders on capital invested. |
Market Area
The principal market for deposit gathering and lending activities lies within Bergen County in New
Jersey. The market is dominated by offices of large statewide and interstate banking institutions.
Our service and timely response to customer needs are expected to fill a niche that has arisen due
to a loss of local institutions. Additionally, the market area has a relatively large affluent
base for our services and a diversified mix of commercial businesses and residential neighborhoods.
In order to meet the demands of this market, the Company operates its main office in Fort Lee, New
Jersey and additional four branch offices, two in Fort Lee, one in Hackensack, and one in Haworth,
all in Bergen County, New Jersey.
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Extended Hours
The Bank provides convenient full-service banking from 7:00 am to 7:00 pm weekdays and 9:00 am to
1:00 pm on Saturday in all offices except Hackensack, which offers full service banking from 8am to
6pm weekdays but no Saturdays.
Competition
The banking business remains highly competitive, and the profitability of the Company depends upon
the Bank’s ability to compete in its market area. The Bank continues to face considerable
competition in its market area for deposits and loans from other depository institutions. The Bank
faces competition in attracting and retaining deposit and loan customers, and with respect to the
terms and conditions it offers on its deposit and loan products. Many of its competitors have
greater financial resources, broader geographic markets, and greater name recognition, and are able
to provide more services and finance wide-ranging advertising campaigns.
The Bank competes with local, regional, and national commercial banks, savings banks, and savings
and loan associations. The Bank also competes with money market mutual funds, mortgage bankers,
insurance companies, stock brokerage firms, regulated small loan companies, credit unions, and
issuers of commercial paper and other securities.
Concentration
The Company is not dependent for deposits or exposed by loan concentrations to a single customer or
a small group of customers the loss of any one or more of which would have a material adverse
effect upon the financial condition of the Company.
Employees
At December 31, 2008, the Company employed thirty four full-time equivalent employees. None of
these employees is covered by a collective bargaining agreement. The Company believes its
relations with employees to be good.
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Supervision and Regulation
General
The Company and the Bank are each extensively regulated under both federal and state law. These
laws restrict permissible activities and investments and require compliance with various consumer
protection provisions applicable to lending, deposit, brokerage and fiduciary activities. They also
impose capital adequacy requirements and condition the Company’s ability to repurchase stock or to
receive dividends from the Bank. The Company and the Bank are also subject to comprehensive
examination and supervision by the Board of Governors of the Federal Reserve System (“FRB”) and the
Federal Deposit Insurance Corporation (“FDIC”), respectively. These regulatory agencies generally
have broad discretion to impose restrictions and limitations on the operations of the Company and
the Bank. This supervisory framework could materially impact the conduct and profitability of the
Company’s activities.
To the extent that the following information describes statutory and regulatory provisions, it is
qualified in its entirety by reference to the particular statutory and regulatory provisions.
Proposals to change the laws and regulations governing the banking industry are frequently raised
at both the state and federal level. The likelihood and timing of any changes in these laws and
regulations, and the impact such changes may have on the Company and the Bank, are difficult to
ascertain. A change in applicable laws and regulations, or in the manner such laws or regulations
are interpreted by regulatory agencies or courts, may have a material effect on our business,
operations and earnings.
Bank Holding Company Act
The Company is registered as a bank holding company under the Bank Holding Company Act of 1956, as
amended (the “BHCA”), and is subject to regulation and supervision by the FRB. The BHCA requires
the Company to secure the prior approval of the FRB before it owns or controls, directly or
indirectly, more than five percent (5%) of the voting shares or substantially all of the assets of,
any bank or thrift, or merges or consolidates with another bank or thrift holding company. Further,
under the BHCA, the activities of the Company and any nonbank subsidiary are limited to those
activities which the FRB determines to be so closely related to banking as to be a proper incident
thereto, and prior approval of the FRB may be required before engaging in certain activities. In
making such determinations, the FRB is required to weigh the expected benefits to the public such
as greater convenience, increased competition and gains in efficiency, against the possible adverse
effects, such as undue concentration of resources, decreased or unfair competition, conflicts of
interest, and unsound banking practices.
The BHCA was substantially amended by the Gramm-Leach-Bliley Act (“GLBA”), which among other things
permits a “financial holding company” to engage in a broader range of non-banking activities, and
to engage on less restrictive terms in certain activities that were previously permitted. These
expanded activities include securities underwriting and dealing, insurance underwriting and sales,
and merchant banking activities. To become a financial holding company, the Company and the Bank
must be “well capitalized” and “well managed” (as defined by federal law), and have at least a
“satisfactory” Community Reinvestment Act (“CRA”) rating. GLBA also imposes certain privacy
requirements on all financial institutions and their treatment of consumer information. At this
time, the Company has not elected to become a financial holding company, as we do not engage in any
non-banking activities which would require us to be a financial holding company.
There are a number of restrictions imposed on the Company and the Bank by law and regulatory policy
that are designed to minimize potential loss to the depositors of the Bank and the FDIC insurance
funds in the event the Bank should become insolvent. For example, FRB policy requires a bank
holding company to serve as a source of financial strength to its subsidiary depository
institutions and to commit resources to support such institutions in circumstances where it might
not do so absent such policy. While the authority of the FRB to invoke this so-called “source of
strength doctrine” has been called into question, the FRB maintains that it has the authority to
apply the doctrine when circumstances warrant. The FRB also has the authority under the BHCA to
require a bank holding company to terminate any activity or to relinquish control of a non-bank
subsidiary upon the FRB’s determination that such activity or control constitutes a serious risk to
the financial soundness and stability of any bank subsidiary of the bank holding company.
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Any capital loan by the Company to the Bank is subordinate in right of payment to deposits and
certain other indebtedness of the Bank. In addition, in the event of the Company’s bankruptcy, any
commitment by the Company to a federal bank regulatory agency to maintain the capital of the Bank
will be assumed by the bankruptcy trustee and entitled to a priority of payment.
The Federal Deposit Insurance Act (“FDIA”) provides that, in the event of the “liquidation or other
resolution” of an insured depository institution, the claims of depositors of the institution
(including the claims of the FDIC as a subrogee of insured depositors) and certain claims for
administrative expenses of the FDIC as a receiver will have priority over other general unsecured
claims against the institution. If an insured depository institution fails, insured and uninsured
depositors, along with the FDIC will have priority in payment ahead of unsecured, nondeposit
creditors, including the Company, with respect to any extensions of credit they have made to such
insured depository institution.
Supervision and Regulation of the Bank
The operations and investments of the Bank are also limited by federal and state statutes and
regulations. The Bank is subject to the supervision and regulation by the New Jersey Department of
Banking and Insurance and the FDIC. The Bank is also subject to various requirements and
restrictions under federal and state law, including requirements to maintain reserves against
deposits, restrictions on the types, amount and terms and conditions of loans that may be
originated, and limits on the type of other activities in which the Bank may engage and the
investments it may make. Under the GLBA, the Bank may engage in expanded activities (such as
insurance sales and securities underwriting) through the formation of a “financial subsidiary.” In
order to be eligible to establish or acquire a financial subsidiary, the Bank must be “well
capitalized” and “well managed” and may not have less than a “satisfactory” CRA rating. At this
time, the Bank does not engage in any activity which would require it to maintain a financial
subsidiary.
The Bank is also subject to federal laws that limit the amount of transactions between the Bank and
its nonbank affiliates, including the Company. Under these provisions, transactions (such as a loan
or investment) by the Bank with any nonbank affiliate are generally limited to 10% of the Bank’s
capital and surplus for all covered transactions with such affiliate or 20% of capital and surplus
for all covered transactions with all affiliates. Any extensions of credit, with limited
exceptions, must be secured by eligible collateral in specified amounts. The Bank is also
prohibited from purchasing any “low quality” assets from an affiliate.
Securities and Exchange Commission
The Company is also under the jurisdiction of the Securities and Exchange Commission for matters
relating to the offering and sale of its securities and is subject to the Securities and Exchange
Commission’s rules and regulations relating to periodic reporting, reporting to shareholders, proxy
solicitations, and insider-trading regulations.
Monetary Policy
The earnings of the Company are and will be affected by domestic economic conditions and the
monetary and fiscal policies of the United States government and its agencies. The monetary
policies of the FRB have a significant effect upon the operating results of commercial banks such
as the Bank. The FRB has a major effect upon the levels of bank loans, investments and deposits
through its open market operations in United States government securities and through its
regulation of, among other things, the discount rate on borrowings of member banks and the reserve
requirements against member banks’ deposits. It is not possible to predict the nature and impact of
future changes in monetary and fiscal policies.
Deposit Insurance
The deposits of the Bank are insured up to applicable limits per insured depositor by the FDIC. As
an FDIC-insured bank, the Bank is also subject to FDIC insurance assessments. Beginning in 2007,
the FDIC adopted a revised risk-based assessment system to determine the assessment rates to be
paid by insured institutions. Under a final rulemaking announced by the FDIC on March 4, 2009, and
depending on the institution’s risk category, assessment rates will range from 12 to 45 basis
points. Institutions in the lowest risk category will be charged a rate between 12 and 16 basis
points; these rates increase to 22, 32 and 45 basis points, respectively, for the remaining three
risk categories. These rates may be offset in the future by any dividends declared by the FDIC if
the deposit reserve ratio increases above a certain amount. Given the state of the current economic
environment, it is unlikely that the FDIC will lower these assessment rates, and such rates may in
fact increase. Because FDIC deposit insurance premiums are “risk-based,” higher
premiums would be charged to banks that have lower capital ratios or higher risk profiles.
Consequently, a decrease in the Bank’s capital ratios, or a negative evaluation by the FDIC, as the
Bank’s primary federal banking regulator, may also increase the Bank’s net funding costs and reduce
its net income.
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Additionally, the FDIC recently adopted an interim rule that imposes a 20 basis point emergency
special assessment on all insured depository institutions on June 30, 2009. The special assessment
will be collected September 30, 2009, at the same time that the risk-based assessments for the
second quarter of 2009 are collected. The interim rule also permits the FDIC to impose an emergency
special assessment of up to 10 basis points on all insured depository institutions whenever, after
June 30, 2009, the FDIC estimates that the fund reserve ratio will fall to a level that the FDIC
believes would adversely affect public confidence or to a level close to zero or negative at the
end of a calendar quarter. Comments received during the public comment period may affect the
content of the final rule on this issue.
All FDIC-insured depository institutions must also pay an annual assessment to provide funds for
the repayment of debt obligations (commonly referred to as FICO bonds) issued by the Financing
Corporation, a federal corporation, in connection with the disposition of failed thrift
institutions by the Resolution Trust Corporation. The assessment rate for the first quarter of
2009 is set to approximately 1.14 cents per $100 of assessable deposits, and for second quarter
2009 at 1.04 cents per $100 of assessable deposits.
Dividend Restrictions
Under applicable New Jersey law, the Company is not permitted to pay dividends on its capital stock
if, following the payment of the dividend, (1) it would be unable to pay its debts as they become
due in the usual course of business or (2) its total assets would be less than its total
liabilities. Further, it is the policy of the FRB that bank holding companies should pay dividends
only out of current earnings and only if future retained earnings would be consistent with the
Company’s capital, asset quality and financial condition.
Since it has no significant independent sources of income, the ability of the Company to pay
dividends is dependent on its ability to receive dividends from the Bank. Under the New Jersey
Banking Act of 1948, as amended (the “Banking Act”), a bank may declare and pay dividends only if,
after payment of the dividend, the capital stock of the bank will be unimpaired and either the bank
will have a surplus of not less than 50% of its capital stock or the payment of the dividend will
not reduce the bank’s surplus. The FDIC prohibits payment of cash dividends if, as a result, the
institution would be undercapitalized or the Bank is in default with respect to any assessment due
to the FDIC. Further, during the first three years of operation, cash dividends shall only be paid
from net operating income, and only after an appropriate allowance for loan and lease losses is
established and overall capital is adequate. These restrictions would not materially influence the
Company or the Bank’s ability to pay dividends at this time.
Capital Adequacy Guidelines
The FRB and the FDIC has promulgated substantially similar risk-based capital guidelines applicable
to banking organizations which they supervise. These guidelines are designed to make regulatory
capital requirements more sensitive to differences in risk profiles among banks, to account for off
balance sheet exposures, and to minimize disincentives for holding liquid assets. Under those
guidelines, assets and off-balance sheet items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance sheet items.
Bank assets are given risk-weights of 0%, 20%, 50%, and 100%. In addition, certain off-balance
sheet items are given similar credit conversion factors to convert them to asset equivalent amounts
to which an appropriate risk-weighting will apply. Those computations result in the total
risk-weighted assets. Most loans are assigned to the 100% risk category, except for performing
first mortgage loans fully secured by residential property, which carry a 50% risk-weighting. Most
investment securities (including, primarily, general obligation claims of states or other political
subdivisions of the United States) are assigned to the 20% category, except for municipal or state
revenue bonds, which have a 50% risk-weighting, and direct obligations of the U.S. Treasury or
obligations backed by the full faith and credit of the U.S. Government, which have a 0%
risk-weighting. In converting off-balance sheet items, direct credit substitutes, including
general guarantees and standby letters of credit backing financial obligations, are given a 100%
risk-weighting. Transaction-related contingencies such as bid bonds, standby letters of credit
backing non-financial obligations, and undrawn commitments (including commercial credit lines with
an initial maturity of more than one year), have a 50% risk-weighting. Short-term commercial
letters of credit have a 20% risk-weighting, and certain short-term unconditionally cancelable
commitments have a 0% risk weighting.
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The minimum ratio of total capital to risk-weighted assets (including certain off-balance sheet
activities, such as standby letters of credit) is 8%. At least 4% of the total capital is required
to be “Tier 1 Capital,” consisting of shareholders’ equity and qualifying preferred stock, less
certain goodwill items and other intangible assets. The remainder, or “Tier 2 Capital,” may
consist of (a) the allowance for loan losses of up to 1.25% of risk-weighted assets, (b) excess of
qualifying preferred stock, (c) hybrid capital instruments, (d) perpetual debt, (e) mandatory
convertible securities, and (f) qualifying subordinated debt and intermediate-term preferred stock
up to 50% of Tier 1 Capital. Total capital is the sum of Tier 1 Capital and Tier 2 Capital less
reciprocal holdings of other banking organization’s capital instruments, investments in
unconsolidated subsidiaries, and any other deductions as determined by the FDIC. At December 31,
2008, the Bank’s Tier 1 and Total Capital ratios were 21.16 percent and 22.20 percent,
respectively.
In addition, the FRB and FDIC have established minimum leverage ratio requirements for banking
organizations they supervise. For banks and bank holding companies that meet certain specified
criteria, including having the highest regulatory rating and not experiencing significant growth or
expansion, these requirements provide for a minimum leverage ratio of Tier 1 Capital to adjusted
average quarterly assets equal to three percent. Other banks and bank holding companies generally
are required to maintain a leverage ratio of four to five percent. At December 31, 2008, the
Company’s, and the Bank’s, leverage ratio were 16.95 percent. As part of the Bank’s application
for deposit insurance with the FDIC and as part of the bank charter approval by the New Jersey
Department of Banking, the Bank is required to maintain not less than 8% Tier 1 Capital to total
assets, as defined, through the first three years of operation.
As an additional means to identify problems in the financial management of depository institutions,
the FDIA requires federal bank regulatory agencies to establish certain non-capital safety and
soundness standards for institutions for which they are the primary federal regulator. The
standards relate generally to operations and management, asset quality, interest rate exposure and
executive compensation. The agencies are authorized to take action against institutions that
failed to meet such standards.
Prompt Corrective Action
In addition to the required minimum capital levels described above, Federal law establishes a
system of “prompt corrective actions” which Federal banking agencies are required to take, and
certain actions which they have discretion to take, based upon the capital category into which a
Federally regulated depository institution falls. Regulations set forth detailed procedures and
criteria for implementing prompt corrective action in the case of any institution which is not
adequately capitalized. Under the rules, an institution will be deemed “well capitalized” or
better if it’s leverage ratio exceeds 5%, its Tier 1 risk based capital ratio exceeds 6%, and if
the Total risk based capital ratio exceeds 10%. An institution will be deemed to be “adequately
capitalized” or better if it exceeds the minimum Federal regulatory capital requirements. However,
it will be deemed “undercapitalized” if it fails to meet the minimum capital requirements;
“significantly undercapitalized” if it has a total risk based capital ratio that is less than 6%, a
Tier 1 risk based capital ratio that is less than 3%, or a leverage ratio that is less than 3%, and
“critically undercapitalized” if the institution has a ratio of tangible equity to total assets
that is equal to or less than 2%.
The prompt corrective action rules require an undercapitalized institution to file a written
capital restoration plan, along with a performance guaranty by its holding company or a third
party. In addition, an undercapitalized institution becomes subject to certain automatic
restrictions including a prohibition on payment of dividends, a limitation on asset growth and
expansion, in certain cases, a limitation on the payment of bonuses or raises to senior executive
officers, and a prohibition on the payment of certain “management fees” to any “controlling
person.” Institutions that are classified as undercapitalized are also subject to certain
additional supervisory actions, including: increased reporting burdens and regulatory monitoring; a
limitation on the institution’s ability to make acquisitions, open new branch offices, or engage in
new lines of business; obligations to raise additional capital; restrictions on transactions with
affiliates; and restrictions on interest rates paid by the institution on deposits. In certain
cases, bank regulatory agencies may require replacement of senior executive officers or directors,
or sale of the institution to a willing purchaser. If an institution is deemed to be “critically
undercapitalized” and continues in that category for four quarters, the statute requires, with
certain narrowly limited exceptions, that the institution be placed in receivership.
As of December 31, 2008, the Bank was classified as “well capitalized.” This classification is
primarily for the purpose of applying the federal prompt corrective action provisions and is not
intended to be and should not be interpreted as a representation of overall financial condition or
prospects of the Bank.
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Community Reinvestment Act
The CRA requires that banks meet the credit needs of all of their assessment area (as established
for these purposes in accordance with applicable regulations based principally on the location of
branch offices), including those of low income areas and borrowers. The CRA also requires that the
FDIC assess all financial institutions that it regulates to determine whether these institutions
are meeting the credit needs of the community they serve. Under the CRA, institutions are assigned
a rating of “outstanding,” “satisfactory,” “needs to improve” or “unsatisfactory”. The Bank’s
record in meeting the requirements of the CRA will be made publicly available and will be taken
into consideration in connection with any applications with Federal regulators to engage in certain
activities, including approval of a branch or other deposit facility, mergers and acquisitions,
office relocations, or expansions into non-banking activities. As of December 31, 2008, the bank
maintains a “satisfactory” CRA rating.
USA Patriot Act
Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism (USA PATRIOT) Act, financial institutions are subject to prohibitions
against specified financial transactions and account relationships as well as enhanced due
diligence and “know your customer” standards in their dealings with foreign financial institutions
and foreign customers. Under the USA PATRIOT Act, financial institutions must establish anti-money
laundering programs meeting the minimum standards specified by the Act and implementing
regulations. The USA PATRIOT Act also requires the Federal banking regulators to consider the
effectiveness of a financial institution’s anti-money laundering activities when reviewing bank
mergers and bank holding company acquisitions.
The Bank has implemented the required internal controls to ensure proper compliance with the USA
PATRIOT Act.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 comprehensively revised the laws affecting corporate governance,
auditing and accounting, executive compensation and corporate reporting for entities, such as the
Company, with equity or debt securities registered under the Securities Exchange Act of 1934. Among
other things, Sarbanes-Oxley and its implementing regulations have established new membership
requirements and additional responsibilities for our audit committee, imposed restrictions on the
relationship between the Company and its outside auditors (including restrictions on the types of
non-audit services our auditors may provide to us), imposed additional responsibilities for our
external financial statements on our chief executive officer and chief financial officer, and
expanded the disclosure requirements for our corporate insiders. The requirements are intended to
allow stockholders to more easily and efficiently monitor the performance of companies and
directors. The Company and its Board of Directors have, as appropriate, adopted or modified the
Company’s policies and practices in order to comply with these regulatory requirements and to
enhance the Company’s corporate governance practices.
Pursuant to Sarbanes-Oxley, the Company has adopted a Code of Conduct and Ethics applicable to its
Board, executives and employees. This Code of Conduct can be found on the Company’s website at
www.bonj.net.
Federal Home Loan Bank Membership
The Bank is a member of the Federal Home Loan Bank of New York (“FHLBNY”). Each member of the
FHLBNY is required to maintain a minimum investment in capital stock of the FHLBNY. The Board of
Directors of the FHLBNY can increase the minimum investment requirements in the event it has
concluded that additional capital is required to allow it to meet its own regulatory capital
requirements. Any increase in the minimum investment requirements outside of specified ranges
requires the approval of the Federal Housing Finance Agency. Because the extent of any obligation
to increase our investment in the FHLBNY depends entirely upon the occurrence of a future event,
potential payments to the FHLBNY is not determinable.
Additionally, in the event that the Bank fails, the right of the FHLBNY to seek repayment of funds
loaned to the Bank shall take priority (a “super lien”) over all other creditors.
10
Other Laws and Regulations
The Company and the Bank are subject to a variety of laws and regulations which are not limited to
banking organizations. For example, in lending to commercial and consumer borrowers, and in owning
and operating its own property, the Bank is subject to regulations and potential liabilities under
state and federal environmental laws.
Future Legislation and Regulation
In light of current conditions in the U.S. and global financial markets and the U.S. and global
economy, regulators have increased their focus on the regulation of the financial services
industry. Proposals that could substantially intensify the regulation of the financial services
industry are expected to be introduced in the U.S. Congress, in state legislatures and from
applicable regulatory authorities. These proposals may change banking statutes and regulation and
our operating environment in substantial and unpredictable ways. If enacted, these proposals could
increase or decrease the cost of doing business, limit or expand permissible activities or affect
the competitive balance among banks, savings associations, credit unions, and other financial
institutions. We cannot predict whether any of these proposals will be enacted and, if enacted, the
effect that it, or any implementing regulations, would have on our business, results of operations
or financial condition.
Statistical Disclosure by Bank Holding Companies
The statistical disclosure required to be made by bank holding companies is included in
“Management’s Discussion and Analysis of Financial Condition and Results of Operation,” in Part II,
Item 7 of this annual report.
ITEM 1A. RISK FACTORS
As a smaller reporting company, the Company is not required to provide the information otherwise
required by this Item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
11
ITEM 2. PROPERTIES
The Company, currently, conducts its business through its main office located at 1365 Palisade
Avenue, Fort Lee, New Jersey, and its five branch network. The following table sets forth certain
information regarding the Company’s properties as of December 31, 2008.
| |
|
|
|
|
| |
|
Leased |
|
Date of Lease |
| Location |
|
or Owned |
|
Expiration |
1365 Palisade Avenue
Fort Lee, NJ
|
|
Owned
|
|
N/A |
|
|
|
|
|
204 Main Street
Fort Lee, NJ
|
|
Leased
|
|
March, 2010 |
|
|
|
|
|
401 Hackensack Avenue
Hackensack, NJ 07601
|
|
Leased
|
|
August, 2010 |
|
|
|
|
|
458 West Street
Fort Lee, NJ 07024
|
|
Leased
|
|
December, 2025 |
|
|
|
|
|
320 Haworth Avenue
Haworth, NJ 07641
|
|
Owned
|
|
N/A |
A sixth branch is expected to open during the first quarter of 2009. It is a leased facility
located at 4 Park Street, Harrington Park, NJ, 07640. The lease does not commence until January,
2009.
ITEM 3. LEGAL PROCEEDINGS
Although there is currently no litigation to which the Company and the Bank are subject, future
litigation may arise during the normal course of business. Accordingly, the Company and the Bank
may periodically be parties to or otherwise involved in legal proceedings, such as claims to
enforce liens, claims involving the making and servicing of real property loans, and other issues
incident to the Bank’s business. Management does not believe that there are any threatened
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
PART II
|
|
|
| ITEM 5. |
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES |
Market Information
Commencing on June 3, 2008, the Company’s Common Stock began trading on the American Stock Exchange
under the symbol “BKJ”. Subsequently, the American Stock Exchange was acquired by the New York
Stock Exchange. Today, the Company’s stock trades on the NYSE Alternext exchange.
Prior to June 3, 2008, our common stock was not listed for quotation on any exchange or market
system and there was no established public trading market for our common stock. However, there
were a limited number of trades of our common stock since our initial offering and capitalization.
The following table sets forth the high and low prices at which trades of our common stock have
occurred during the indicated periods. The prices are adjusted to reflect our ten percent (10%)
stock distribution in January 2007 and the 2 for 1 stock split which was effective December 31,
2007.
| |
|
|
|
|
|
|
|
|
| |
|
High |
|
|
Low |
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
|
|
|
|
|
|
|
Fourth quarter |
|
$ |
12.30 |
|
|
$ |
8.48 |
|
Third quarter |
|
|
15.97 |
|
|
|
10.51 |
|
Second quarter |
|
|
25.25 |
|
|
|
13.44 |
|
First quarter |
|
|
11.50 |
|
|
|
11.50 |
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007 |
|
|
|
|
|
|
|
|
Fourth quarter |
|
$ |
11.50 |
|
|
$ |
11.50 |
|
Third quarter |
|
|
11.50 |
|
|
|
11.50 |
|
Second quarter |
|
|
11.50 |
|
|
|
11.50 |
|
First quarter |
|
|
11.50 |
|
|
|
9.09 |
|
Holders
As of March 10, 2009, there were approximately 1,186 shareholders of our common stock, which
includes an estimate of shares held in street name.
Dividends
We have not paid any cash dividends since our inception. The decision to pay, as well as the
timing and amount of any dividends to be paid by the Company will be determined by our Board of
Directors, giving consideration to our earnings, capital needs, financial condition, and other
relevant factors.
Under applicable New Jersey law, the Company will not be permitted to pay dividends on its capital
stock if, following the payment of the dividend, it would be unable to pay its debts as they become
due in the usual course of business, or its total assets would be less than its total liabilities.
Further, it is the policy of the FRB that bank holding companies should pay dividends only out of
current earnings and only if future retained earnings would be consistent with the holding
company’s capital, asset quality and financial condition. Because it will have no significant
independent sources of income, the ability of the Company to pay dividends will be dependent on its
ability to receive dividends from the Bank.
Under the New Jersey Banking Act of 1948, as amended, the Bank may declare and pay dividends only
if, after payment of the dividend, the capital stock of the Bank will be unimpaired and either the
Bank will have a surplus of not less than 50% of its capital stock or the payment of the dividend
will not reduce the Bank’s surplus. The FDIC prohibits payment of cash dividends if, as a result,
the Bank would be undercapitalized. Further, during the first three years of operation, cash
dividends shall only be paid from net operating income, and only after an appropriate allowance for
loan losses is established and overall capital is adequate.
13
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes our equity compensation plan information as of December 31, 2008.
Share and exercise prices are adjusted to reflect our ten percent (10%) stock distribution in
January 2007 and the 2 for 1 stock split which was effective December 31, 2007.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Number of |
|
|
|
|
|
|
Number of |
|
| |
|
shares of |
|
|
|
|
|
|
shares of |
|
| |
|
common stock |
|
|
Weighted- |
|
|
common stock |
|
| |
|
to be issued |
|
|
average exercise |
|
|
remaining |
|
| |
|
upon exercise of |
|
|
price of |
|
|
available for |
|
| |
|
outstanding |
|
|
outstanding |
|
|
future issuance |
|
| |
|
options, |
|
|
options, |
|
|
under equity |
|
| |
|
warrants and |
|
|
warrants and |
|
|
compensation |
|
| Plan Category |
|
rights |
|
|
rights |
|
|
plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation
Plans approved by
security holders |
|
|
|
|
|
|
|
|
|
|
|
|
2006 Stock Option Plan |
|
|
188,900 |
|
|
$ |
10.26 |
|
|
|
19,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Non-Qualified
Stock Option Plan for
Directors |
|
|
414,668 |
|
|
$ |
11.50 |
|
|
|
43,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved by
security holders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
603,568 |
|
|
$ |
11.16 |
|
|
|
63,018 |
|
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, the Company is not required to provide the information otherwise
required by this Item.
14
|
|
|
| ITEM 7. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION |
The following discussion and analysis of financial condition and results of operations should be
read in conjunction with the Company’s consolidated financial statements and the notes thereto
included in this report. When necessary, reclassifications have been made to prior years’ data
throughout the following discussion and analysis for purposes of comparability.
In addition to historical information, this discussion and analysis contains forward-looking
statements. The forward-looking statements contained herein are subject to certain risks and
uncertainties that could cause actual results to differ materially from those projected in the
forward-looking statements. Important factors that might cause such a difference include, but are
not limited to, those discussed in this section, and also include the current economic crisis
affecting the financial industry; volatility in interest rates and shape of the yield curve;
increased credit risk and risks associated with the real estate market; operating, legal, and
regulatory risk; economic, political, and competitive forces affecting the Company’s line of
business; and the risk that management’s analysis of these risks and forces could be incorrect,
and/or that the strategies developed to address them could be unsuccessful as well as a variety of
other matters, most, if not all of which, are beyond the Company’s control. Readers are cautioned
not to place undue reliance on these forward-looking statements, which reflect management’s
analysis only as of the date of the report. The Company undertakes no obligation to publicly
revise or update these forward-looking statements to reflect events and circumstances that arise
after such date, except as may be required by applicable law or regulation.
OVERVIEW AND STRATEGY
Our Bank charter was approved in April 2006 and the Bank opened for business on May 10, 2006. On
July 31, 2007, the Company became the bank holding company of the Bank pursuant to a plan of
acquisition that was approved by the boards of directors of the Company and the Bank and adopted by
the shareholders of the Bank at a special meeting held July 19, 2007. On June 3, 2008, the
Company’s common stock was listed on a national stock exchange. We currently operate a 5 branch
network and await FDIC approval to open our sixth location during the first quarter of 2009. Our
main office is located at 1365 Palisade Avenue, Fort Lee, NJ 07024 and our current four additional
offices are located at 204 Main Street, Fort Lee, NJ 07024, 401 Hackensack Avenue, Hackensack, NJ
07601, 458 West Street, Fort Lee, NJ 07024, and 320 Haworth Avenue, Haworth, NJ 07641. All current
branches are located in Bergen County, NJ.
We conduct a traditional commercial banking business, accepting deposits from the general public,
including individuals, businesses, non-profit organizations, and governmental units. We make
commercial loans, consumer loans, and both residential and commercial real estate loans. In
addition, we provide other customer services and make investments in securities, as permitted by
law. We have sought to offer an alternative, community-oriented style of banking in an area, which
is presently dominated by larger, statewide and national institutions. Our focus remains 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 the local market. As a locally owned and operated
community bank, we believe we provide superior customer service that is highly personalized,
efficient and responsive to local needs. To better serve our customers and expand our market
reach, we provide for the delivery of certain financial products and services to local customers
and a broader market through the use of mail, telephone, internet, and electronic banking. We
endeavor 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.
Our specific objectives are:
| • |
|
To provide local businesses, professionals, and individuals with banking services
responsive to and determined by the local market; |
| • |
|
Direct access to Bank management by members of the community, whether during or after
business hours; |
| • |
|
To attract deposits and loans by competitive pricing; and |
| • |
|
To provide a reasonable return to shareholders on capital invested. |
15
Critical Accounting Policies and Judgments
Our financial statements are prepared based on the application of certain accounting policies, the
most significant of which are described in Note 1 “Summary of Significant Accounting Policies” in
the Notes to the Financial Statements. Certain of these policies require numerous estimates and
strategic or economic assumptions that may prove inaccurate or subject to variation and may
significantly affect our reported results and financial position for the period or in future
periods. The use of estimates, assumptions, and judgments are necessary when financial assets and
liabilities are required to be recorded at, or adjusted to reflect, fair value. Assets carried at
fair value inherently result in more financial statement volatility. Fair values and information
used to record valuation adjustments for certain assets and liabilities are based on either quoted
market prices or are provided by other independent third-party sources, when available. When such
information is not available, management estimates valuation adjustments. Changes in underlying
factors, assumptions, or estimates in any of these areas could have a material impact on our future
financial condition and results of operations.
Allowance for Loan Losses
The allowance for loan losses, sometimes referred to as the “ALLL,” is established through periodic
charges to income. Loan losses are charged against the ALLL when management believes that the
future collection of principal is unlikely. Subsequent recoveries, if any, are credited to the
ALLL. If the ALLL is considered inadequate to absorb future loan losses on existing loans, based
on, but not limited to, increases in the size of the loan portfolio, increases in charge-offs or
changes in the risk characteristics of the loan portfolio, then the allowance for loan losses is
increased by a provision charged against income.
At December 31, 2008 and 2007, respectively, we consider the ALLL of $2,371 and $1,912 thousand
adequate to cover probable losses inherent in the loan portfolio that may become uncollectible.
Our evaluation considers such factors as changes in the composition and volume of the loan
portfolio, the impact of changing economic conditions on the credit worthiness of our borrowers,
and the overall quality of the loan portfolio. For further discussion, see “Provision for Loan
Losses”, “Loan Portfolio”, “Loan Quality”, and “Allowance for Loan Losses” sections below in this
discussion and analysis, as well as
Note 1-Summary of Significant Accounting Policies and Note
3-Loans and Allowance for Loan Losses in the Notes to Financial Statements included in Part II,
Item 8 of this annual report.
Deferred Tax Assets and Valuation Allowance
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. During 2007, as a result of our sustained
profitability, we reversed the valuation allowance, which was recorded during 2006, as we had
sufficient evidence that we would, more likely than not, realize our asset.
16
Impairment of Assets
Loans are considered impaired when, based on current information and events, it is probable that
the Bank will be unable to collect all amounts due according to contractual terms of the loan
agreement. The collection of all amounts due according to contractual terms means both the
contractual interest and principal payments of a loan will be collected as scheduled in the loan
agreement. Impaired loans are measured based on the present value of expected future cash flows
discounted at the loan’s effective interest rate, or, as a practical expedient, at the loan’s
observable market price, or the fair value of the underlying collateral. The fair value of
collateral, reduced by costs to sell on a discounted basis, is used if a loan is collateral
dependent. Conforming one-to-four family residential mortgage loans, home equity and second
mortgages, and consumer loans are pooled together as homogeneous loans and, accordingly, are not
covered by Statement of Financial Accounting Standards (SFAS) No.114 “Accounting by Creditors for
Impairment of a Loan.” At December 31, 2008, we had one impaired loan which is reported at the
fair value of the underlying collateral as repayment is expected solely from the collateral. At
December 31, 2007, we did not have any impaired loans.
Investment Securities Impairment
Periodically, we may need to assess whether there have been any events or economic circumstances to
indicate that a security on which there is an unrealized loss is impaired on an
other-than-temporary basis. In any such instance, we would consider many factors including the
severity and duration of the impairment, our intent and ability to hold the security for a period
of time sufficient for a recovery in value, recent events specific to the issuer or industry, and
for debt securities, external credit ratings and recent downgrades. Securities on which there is
an unrealized loss that is deemed to be other-than-temporary are written down to fair value with
the write-down recorded as a realized loss in securities gains (losses). At December 31, 2008 and
2007, respectively, we did not have any other than temporary impaired securities.
17
RESULTS OF OPERATIONS — 2008 versus 2007
The Company’s results of operations depend primarily on its net interest income, which is the
difference between the interest earned on its interest-earning assets and the interest paid on
funds borrowed to support those assets, primarily deposits. Net interest margin is the difference
between the weighted average rate received on interest-earning assets and the weighted average rate
paid on interest-bearing liabilities, as well as the average level of interest-earning assets as
compared with that of interest-bearing liabilities. Net income is also affected by the amount of
non-interest income and other operating expenses.
NET INCOME
For the year ended December 31, 2008, net income decreased by $289 thousand, to $527 thousand from
$816 thousand for the year ended December 31, 2007. The decrease in net income for the year ended
December 31, 2008 compared to 2007 was directly attributable costs associated with the growth of
the Company and the expansion of the branch network. Additionally, net income in 2007 included the
effect of a $202 thousand adjustment to reverse the valuation allowance previously recorded on our
net deferred tax asset.
On a per share basis, basic earnings per share for the year ended December 31, 2008 were $0.10 as
compared to basic earnings per share of $0.17 for the year ended December 31, 2007. All share data
has been restated to reflect all stock dividends and stock splits through December 31, 2008.
Analysis of 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 yield earned or the interest paid on them. For the
year ended December 31, 2008, net interest income increased by $756 thousand or 12.3%, to $6.9
million from $6.2 million for the year ended December 31, 2007. This increase in net interest
income is primarily the result of a 28.0% increase in total loans during the year. Total loans
reached $234.8 million at December 31, 2008 from $183.5 million at December 31, 2007.
Average Balance Sheets
We commenced banking operations on May 10, 2006. The following table sets forth certain
information relating to our average assets and liabilities for the years ended December 31, 2008
and 2007, respectively, and for the period from May 10, 2006 through December 31, 2006, and
reflects the average yield on assets and average cost of liabilities for the period indicated.
Such yields are derived by dividing income or expense, on a tax-equivalent basis, by the average
balance of assets or liabilities, respectively, for the periods shown. Securities available for
sale are reflected in the following table at amortized cost. Non-accrual loans are included in the
average loan balance. Amounts have been computed on a fully tax-equivalent basis, assuming a
blended tax rate of 42% in 2008, 2007, and 2006, respectively.
18
For the years ended December 31,
(dollars in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
Average |
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
Average |
|
| |
|
Balance |
|
|
Interest |
|
|
Yield/Cost |
|
|
Balance |
|
|
Interest |
|
|
Yield/Cost |
|
|
Balance |
|
|
Interest |
|
|
Yield/Cost |
|
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Earning Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
209,498 |
|
|
$ |
12,977 |
|
|
|
6.19 |
% |
|
$ |
139,546 |
|
|
$ |
10,111 |
|
|
|
7.24 |
% |
|
$ |
43,971 |
|
|
$ |
1,983 |
|
|
|
6.77 |
% |
Securities |
|
|
17,147 |
|
|
|
708 |
|
|
|
4.13 |
|
|
|
5,249 |
|
|
|
264 |
|
|
|
5.03 |
|
|
|
7,915 |
|
|
|
260 |
|
|
|
4.99 |
|
Federal Funds Sold |
|
|
24,185 |
|
|
|
725 |
|
|
|
3.00 |
|
|
|
4,072 |
|
|
|
199 |
|
|
|
4.89 |
|
|
|
21,752 |
|
|
|
818 |
|
|
|
5.64 |
|
Interest-earning cash accounts* |
|
|
9,091 |
|
|
|
45 |
|
|
|
0.49 |
|
|
|
1,038 |
|
|
|
16 |
|
|
|
1.54 |
|
|
|
— |
|
|
|
0 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest-earning Assets |
|
|
259,921 |
|
|
|
14,455 |
|
|
|
5.56 |
% |
|
|
149,905 |
|
|
|
10,590 |
|
|
|
7.06 |
% |
|
|
73,638 |
|
|
|
3,061 |
|
|
|
6.26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest earning Assets |
|
|
12,074 |
|
|
|
|
|
|
|
|
|
|
|
12,297 |
|
|
|
|
|
|
|
|
|
|
|
5,011 |
|
|
|
|
|
|
|
|
|
Allowance for Loan Losses |
|
|
(2,135 |
) |
|
|
|
|
|
|
|
|
|
|
(1,863 |
) |
|
|
|
|
|
|
|
|
|
|
(486 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
269,860 |
|
|
|
|
|
|
|
|
|
|
$ |
160,339 |
|
|
|
|
|
|
|
|
|
|
$ |
78,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Deposits |
|
$ |
5,632 |
|
|
$ |
63 |
|
|
|
1.12 |
% |
|
$ |
7,447 |
|
|
$ |
194 |
|
|
|
2.61 |
% |
|
$ |
3,910 |
|
|
$ |
60 |
|
|
|
2.30 |
% |
Savings Deposits |
|
|
3,016 |
|
|
|
8 |
|
|
|
0.26 |
|
|
|
2,569 |
|
|
|
13 |
|
|
|
0.51 |
|
|
|
930 |
|
|
|
5 |
|
|
|
0.81 |
|
Money Market Deposits |
|
|
53,831 |
|
|
|
1,189 |
|
|
|
2.21 |
|
|
|
38,781 |
|
|
|
1,757 |
|
|
|
4.53 |
|
|
|
16,216 |
|
|
|
422 |
|
|
|
3.89 |
|
Time Deposits |
|
|
133,266 |
|
|
|
6,273 |
|
|
|
4.71 |
|
|
|
41,114 |
|
|
|
2,132 |
|
|
|
5.18 |
|
|
|
3,360 |
|
|
|
77 |
|
|
|
3.44 |
|
Short Term Borrowings |
|
|
378 |
|
|
|
11 |
|
|
|
2.91 |
|
|
|
6,432 |
|
|
|
339 |
|
|
|
5.27 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest-Bearing Liabilities |
|
|
196,123 |
|
|
|
7,544 |
|
|
|
3.85 |
% |
|
|
96,343 |
|
|
|
4,435 |
|
|
|
4.60 |
% |
|
|
24,416 |
|
|
|
564 |
|
|
|
3.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Interest Bearing Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Deposits |
|
|
25,361 |
|
|
|
|
|
|
|
|
|
|
|
18,920 |
|
|
|
|
|
|
|
|
|
|
|
10,384 |
|
|
|
|
|
|
|
|
|
Other Liabilities |
|
|
1,541 |
|
|
|
|
|
|
|
|
|
|
|
1,031 |
|
|
|
|
|
|
|
|
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Interest Bearing Liabilities |
|
|
26,902 |
|
|
|
|
|
|
|
|
|
|
|
19,951 |
|
|
|
|
|
|
|
|
|
|
|
10,548 |
|
|
|
|
|
|
|
|
|
Stockholders’ Equity |
|
|
46,835 |
|
|
|
|
|
|
|
|
|
|
|
44,045 |
|
|
|
|
|
|
|
|
|
|
|
43,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY |
|
$ |
269,860 |
|
|
|
|
|
|
|
|
|
|
$ |
160,339 |
|
|
|
|
|
|
|
|
|
|
$ |
78,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
(Tax Equivalent Basis) |
|
|
|
|
|
$ |
6,911 |
|
|
|
|
|
|
|
|
|
|
$ |
6,155 |
|
|
|
|
|
|
|
|
|
|
$ |
2,497 |
|
|
|
|
|
Tax Equivalent Basis adjustment |
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
|
|
|
|
$ |
6,911 |
|
|
|
|
|
|
|
|
|
|
$ |
6,155 |
|
|
|
|
|
|
|
|
|
|
$ |
2,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Rate Spread |
|
|
|
|
|
|
|
|
|
|
1.71 |
% |
|
|
|
|
|
|
|
|
|
|
2.46 |
% |
|
|
|
|
|
|
|
|
|
|
2.80 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin |
|
|
|
|
|
|
|
|
|
|
2.56 |
% |
|
|
|
|
|
|
|
|
|
|
4.10 |
% |
|
|
|
|
|
|
|
|
|
|
3.39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of Interest-Earning Assets to
Interest-Bearing Liabilities |
|
|
1.33 |
|
|
|
|
|
|
|
|
|
|
|
1.56 |
|
|
|
|
|
|
|
|
|
|
|
3.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| * |
|
Interest-earning cash accounts includes funds held at the FRB as the FRB began paying interest
on deposits during the fourth quarter of 2008. |
19
Rate/Volume Analysis
The following table presents, by category, the major factors that contributed to the changes in net
interest income on a tax equivalent basis for the years ended December 31, 2008 and 2007,
respectively.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended |
|
|
Year Ended |
|
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2008 versus 2007 |
|
|
2007 versus 2006 |
|
| |
|
Increase (Decrease) |
|
|
|
|
|
|
Increase (Decrease) |
|
|
|
|
| |
|
due to change in |
|
|
|
|
|
|
due to change in |
|
|
|
|
| |
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
| |
|
Volume |
|
|
Rate |
|
|
Net |
|
|
Volume |
|
|
Rate |
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
5,064 |
|
|
$ |
(2,198 |
) |
|
$ |
2,866 |
|
|
$ |
7,472 |
|
|
$ |
656 |
|
|
$ |
8,128 |
|
Securities |
|
|
598 |
|
|
|
(154 |
) |
|
|
444 |
|
|
|
2 |
|
|
|
2 |
|
|
|
4 |
|
Fed Funds Sold |
|
|
984 |
|
|
|
(458 |
) |
|
|
526 |
|
|
|
(589 |
) |
|
|
(30 |
) |
|
|
(619 |
) |
Interest earning cash accounts |
|
|
124 |
|
|
|
(95 |
) |
|
|
29 |
|
|
|
16 |
|
|
|
0 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Income |
|
|
6,770 |
|
|
|
(2,905 |
) |
|
|
3,865 |
|
|
|
6,901 |
|
|
|
628 |
|
|
|
7,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Deposits |
|
|
(47 |
) |
|
|
181 |
|
|
|
134 |
|
|
|
111 |
|
|
|
23 |
|
|
|
134 |
|
Savings Deposits |
|
|
2 |
|
|
|
6 |
|
|
|
8 |
|
|
|
15 |
|
|
|
(7 |
) |
|
|
8 |
|
Money Market Deposits |
|
|
682 |
|
|
|
654 |
|
|
|
1,336 |
|
|
|
1,088 |
|
|
|
248 |
|
|
|
1,336 |
|
Time Deposits |
|
|
4,773 |
|
|
|
(2,719 |
) |
|
|
2,054 |
|
|
|
1,339 |
|
|
|
715 |
|
|
|
2,054 |
|
Short Term Borrowings |
|
|
(319 |
) |
|
|
658 |
|
|
|
339 |
|
|
|
339 |
|
|
|
0 |
|
|
|
339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Expense |
|
|
5,091 |
|
|
|
(1,220 |
) |
|
|
3,871 |
|
|
|
2,892 |
|
|
|
979 |
|
|
|
3,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in Interest Income |
|
$ |
1,679 |
|
|
$ |
(1,685 |
) |
|
$ |
(6 |
) |
|
$ |
4,009 |
|
|
$ |
(351 |
) |
|
$ |
3,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
PROVISION FOR LOAN LOSSES
For the year ended December 31, 2008, the Company’s provision for loan losses was $459,000, a
decrease of $587,000 from the provision of $1,046,000 for the year ended December 31, 2007. The
decreased provision is primarily the result of slower loan growth, which experienced an increase of
28.0% in 2008 compared to 127.5% in 2007.
OTHER INCOME
Other income, which was primarily attributable to service fees received from deposit accounts, for
the year ended December 31, 2008, was $237,000, an increase of $93,000 above the $144,000 received
during the year ended December 31, 2007. The increase in other income reflects the combination of
an increase in the number of accounts, an increase average deposit levels, and the level of
activity in the deposit accounts.
OTHER EXPENSES
Other expenses for the year ended December 31, 2008 amounted to $5,742,000, an increase of
$1,379,000 or 31.6% over the $4,363,000 for the year ended December 31, 2007. This increase is
related, primarily, to the effect of twelve months of operation for three branches which were
opened during the second half of 2007 as well as data processing costs associated with the
Company’s growth during 2007 and costs associated with opening a fourth branch during the fourth
quarter of 2008.
INCOME TAX EXPENSE
The income tax provision, which includes both federal and state taxes, for the years ended December
31, 2008 and 2007 was $420,000 and $74,000, respectively. The increase in income tax expense
during 2008 resulted from the combination of increased pre-tax income in 2008 and the effect of an
adjustment to reverse the valuation allowance previously recorded on our net deferred tax asset in
2007.
21
FINANCIAL CONDITION
Total consolidated assets increased $43.9 million, or 16.8%, from $260.2 million at December 31,
2007 to $304.1 million at December 31, 2008. Total loans increased from $183.5 million at December
31, 2007 to $234.8 million at December 31, 2008, an increase of 28.0%. Total deposits increased
from $212.9 million on December 31, 2007 to $254.0 million at December 31, 2008, an increase of
$41.1 million, or 19.3%.
LOANS
Our loan portfolio is the primary component of our assets. Total loans, which exclude net deferred
fees and costs and the allowance for loan losses, increased by 28.0% from $183.5 million at
December 31, 2007, to $234.8 million at December 31, 2008. 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 consolidation and closing of banking
institutions within our market. We believe that it is not cost-efficient for large institutions,
many of which are headquartered out of state, to provide the level of personal service to small
business borrowers that these customers seek and that we intend to provide.
Our loan portfolio consists of commercial loans, real estate loans, and consumer 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 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.
22
The following table sets forth the classification of the Company’s loans by major category as of
December 31, 2008, 2007, and 2006, respectively (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate |
|
$ |
159,056 |
|
|
$ |
123,335 |
|
|
$ |
50,787 |
|
Commercial |
|
|
33,319 |
|
|
|
27,056 |
|
|
|
14,678 |
|
Credit Lines |
|
|
37,962 |
|
|
|
28,133 |
|
|
|
13,519 |
|
Consumer |
|
|
4,507 |
|
|
|
4,936 |
|
|
|
1,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans |
|
$ |
234,844 |
|
|
$ |
183,460 |
|
|
$ |
80,638 |
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the maturity of fixed and adjustable rate loans as of December 31,
2008 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Within |
|
|
1 to 5 |
|
|
After 5 |
|
|
|
|
| |
|
One Year |
|
|
Years |
|
|
Years |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with Fixed Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
7,204 |
|
|
$ |
5,596 |
|
|
$ |
2,220 |
|
|
$ |
15,020 |
|
Real Estate |
|
|
13,412 |
|
|
|
60,600 |
|
|
|
51,290 |
|
|
|
125,302 |
|
Credit Lines |
|
|
46 |
|
|
|
— |
|
|
|
— |
|
|
|
46 |
|
Consumer |
|
|
647 |
|
|
|
1,974 |
|
|
|
1,886 |
|
|
|
4,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with Adjustable Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
$ |
17,339 |
|
|
$ |
960 |
|
|
$ |
— |
|
|
$ |
18,299 |
|
Real Estate |
|
|
31,918 |
|
|
|
931 |
|
|
|
905 |
|
|
|
33,754 |
|
Credit Lines |
|
|
127 |
|
|
|
— |
|
|
|
37,789 |
|
|
|
37,916 |
|
Consumer |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
LOAN QUALITY
As mentioned above, our principal assets are our loans. Inherent in the lending function is the
risk of the borrower’s inability to repay a loan under its existing terms. Risk elements include
non-accrual 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 (non-accrual 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. When a loan is classified as non-accrual, 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 minimize overall credit risk through loan diversification and our loan approval
procedures. Due diligence begins at the time we begin to discuss the origination of a loan with a
borrower. Documentation, including a borrower’s 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.
23
At December 31, 2008, the Bank had one non-accrual residential mortgage loan of approximately $2.0
million. If interest had been accrued, such income would have been approximately $135 thousand
for the year ended December 31, 2008. This loan was considered impaired and was evaluated in
accordance with SFAS No.114 “Accounting by Creditors for Impairment of a Loan.” After evaluation,
a specific reserve of $20 thousand was deemed necessary.
At December 31, 2007 and 2006, there were no non-performing assets and no information about
possible credit problems of borrowers which would cause us to have serious doubts as to the
ultimate ability to collect their loans. While we do attempt to minimize credit risk, these
conditions are partially attributable to our limited operating history.
As of December 31, 2008, 2007, and 2006, respectively, there were no concentrations of loans
exceeding 10% of the Bank’s total loans and the Bank had no foreign loans. The Bank’s loans are
primarily to businesses and individuals located in Bergen County, New Jersey.
The Bank maintains an external independent loan review auditor. The loan review auditor performs
examinations of a sample of commercial loans after the Bank has extended credit. The loan review
auditor also monitors the integrity of our credit risk rating system. This review process is
intended to identify adverse developments in individual credits, regardless of payment history.
The loan review auditor reports directly to the audit committee of our Board of Directors and
provides the audit committee with reports on asset quality. The loan review audit reports may be
presented to our Board of Directors by the audit committee for review, as appropriate.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents a critical accounting policy. The allowance is a reserve
established through charges to earnings in the form of a provision for loan losses. We maintain an
allowance for loan losses which we believe is adequate to provide for probable losses inherent in
the loan portfolio. While we apply the methodology discussed below in connection with the
establishment of our allowance for loan losses, it is subject to critical judgments on the part of
management. Loan losses are charged directly to the allowance when they occur and any recovery is
credited to the allowance. Risks within the loan portfolio are analyzed on a continuous basis by
our officers, by external independent loan review function, and by our audit committee. A risk
system, consisting of multiple grading categories, is utilized as an analytical tool to assess risk
and appropriate reserves. In addition to the risk system, management further evaluates risk
characteristics of the loan portfolio under current and anticipated economic conditions and
considers such factors as the financial condition of the borrower, past and expected loss
experience, and other factors which management feels deserve recognition in establishing an
appropriate reserve. These estimates are reviewed at least quarterly, and, as adjustments become
necessary, they are realized in the periods in which they become known. Additions to the allowance
are made by provisions charged to the expense and the allowance is reduced by net-chargeoffs, which
are loans judged to be uncollectible, less any recoveries on loans previously charged off.
Although management attempts to maintain the allowance at an adequate level, future additions to
the allowance may be required due to the growth of our loan portfolio, changes in asset quality,
changes in market conditions and other factors. Additionally, various regulatory agencies,
primarily the FDIC, periodically review our allowance for loan losses. These agencies may require
additional provisions based upon their judgment about information available to them at the time of
their examination. Although management uses what it believes to be the best information available,
the level of the allowance for loan losses remains an estimate which is subject to significant
judgment and short term change.
24
We commenced banking operations in May, 2006, and our allowance for loan losses totaled $2,371,000,
and $1,912,000, respectively, at December 31, 2008, and 2007. The growth of the allowance is
primarily due to the growth and composition of the loan portfolio.
The following is an analysis summary of the allowance for loan losses for the periods indicated:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1 |
|
$ |
1,912 |
|
|
$ |
866 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Charge-offs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Recoveries |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision charged to expense |
|
|
459 |
|
|
|
1,046 |
|
|
|
866 |
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31 |
|
$ |
2,371 |
|
|
$ |
1,912 |
|
|
$ |
866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charge-offs to average loans
Outstanding |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
25
The following table sets forth, for each of the Company’s major lending areas, the amount and
percentage of the Company’s allowance for loan losses attributable to such category, and the
percentage of total loans represented by such category, as of the periods indicated :
Allocation of the Allowance for Loan Losses by Category
As of December 31,
(dollars in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
% of |
|
| |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
Total |
|
| |
|
Amount |
|
|
% of ALL |
|
|
Loans |
|
|
Amount |
|
|
% of ALL |
|
|
Loans |
|
|
Amount |
|
|
% of ALL |
|
|
Loans |
|
Balance applicable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate |
|
$ |
1,774 |
|
|
|
74.82 |
% |
|
|
78.85 |
% |
|
$ |
1,373 |
|
|
|
71.81 |
% |
|
|
67.23 |
% |
|
$ |
479 |
|
|
|
55.31 |
% |
|
|
62.98 |
% |
Commercial |
|
|
244 |
|
|
|
10.29 |
% |
|
|
10.84 |
% |
|
|
241 |
|
|
|
12.61 |
% |
|
|
14.75 |
% |
|
|
197 |
|
|
|
22.75 |
% |
|
|
18.20 |
% |
Credit Lines |
|
|
205 |
|
|
|
8.65 |
% |
|
|
9.11 |
% |
|
|
152 |
|
|
|
7.95 |
% |
|
|
15.34 |
% |
|
|
69 |
|
|
|
7.97 |
% |
|
|
16.77 |
% |
Consumer |
|
|
27 |
|
|
|
1.14 |
% |
|
|
1.20 |
% |
|
|
5 |
|
|
|
0.26 |
% |
|
|
2.68 |
% |
|
|
25 |
|
|
|
2.89 |
% |
|
|
2.05 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
2,250 |
|
|
|
94.90 |
% |
|
|
100.00 |
% |
|
|
1,771 |
|
|
|
92.63 |
% |
|
|
100.00 |
% |
|
|
770 |
|
|
|
88.92 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated Reserves |
|
|
121 |
|
|
|
5.10 |
% |
|
|
|
|
|
|
141 |
|
|
|
7.37 |
% |
|
|
|
|
|
|
96 |
|
|
|
11.08 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
$ |
2,371 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
$ |
1,912 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
$ |
866 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for loan losses represents our determination of the amount necessary to bring the
ALLL to a level that we consider adequate to reflect the risk of probable losses inherent in our
loan portfolio as of the balance sheet date. We evaluate the adequacy of the ALLL by performing
periodic, systematic reviews of the loan portfolio. While allocations are made to specific loans
and pools of loans, the total allowance is available for any loan losses. Although the ALLL is our
best estimate of the inherent loan losses as of the balance sheet date, the process of determining
the adequacy of the ALLL is judgmental and subject to changes in external conditions. Accordingly,
there can be no assurance that existing levels of the ALLL will ultimately prove adequate to absorb
actual loan losses. However, we have determined, and believe, that the ALLL is at a level adequate
to cover the inherent loan losses in our loan portfolio as of the balance sheet dates.
26
INVESTMENT SECURITIES
In addition to our loan portfolio, we maintain an investment portfolio which is available to fund
increased loan demand or deposit withdrawals and other liquidity needs, and which provides an
additional source of interest income. The portfolio is composed of U.S. Treasury Securities and
obligations of U.S. Government Agencies.
Securities are classified as held-to-maturity, referred to as “HTM,” trading, or available for
sale, referred to as “AFS,” at the time of purchase. Securities are classified as held-to-maturity
if management intends and we have the ability to hold them to maturity. Such securities are stated
at cost, adjusted for unamortized purchase premiums and discounts. Securities which are bought and
held principally for the purpose of selling them in the near term are classified as trading
securities, which are carried at market value. Realized gains and losses, as well as gains and
losses from marking trading securities to market value, are included in trading revenue.
Securities not classified as held-to-maturity or trading securities are classified as AFS and are
stated at fair value. Unrealized gains and losses on AFS securities are excluded from results of
operations, and are reported as a component of accumulated other comprehensive income, which is
included in stockholders’ equity. Securities classified as AFS include securities that may be sold
in response to changes in interest rates, changes in prepayment risks, the need to increase
regulatory capital, or other similar requirements.
At December 31, 2008, total securities aggregated $17,731,000 and were classified as available for
sale. At December 31, 2008, the Company held no securities which it classified as held-to-maturity
securities or trading securities.
The following table sets forth the carrying value of the Company’s security portfolio as of the
December 31, 2008, 2007, and 2006, respectively.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
| |
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
Available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency obligations |
|
$ |
17,641 |
|
|
$ |
17,731 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,560 |
|
|
$ |
9,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale |
|
$ |
17,641 |
|
|
$ |
17,731 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,560 |
|
|
$ |
9,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury obligation |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,996 |
|
|
$ |
2,014 |
|
|
$ |
1,993 |
|
|
$ |
2,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total held to maturity |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,996 |
|
|
$ |
2,014 |
|
|
$ |
1,993 |
|
|
$ |
2,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Securities |
|
$ |
17,641 |
|
|
$ |
17,731 |
|
|
$ |
1,996 |
|
|
$ |
2,014 |
|
|
$ |
11,553 |
|
|
$ |
11,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
The following tables set forth as of December 31, 2008 and December 31, 2007, the maturity
distribution of the Company’s debt investment portfolio:
Maturity of Debt Investment Securities
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Securities Available for Sale |
|
| |
|
|
|
|
|
|
|
|
|
Weighted |
|
| |
|
Amortized |
|
|
Fair |
|
|
Average |
|
| |
|
Cost |
|
|
Value |
|
|
Yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 to 5 years |
|
$ |
13,391 |
|
|
$ |
13,478 |
|
|
|
3.61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Over 5 years |
|
$ |
4,250 |
|
|
$ |
4,253 |
|
|
|
4.12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,641 |
|
|
$ |
17,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity of Debt Investment Securities
December 31, 2007
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Securities Held to Maturity |
|
| |
|
|
|
|
|
|
|
|
|
Weighted |
|
| |
|
Amortized |
|
|
Fair |
|
|
Average |
|
| |
|
Cost |
|
|
Value |
|
|
Yield |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
$ |
1,996 |
|
|
$ |
2,014 |
|
|
|
5.12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
1 to 5 years |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over 5 years |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,996 |
|
|
$ |
2,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2008, the Company sold a security from its AFS portfolio and recognized a gain of $2,000
from the transaction.
During 2007, the Company sold its entire AFS portfolio in order to fund loan growth and recognized
a gain of $4,000 from the transaction.
DEPOSITS
Deposits are our primary source of funds. We experienced a growth of $41.1 million, or 19.3%, in
deposits from $212.9 million at December 31, 2007 to $254.0 million at December 31, 2008. This
market penetration was accomplished through the combined effect of branches opening during 2007 and
2008 and the continued referrals of our board of directors, stockholders, management, and staff.
The Company has no foreign deposits, nor are there any material concentrations of deposits.
28
The following table sets forth the actual amount of various types of deposits for each of the
periods indicated :
December 31,
(Dollars in Thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
| |
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
| |
|
Amount |
|
|
Yield/Rate |
|
|
Amount |
|
|
Yield/Rate |
|
|
Amount |
|
|
Yield/Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest Bearing Demand |
|
$ |
28,187 |
|
|
|
— |
|
|
$ |
23,292 |
|
|
|
— |
|
|
$ |
10,244 |
|
|
|
— |
|
Interest Bearing Demand |
|
|
57,645 |
|
|
|
2.11 |
% |
|
|
52,215 |
|
|
|
4.26 |
% |
|
|
38,794 |
|
|
|
3.58 |
% |
Savings |
|
|
2,644 |
|
|
|
0.26 |
% |
|
|
3,430 |
|
|
|
0.51 |
% |
|
|
1,873 |
|
|
|
0.81 |
% |
Time Deposits |
|
|
165,530 |
|
|
|
4.39 |
% |
|
|
134,004 |
|
|
|
5.18 |
% |
|
|
10,956 |
|
|
|
3.44 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
254,006 |
|
|
|
|
|
|
$ |
212,941 |
|
|
|
|
|
|
$ |
61,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company does not actively solicit short-term deposits of $100,000 or more because of the
liquidity risks posed by such deposits. The following table summarizes the maturity of time
deposits of denominations of $100,000 or more as of December 31, 2008.
| |
|
|
|
|
| |
|
(in thousands) |
|
Three months or less |
|
$ |
45,242 |
|
Over three months through twelve months |
|
|
72,972 |
|
Over one year through three years |
|
|
3,661 |
|
Over three years |
|
|
1,800 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
123,675 |
|
|
|
|
|
RETURN ON EQUITY AND ASSETS
The following table summarizes our return on assets, or net income divided by average total assets,
return on equity, or net income divided by average equity, divided payout ratio, or dividends
declared per share divided by net income per share, and equity to assets ratio, or average equity
divided by average total assets.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
At or for the year ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Selected Financial Ratios: |
|
| | | | | | | | |
| |
Return on Average Assets (ROA) |
|
|
0.20 |
% |
|
|
0.51 |
% |
|
|
(0.72 |
%) |
Return on Average Equity (ROE) |
|
|
1.13 |
% |
|
|
1.85 |
% |
|
|
(1.31 |
%) |
Equity to Total Assets at Year-End |
|
|
16.24 |
% |
|
|
17.61 |
% |
|
|
40.58 |
% |
Dividend Payout Ratio |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
29
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 general interest rates, economic conditions, and competition. In addition, if warranted, we
would be able to borrow funds.
Our total deposits equaled $254,005,000 and $212,941,000, respectively, at December 31, 2008 and
2007. The growth in funds provided by deposit inflows during this period coupled with our cash
position at the end of 2007 has been sufficient to provide for our loan demand.
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 still
maintaining liquidity. Through our investment portfolio, we also attempt to manage our maturity
gap by seeking maturities of investments which coincide as closely as possible with maturities of
deposits. Securities available for sale would also be available to provide liquidity for
anticipated loan demand and liquidity needs.
Although we were a net seller of federal funds at December 31, 2008, we have a $12 million
overnight line of credit facility available 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. At December 31, 2008, we had drawn approximately $853
thousand of our line at Atlantic Central Bankers Bank. We were approved as a member of the Federal
Home Loan Bank of New York, or “FHLBNY,” during November, 2007. 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.
INTEREST RATE SENSITIVITY ANALYSIS
We manage our assets and liabilities with the objectives of evaluating the interest-rate risk
included in certain balance sheet accounts; determining the level of risk appropriate given our
business focus, operating environment, capital and liquidity requirements; establishing prudent
asset concentration guidelines; and managing risk consistent with guidelines approved by our board
of directors. We seek to reduce the vulnerability of our operations to changes in interest rates
and to manage the ratio of interest-rate sensitive assets to interest-rate sensitive liabilities
within specified maturities or re-pricing dates. Our actions in this regard are taken under the
guidance of the asset/liability committee of our board of directors, or “ALCO.” ALCO generally
reviews our liquidity, cash flow needs, maturities of investments, deposits and borrowings, and
current market conditions and interest rates.
One of the monitoring tools used by ALCO is an analysis of the extent to which assets and
liabilities are interest rate sensitive and measures our interest rate sensitivity “gap.” An asset
or liability is said to be interest rate sensitive within a specific time period if it will mature
or re-price within that time period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate
sensitive assets. Accordingly, during a period of rising rates, a negative gap may result in the
yield on assets increasing at a slower rate than the increase in the cost of interest-bearing
liabilities, resulting in a decrease in net interest income. Conversely, during a period of
falling interest rates, an institution with a negative gap would experience a re-pricing of its
assets at a slower rate than its interest-bearing liabilities which, consequently, may result in
its net interest income growing.
30
The following table sets forth the amounts of interest-earning assets and interest-bearing
liabilities outstanding at the periods indicated which we anticipated, based upon certain
assumptions, will re-price or mature in each of the future time periods presented. Except as
noted, the amount of assets and liabilities which re-price or mature during a particular period
were determined in accordance with the earlier of the term to re-pricing or the contractual terms
of the asset or liability. Because we have no interest bearing liabilities with a maturity greater
than five years, we believe that a static gap for the over five year time period reflects an
accurate assessment of interest rate risk. Our loan maturity assumptions are based upon actual
maturities within the loan portfolio. Equity securities have been included in “Other Assets” as
they are not interest rate sensitive. At December 31, 2008, we were within the target gap range
established by ALCO.
Cumulative Rate Sensitive Balance Sheet
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
0 – 3 |
|
|
0 – 6 |
|
|
0 – 1 |
|
|
0 – 5 |
|
|
|
|
|
|
|
|
|
|
| |
|
Months |
|
|
Months |
|
|
Year |
|
|
Years |
|
|
5 + Years |
|
|
All Others |
|
|
TOTAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities, excluding
equity securities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
13,477 |
|
|
$ |
4,254 |
|
|
$ |
— |
|
|
$ |
17,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
23,802 |
|
|
|
24,808 |
|
|
|
25,502 |
|
|
|
31,099 |
|
|
|
2,220 |
|
|
|
— |
|
|
|
33,319 |
|
Real Estate |
|
|
32,538 |
|
|
|
41,618 |
|
|
|
45,400 |
|
|
|
107,766 |
|
|
|
51,292 |
|
|
|
— |
|
|
|
159,058 |
|
Credit Lines |
|
|
37,962 |
|
|
|
37,962 |
|
|
|
37,962 |
|
|
|
37,962 |
|
|
|
— |
|
|
|
— |
|
|
|
37,962 |
|
Consumer |
|
|
65 |
|
|
|
414 |
|
|
|
647 |
|
|
|
2,621 |
|
|
|
1,886 |
|
|
|
— |
|
|
|
4,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Funds Sold |
|
|
40,482 |
|
|
|
40,482 |
|
|
|
40,482 |
|
|
|
40,482 |
|
|
|
— |
|
|
|
— |
|
|
|
40,482 |
|
Other Assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11,045 |
|
|
|
11,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
134,849 |
|
|
$ |
145,284 |
|
|
$ |
149,993 |
|
|
$ |
233,407 |
|
|
$ |
59,652 |
|
|
$ |
11,045 |
|
|
$ |
304,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction /
Demand Accounts |
|
$ |
6,104 |
|
|
$ |
6,104 |
|
|
$ |
6,104 |
|
|
$ |
6,104 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,104 |
|
Money Market |
|
|
51,541 |
|
|
|
51,541 |
|
|
|
51,541 |
|
|
|
51,541 |
|
|
|
— |
|
|
|
— |
|
|
|
51,541 |
|
Savings |
|
|
2,644 |
|
|
|
2,644 |
|
|
|
2,644 |
|
|
|
2,644 |
|
|
|
— |
|
|
|
— |
|
|
|
2,644 |
|
Time Deposits |
|
|
48,760 |
|
|
|
86,767 |
|
|
|
161,788 |
|
|
|
165,530 |
|
|
|
— |
|
|
|
— |
|
|
|
165,530 |
|
Other Liabilities |
|
|
853 |
|
|
|
853 |
|
|
|
853 |
|
|
|
853 |
|
|
|
— |
|
|
|
29,568 |
|
|
|
30,421 |
|
Equity |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
47,864 |
|
|
|
47,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
AND EQUITY |
|
$ |
109,902 |
|
|
$ |
147,909 |
|
|
$ |
222,930 |
|
|
$ |
226,672 |
|
|
$ |
— |
|
|
$ |
77,432 |
|
|
$ |
304,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar Gap |
|
$ |
24,947 |
|
|
$ |
(2,625 |
) |
|
$ |
(72,937 |
) |
|
$ |
6,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gap / Total Assets |
|
|
8.20 |
% |
|
|
(0.86 |
%) |
|
|
(23.98 |
%) |
|
|
2.21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Target Gap Range |
|
|
+/- 35.00 |
|
|
|
+/- 30.00 |
|
|
|
+/- 25.00 |
|
|
|
+/- 25.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
RSA / RSL |
|
|
122.70 |
% |
|
|
98.23 |
% |
|
|
67.28 |
% |
|
|
102.97 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(Rate Sensitive
Assets to
Rate Sensitive
Liabilities) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk
arises primarily from interest rate risk inherent in our lending and deposit taking activities.
Thus, we actively monitor and manage our interest rate risk exposure.
Our profitability is affected by fluctuations in interest rates. A sudden and substantial increase
or decrease in interest rates may adversely impact our earnings to the extent that the interest
rates borne by assets and liabilities do not change at the same speed, to the same extent, or on
the same basis. We monitor the impact of changing interest rates on our net interest income using
several tools. One measure of our exposure to differential changes in interest rates between
assets and liabilities is shown in our “Cumulative Rate Sensitive Balance Sheet” under the
“Interest Rate Sensitivity Analysis” caption in this discussion and analysis. In the future, we
may use additional analyses, including periodic “shock analysis” to evaluate the effect of interest
rates upon our operations and our financial condition and to manage our exposure to interest rate
risk.
Our primary objective in managing interest rate risk is to minimize the adverse impact of changes
in interest rates on our net interest income and capital, while structuring our asset-liability
structure to obtain the maximum yield-cost spread on that structure. We rely primarily on our
asset-liability structure to control interest rate risk.
We continually evaluate interest rate risk management opportunities. During 2008, we believed that
available hedging instruments were not cost-effective, and therefore, focused our efforts on
increasing our yield-cost spread through retail growth opportunities.
32
The following table discloses our financial instruments that are sensitive to change in interest
rates, categorized by expected maturity at December 31, 2008. Market risk sensitive instruments
are generally defined as on- and off- balance sheet financial instruments.
Expected Maturity/Principal Repayment
December 31, 2008
(Dollars in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Avg. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Int. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There- |
|
|
|
|
|
|
Fair |
|
| |
|
Rate |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
After |
|
|
Total |
|
|
Value |
|
Interest Rate
Sensitive
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
6.19 |
% |
|
$ |
109,511 |
|
|
|
6,754 |
|
|
|
811 |
|
|
|
2,792 |
|
|
|
59,580 |
|
|
|
55,398 |
|
|
$ |
234,846 |
|
|
$ |
235,025 |
|
Securities available
for sale, net of
equity securities |
|
|
4.13 |
% |
|
|
— |
|
|
|
— |
|
|
|
2,000 |
|
|
|
1,000 |
|
|
|
10,391 |
|
|
|
4,250 |
|
|
$ |
17,641 |
|
|
$ |
17,731 |
|
Investment Securities |
|
|
N/A |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
N/A |
|
|
|
N/A |
|
Fed Funds Sold |
|
|
3.00 |
% |
|
$ |
69 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
69 |
|
|
$ |
69 |
|
Interest-earning Cash |
|
|
0.49 |
% |
|
$ |
40,107 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
40,107 |
|
|
$ |
40,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Sensitive
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand Deposits |
|
|
1.12 |
% |
|
$ |
6,104 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
6,104 |
|
|
$ |
6,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings Deposits |
|
|
0.26 |
% |
|
$ |
2,644 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
2,644 |
|
|
$ |
2,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Deposits |
|
|
2.21 |
% |
|
$ |
51,541 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
51,547 |
|
|
$ |
51,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time Deposits |
|
|
4.71 |
% |
|
$ |
161,788 |
|
|
|
1,815 |
|
|
|
127 |
|
|
|
— |
|
|
|
1,800 |
|
|
|
— |
|
|
$ |
165,530 |
|
|
$ |
167,460 |
|
Our short term borrowings of $853 thousand, which consisted of a drawdown on an overnight line of
credit, was outstanding as of December 31, 2008 and was repaid during January, 2009.
Although certain assets and liabilities may have similar maturities or periods of re-pricing, they
may react in different degrees to changes in market interest rates. The maturity of certain types
of assets and liabilities may fluctuate in advance of changes in market rates, while maturity of
other types of assets and liabilities may lag behind changes in market rates. In the event of a
change in interest rates, prepayment and early withdrawal levels could deviate significantly from
the maturities assumed in calculating this table.
33
CAPITAL
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 possible 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.”
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 regulator’s 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%.
The following table summarizes the Bank’s risk-based capital and leverage ratios at December 31,
2008, as well as regulatory capital category definitions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Minimum Requirements |
|
|
|
|
| |
|
|
|
|
|
to be |
|
|
Minimum Requirements |
|
| |
|
|
|
|
|
“Adequately |
|
|
to be |
|
| |
|
December 31, 2008 |
|
|
Capitalized” |
|
|
“Well Capitalized” |
|
Risk-Based Capital: |
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital Ratio |
|
|
21.16 |
% |
|
|
4.0 |
% |
|
|
6.0 |
% |
Total Capital Ratio |
|
|
22.20 |
% |
|
|
8.0 |
% |
|
|
10.0 |
% |
Leverage Ratio |
|
|
16.95 |
% |
|
|
4.0 |
% |
|
|
5.0 |
% |
The capital levels detailed above represent the continued effect of our successful stock
subscription, in combination with the profitability experienced during 2008 and 2007, respectively.
As we continue to employ our capital and continue to grow our operations, we expect that our
capital ratios will decrease, but that we will remain a “well-capitalized” institution.
34
CONTRACTUAL OBLIGATIONS
As of December 31, 2008, the Company had the following contractual obligations as provided in the
table below (in thousands):
Contractual Obligations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payment due by Period |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
| |
|
Less than 1 |
|
|
1 to 3 |
|
|
4 to 5 |
|
|
After 5 |
|
|
Amounts |
|
| |
|
year |
|
|
years |
|
|
Years |
|
|
years |
|
|
Committed |
|
Minimum annual rental under
Non-cancelable operating leases |
|
|
437 |
|
|
|
592 |
|
|
|
546 |
|
|
|
2,941 |
|
|
$ |
4,516 |
|
Short term borrowings |
|
|
853 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
853 |
|
Remaining contractual maturities
of time deposits |
|
|
161,788 |
|
|
|
1,942 |
|
|
|
1,800 |
|
|
|
— |
|
|
$ |
165,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations |
|
$ |
163,078 |
|
|
|
2,534 |
|
|
|
2,346 |
|
|
|
2,941 |
|
|
$ |
170,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additionally, the Bank had certain commitments to extend credit to customers. A summary of
commitments to extend credit at December 31, 2008 is provided as follows (in thousands):
| |
|
|
|
|
Commercial real estate, construction, and
Land development secured by land |
|
$ |
13,001 |
|
Home Equity Loans |
|
|
17,871 |
|
Standby letters of credit and other |
|
|
574 |
|
|
|
|
|
|
|
$ |
31,446 |
|
|
|
|
|
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank’s commitments to extend credit and letters of credit constitute financial instruments with
off-balance sheet risk. See Note 14 of the notes to consolidated financial statements included in
this report for additional discussion of “Off-Balance Sheet” items.
35
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of the Company and notes thereto, included in Part II, Item 8
of this annual report, have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing power of money over
time and due to inflation. The impact of inflation is reflected in the increased cost of our
operations. Unlike most industrial companies, nearly all of the assets and liabilities of the Bank
are monetary. As a result, interest rates have a greater impact on our performance than do the
effects of general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
RECENTLY ISSUED ACCOUNTING STANDARDS
Refer to Note 18 of the Notes to Consolidated Financial Statements for discussion of recently
issued accounting standards.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, the Company is not required to provide the information otherwise
required by this Item.
36
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
During 2007, the Company and the Bank effected a bank holding company reorganization, as a result
of which the assets, liabilities, and stockholders’ equity of the Bank immediately prior to the
holding company reorganization were carried forward on the Company’s consolidated financial
statements.
The following audited financial statements are set forth in this Annual Report on Form 10-K on the
pages listed in the Index to Consolidated Financial Statements below.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
37
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Bancorp of New Jersey, Inc.
We have audited the consolidated balance sheets of Bancorp of New Jersey, Inc. and subsidiary (the
“Company”) as of December 31, 2008 and 2007, and the related consolidated statements of income,
stockholders’ equity and comprehensive income, and cash flows for each of the years in the two-year
period ended December 31, 2008. The Company’s management is responsible for these consolidated
financial statements. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Bancorp of New Jersey, Inc. and subsidiary as of
December 31, 2008 and 2007, and the results of their operations and their cash flows for each of
the years in the two year period ended December 31, 2008, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Beard Miller Company LLP
Malvern, Pennsylvania
March 31, 2009
38
CONSOLIDATED BALANCE SHEETS
December 31, 2008 and 2007
(Dollars in thousands, except share data)
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
304 |
|
|
$ |
8,481 |
|
Interest bearing deposits in banks |
|
|
40,107 |
|
|
|
543 |
|
Federal funds sold |
|
|
69 |
|
|
|
57,091 |
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
40,480 |
|
|
|
66,115 |
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
17,731 |
|
|
|
— |
|
Securities held to maturity (fair value approximates
$2,014 at December 31, 2007) |
|
|
— |
|
|
|
1,996 |
|
Restricted investment in bank stock, at cost |
|
|
346 |
|
|
|
328 |
|
|
|
|
|
|
|
|
|
|
Loans |
|
|
234,846 |
|
|
|
183,460 |
|
Deferred loan fees and costs, net |
|
|
90 |
|
|
|
76 |
|
Allowance for loan losses |
|
|
(2,371 |
) |
|
|
(1,912 |
) |
|
|
|
|
|
|
|
Net loans |
|
|
232,565 |
|
|
|
181,624 |
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net |
|
|
10,284 |
|
|
|
8,300 |
|
Accrued interest receivable |
|
|
847 |
|
|
|
613 |
|
Other assets |
|
|
1,851 |
|
|
|
1,269 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
304,104 |
|
|
$ |
260,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Deposits : |
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits |
|
$ |
28,187 |
|
|
$ |
23,292 |
|
Interest bearing deposits: |
|
|
|
|
|
|
|
|
Savings, money market and time deposits |
|
|
102,144 |
|
|
|
96,948 |
|
Time deposits of $100 or more |
|
|
123,675 |
|
|
|
92,701 |
|
|
|
|
|
|
|
|
Total deposits |
|
|
254,006 |
|
|
|
212,941 |
|
Short term borrowings |
|
|
853 |
|
|
|
— |
|
Accrued expenses and other liabilities |
|
|
1,381 |
|
|
|
1,464 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
256,240 |
|
|
|
214,405 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity : |
|
|
|
|
|
|
|
|
Common stock, no par value. Authorized 20,000,000
shares; issued and outstanding 5,065,283 shares at
December 31, 2008; and 4,970,090 at December 31, 2007 |
|
|
47,133 |
|
|
|
45,689 |
|
Retained Earnings |
|
|
678 |
|
|
|
151 |
|
Accumulated other comprehensive income |
|
|
53 |
|
|
|
— |
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
47,864 |
|
|
|
45,840 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
304,104 |
|
|
$ |
260,245 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
39
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2008 and 2007
(Dollars in thousands, except per share data)
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
Interest income: |
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
12,977 |
|
|
$ |
10,087 |
|
Securities |
|
|
708 |
|
|
|
264 |
|
Federal funds sold and other |
|
|
770 |
|
|
|
215 |
|
|
|
|
|
|
|
|
Total interest income |
|
|
14,455 |
|
|
|
10,566 |
|
Interest expense: |
|
|
|
|
|
|
|
|
Savings and money markets |
|
|
1,260 |
|
|
|
1,964 |
|
Time deposits |
|
|
6,273 |
|
|
|
2,132 |
|
Short term borrowings |
|
|
11 |
|
|
|
339 |
|
|
|
|
|
|
|
|
Total interest expense |
|
|
7,544 |
|
|
|
4,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
6,911 |
|
|
|
6,131 |
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
459 |
|
|
|
1,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
6,452 |
|
|
|
5,085 |
|
|
|
|
|
|
|
|
|
|
Non interest income |
|
|
|
|
|
|
|
|
Fees and service charges on deposit accounts |
|
|
220 |
|
|
|
152 |
|
Fees earned from mortgage referrals |
|
|
15 |
|
|
|
12 |
|
Gains on sale of securities |
|
|
2 |
|
|
|
4 |
|
|
|
|
|
|
|
|
Total non interest income |
|
|
237 |
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non interest expense: |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
3,276 |
|
|
|
2,451 |
|
Occupancy and equipment expense |
|
|
1,124 |
|
|
|
810 |
|
Advertising and marketing expenses |
|
|
44 |
|
|
|
51 |
|
Data processing |
|
|
303 |
|
|
|
181 |
|
Legal fees |
|
|
46 |
|
|
|
156 |
|
Other operating expenses |
|
|
949 |
|
|
|
714 |
|
|
|
|
|
|
|
|
Total other expenses |
|
|
5,742 |
|
|
|
4,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
947 |
|
|
|
890 |
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
420 |
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
527 |
|
|
$ |
816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.10 |
|
|
$ |
0.17 |
|
Diluted |
|
$ |
0.10 |
|
|
$ |
0.17 |
|
All share data has been adjusted to reflect the 10% stock distribution paid during January 2007 and
the 2 for 1 stock split effective December 31, 2007.
See accompanying notes to consolidated financial statements.
40
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
Years ended December 31, 2008 and 2007
(Dollars in Thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Retained |
|
|
Accumulated |
|
|
|
|
| |
|
|
|
|
|
Additional |
|
|
Earnings |
|
|
Other |
|
|
|
|
| |
|
Common |
|
|
Paid-In |
|
|
(Accumulated |
|
|
Comprehensive |
|
|
|
|
| |
|
Stock |
|
|
Capital |
|
|
Deficit) |
|
|
(loss) income |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
$ |
23,998 |
|
|
$ |
19,667 |
|
|
$ |
(665 |
) |
|
$ |
39 |
|
|
$ |
43,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange of common stock —
holding company reorganization |
|
|
19,667 |
|
|
|
(19,667 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options (22,000 shares) |
|
|
200 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
200 |
|
Exercise of warrants (104,936 shares) |
|
|
1,141 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,141 |
|
Recognition of stock option expense |
|
|
183 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
183 |
|
Issuance of common stock (43,478 shares) |
|
|
500 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
816 |
|
|
|
— |
|
|
|
816 |
|
Unrealized losses on securities available for sale |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(39 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
$ |
45,689 |
|
|
$ |
— |
|
|
$ |
151 |
|
|
$ |
— |
|
|
$ |
45,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants (76,195 shares) |
|
|
821 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
821 |
|
Exercise of stock options (19,998 shares) |
|
|
230 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
230 |
|
Recognition of stock option expense |
|
|
393 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
527 |
|
|
|
— |
|
|
|
527 |
|
Unrealized gains on securities available for sale |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
53 |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
47,133 |
|
|
$ |
— |
|
|
$ |
678 |
|
|
$ |
53 |
|
|
$ |
47,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
41
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2008 and 2007
(In Thousands)
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
527 |
|
|
$ |
816 |
|
Adjustments to reconcile net income to net cash provided by Operating
activities: |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
459 |
|
|
|
1,046 |
|
Deferred tax benefit |
|
|
(206 |
) |
|
|
(607 |
) |
Depreciation and amortization |
|
|
345 |
|
|
|
193 |
|
Recognition of stock option expense |
|
|
393 |
|
|
|
183 |
|
Fees earned from mortgage referrals |
|
|
(15 |
) |
|
|
(12 |
) |
Gain on sale of securities |
|
|
(2 |
) |
|
|
(4 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Increase in accrued interest receivable |
|
|
(234 |
) |
|
|
(174 |
) |
Increase in other assets |
|
|
(398 |
) |
|
|
(8 |
) |
(Decrease)Increase in accrued expenses and other liabilities |
|
|
(82 |
) |
|
|
323 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
787 |
|
|
|
1,756 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of securities available for sale |
|
|
(32,641 |
) |
|
|
— |
|
Proceeds from maturity of securities held to maturity |
|
|
1,996 |
|
|
|
— |
|
Proceeds from called and matured securities available for sale |
|
|
13,000 |
|
|
|
— |
|
Proceeds from sales of securities available for sale |
|
|
2,002 |
|
|
|
9,565 |
|
Purchase of restricted investment in bank stock |
|
|
(18 |
) |
|
|
(228 |
) |
Net increase in loans |
|
|
(51,400 |
) |
|
|
(102,851 |
) |
Purchases of premises and equipment |
|
|
(2,329 |
) |
|
|
(3,881 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(69,390 |
) |
|
|
(97,395 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
41,064 |
|
|
|
151,074 |
|
Net increase in short term borrowings |
|
|
853 |
|
|
|
— |
|
Proceeds from issuance of common stock |
|
|
— |
|
|
|
500 |
|
Proceeds from exercise of stock options |
|
|
821 |
|
|
|
200 |
|
Proceeds from exercise of warrants |
|
|
230 |
|
|
|
1,141 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
42,968 |
|
|
|
152,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) Increase in cash and cash equivalents |
|
|
(25,635 |
) |
|
|
57,276 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
66,115 |
|
|
|
8,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
40,480 |
|
|
$ |
66,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information: |
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
7,920 |
|
|
$ |
3,558 |
|
Taxes |
|
$ |
372 |
|
|
$ |
578 |
|
See accompanying notes to consolidated financial statements.
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Summary of 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”). All significant inter-company accounts and transactions have been eliminated in
consolidation.
The Company was incorporated under the laws of the Sate of New Jersey to serve as a holding
company for the Bank and to acquire all the capital stock of the Bank.
These financial statements include the effect of the holding company reorganization which
took place on July 31, 2007 pursuant to a plan of acquisition that was approved by the boards
of directors of the Company and the Bank and adopted by the stockholders of the Bank at a
special meeting held July 19, 2007. The holding company reorganization is accounted for as a
reorganization under common control and the assets, liabilities, and stockholders’ equity of
the Bank immediately prior to the holding company reorganization have been carried forward on
the Company’s consolidated financial statements at the amounts carried on the Bank’s
financial statements at the effective date of the holding company reorganization. The
consolidated capitalization, assets, liabilities, results of operations and other financial
data of the Company immediately following the reorganization were substantially the same as
those of the Bank immediately prior to the holding company reorganization. Accordingly,
these consolidated financial statements of the Company include the Bank’s historical recorded
values.
The Company’s class of common stock has no par value and the Bank’s class of common stock had
a par value of $10 per share. As a result of the holding company reorganization, amounts
previously recognized as additional paid in capital on the Bank’s financial statements were
reclassified into common stock in the Company’s consolidated financial statements.
Certain amounts in the prior period’s financial statements have been reclassified to conform
to the December 31, 2008 presentation. These reclassifications did not have an impact on
income.
Nature of Operations
The Company’s primary business is ownership and supervision of the Bank. The Bank commenced
operations as of May 10, 2006. The Company, through 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.
Use of Estimates
Material estimates that are particularly susceptible to significant change in the near term
relate to the determination of the allowance for loan losses, the valuation of the deferred
tax asset, the determination of other-than-temporary impairment on securities, and the
potential impairment of restricted stock. While management uses available information to
recognize estimated losses on loans, future additions may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank’s allowance for loan losses on loans.
These agencies may require the Bank to recognize additions to the allowance based on their
judgements of information available to them at the time of their examination.
The financial statements have been prepared in conformity with U.S. generally accepted
accounting principles. In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period indicated. Actual
results could differ significantly from those estimates.
43
Significant Group of Concentration of Credit Risk
Bancorp of New Jersey, Inc.’s activities are, primarily, with customers located within Bergen
County, New Jersey. The Company does not have any significant concentration to any one
industry or customers within its primary service area. Note 3 describes the types of lending
the Company engages in. Although the Company actively manages the diversification of the loan portfolio,
a substantial portion of the debtors’ ability to honor their contracts is dependent on the
strength of the local economy.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, interest bearing deposits in
banks, and federal funds sold, which are generally sold for one-day periods.
Interest-bearing deposits in banks
Interest bearing deposits from banks are carried at cost.
Regulators
The Bank is subject to Federal and New Jersey Statutes aplicable to banks chartered under the
New Jersey banking laws. The Bank’s deposits are insured by the Federal Deposit Insurance
Corporation (FDIC). Accordingly, the Bank is subject to regulation, supervision, and
examination by the New Jersey State Department of Banking and Insurance and the FDIC. The
Company is subject to regulation, supervision and examination by the Federal Reserve Bank of
New York.
Securities
Investment securities purchased with the intent and ability to hold until maturity are
classified as securities held-to-maturity (“HTM”) and are carried at cost, adjusted for the
amortization of premiums and accretion of discounts using a method that approximates the
level-yield method over the terms of the securities. Investment securities are carried at
the principal amount outstanding because the Bank has the ability and the intent to hold
these securities to maturity. All other securities, including equity securities, are
classified as available-for-sale (“AFS”). These securities are reported at fair value with
changes in the carrying value included in accumulated other comprehensive income which is a
separate component of stockholders’ equity. Gains or losses on sales of securities available
for sale are based upon the specific identification method. The Bank has not acquired or
held securities for the purpose of engaging in trading activities.
Purchase premiums and discounts are recognized in interest income using the interest method
over the terms of the securities. Declines in the fair value of held to maturity and
available for sale securities below their cost that are deemed to be other than temporary are
reflected in earnings as realized losses. In determining whether other-than-temporary
impairment exists, management considers many factors, including (1) the length of time and
the extent to which the fair value has been less than the cost, (2) the financial condition
and near-term prospects of the issuer, and (3) the intent and ability of the Company to
retain its investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value.
Premises and Equipment
Premises and equipment are stated at historical cost, less accumulated depreciation and
amortization. Depreciation of fixed assets is accumulated on a straight-line basis over the
estimated useful lives of the related assets. Leasehold improvements are amortized on a
straight-line basis over the shorter of their estimated useful lives or the term of the
related lease. The estimated lives of our premises and equipment range from 3 years for
computer related equipment to 30 years for building costs associated with newly constructed
buildings. Maintenance and repairs are charged to expense in the year incurred.
44
Loans and Allowance for Loan Losses
Loans that management has the intent and ability to hold for the foreseeable future or until
maturity or payoff are stated at the amount of unpaid principal, net of deferred loan
origination fees and costs and an allowance for loan losses.
The allowance for loan losses is maintained at a level believed adequate by management to
absorb probable losses in the loan portfolio. Management’s determination of the adequacy of
the allowance is based on an evaluation of the portfolio, past loan loss experience, current
economic conditions, volume, growth, and composition of the loan portfolio, and other
relevant factors. The allowance is increased by provisions for loan losses charged against
income. Decreases in the allowance result from management’s determination that the allowance
for loan losses exceeds their estimates of probable loan losses. This evaluation is
inherently subjective as it requires estimates that are susceptible to significant revision
as additional or updated information becomes available.
A loan is considered impaired when, based on current information and events, it is probable
the Company will be unable to collect the scheduled payments of principal and interest when
due according to the contractual terms of the loan agreement. The Bank accounts for its
impaired loans in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a
Loan,” as amended by SFAS No. 118, “Accounting by Creditors for Impairment of a Loan — Income
Recognition and Disclosure,” which requires that a creditor measure impairment based on the
present value of expected future cash flows discounted at the loan’s effective interest rate,
except that as a practical expedient, a creditor may measure impairment based on a loan’s
observable market price, or the fair value of the collateral if the loan is
collateral-dependent. Regardless of the measurement method, a creditor must measure
impairment based on the fair value of the collateral when the creditor determines that
foreclosure is probable.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.
Accordingly, the Company does not separately identify individual consumer and residential
loans for impairment disclosures, unless such loans are the subject of a restructuring
agreement. As of December 31, 2008, there is one residential mortgage loan which is
non-accrual and has been reviewed for impairment. There are no loans which have been
considered for a restructuring agreement.
Interest on loans is accrued and credited to income based upon the principal amount
outstanding. Accrual of interest is discontinued on a loan when management believes that the
borrower’s financial condition is such that collection of interest is doubtful and generally
when a loan becomes 90 days past due as to principal or interest. When interest accruals are
discontinued, interest credited to income in the current year is reversed and interest
accrued in the prior year is charged to the allowance for loan losses.
Losses on loans are charged to the allowance for loan losses. Additions to this allowance
are made by recoveries of loans previously charged off and by a provision charged to expense.
The determination of the balance of the allowance for loan losses is based on an analysis of
the loan portfolio, economic conditions and other factors warranting recognition. Management
believes that the allowance for loan losses is maintained at a sufficient level to provide
for losses inherent in the loan portfolio. While management uses available information to
recognize losses on loans, future additions may be necessary based on changes in economic
conditions, particularly in Bergen County, New Jersey. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review the Bank’s
allowance for loan losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgments about information available to them at the time of their
examination.
Loan origination fees and certain direct origination costs are deferred and recognized over
the life of the loan as an adjustment to yield using the level yield method.
45
Stock-Based Compensation
In December, 2004, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No.
123 (revised 2004), “Share-Based Payment,” (“SFAS No. 123(R)”). SFAS No. 123(R) addresses
the accounting for share-based payment transactions in which an enterprise receives employee
service in exchange for (a) equity instruments of the enterprise or (b) liabilities that are
based on the fair value of the enterprise’s equity instruments or that may be settled by the
issuance of such equity instruments. SFAS No. 123(R) requires an entity to recognize the
grant-date fair value of stock options and other equity-based compensation issued to
employees within the income statement using a fair-value-based method, eliminating the
intrinsic value method of accounting previously permissible under APB No. 25, “Accounting for
Stock Issued to Employees”, and related interpretations. The Company accounts for stock
options under the recognition and measurement principles of SFAS No. 123(R).
As a result of adopting SFAS No.123(R), the Company recorded compensation expense of $393,000
and $183,000 during 2008 and 2007, respectively. At December 31, 2008, the Company had
unrecognized compensation expense amounting to approximately $1,037,000 related to un-vested
options. The unrecognized expense will be recognized over the remaining vesting terms.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this
method, deferred tax assets and liabilities are recognized for the estimated 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 in effect for the year in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
The Company adopted the provisions of FASB Interpretation 48 (“FIN 48”), Accounting for
Uncertainty in Income Taxes, on January 1, 2007. Previously, the Bank had accounted for tax
contingencies in accordance with Statement of Financial Accounting Standards 5, Accounting
for Contingencies. As required by FIN 48, which clarifies SFAS 109, Accounting for Income
Taxes, the Company recognizes the financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely than not sustain the position
following an audit. For tax positions meeting the more-likely-than-not threshold, the amount
recognized in the financial statements is the largest benefit that has a greater than 50
percent likelihood of being realized upon ultimate settlement with the relevant tax
authority. At the adoption date, the Bank applied FIN 48 to all tax positions for which the
statute of limitations remained open. As a result of the adoption of FIN 48, there was no
material effect on the Company’s consolidated financial position or results of operations and
no adjustment to retained earnings.
Earnings Per Share
Basic earnings per share excludes dilution and represents the effect of earnings upon the
weighted average number of shares outstanding for the period. Diluted earnings per share
reflects the effect of earnings upon weighted average shares including the potential dilution
that could occur if securities or contracts to issue common stock were converted or
exercised, utilizing the treasury stock method. All per share data has been restated to
reflect changes due to stock distributions and stock splits.
Comprehensive Income
Comprehensive income consists of net income or loss for the current period and income,
expenses, or gains and losses not included in the income statement and which are reported
directly as a separate component of equity. The Company includes the required disclosures in
the statement of stockholders’ equity.
46
Advertising
The Company expenses advertising costs as incurred.
Transfer of Financial Assets
Transfers of financial assets, including loan and loan participation sales, are accounted for
as sales, when control over the assets has been surrendered. Control over transferred
assets is deemed to be surrendered when (1) the assets have been isolated from the Bank, (2)
the transferee obtains the right (free of conditions that constrain it from taking advantage
of that right) to pledge or exchange the transferred assets, and (3) the Bank does not
maintain effective control over the transferred assets through an agreement to repurchase
them before their maturity.
Restricted Investment in Bank Stock
Restricted stock, is comprised of stock in the Federal Home Loan Bank of New York and
Atlantic Central Bankers’ Bank. Federal law requires a member institution of the Federal
Home Loan Bank to hold stock according to a predetermined formula. All restricted stock is
recorded at cost as of December 31, 2008 and 2007.
Management evaluates the restricted stock for impairment in accordance with Statement of
Position (SOP) 01-6, Accounting by Certain Entities (Including Entities With Trade
Receivables) That Lend to or Finance the Activities of Others. Management’s determination of
whether these investments are impaired is based on their assessment of the ultimate
recoverability of their cost rather than by recognizing temporary declines in value. The
determination of whether a decline affects the ultimate recoverability of their cost is
influenced by criteria such as (1) the significance of the decline in net assets of the FHLB
as compared to the capital stock amount for the FHLB and the length of time this situation
has persisted, (2) commitments by the FHLB to make payments required by law or regulation and
the level of such payments in relation to the operating performance of the FHLB, and (3) the
impact of legislative or regulatory changes on institutions and, accordingly, on the customer
base of the FHLB.
Management believes no impairment charge is necessary related to the FHLB restricted stock as
of December 31, 2008.
47
NOTE 2. Securities
The
Company held no securities in the held to maturity category at
December 31, 2008.
A summary of securities available for sale at December 31, 2008 is as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
| |
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
| December 31, 2008 |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
Government Sponsored
Enterprise obligations |
|
$ |
17,641 |
|
|
$ |
90 |
|
|
$ |
— |
|
|
$ |
17,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company held no securities in the available for sale category at December 31, 2007.
A summary of securities held to maturity at December 31, 2007 is as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
| |
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
| December 31, 2007 |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
U.S. Treasury Obligations |
|
$ |
1,996 |
|
|
$ |
18 |
|
|
$ |
— |
|
|
$ |
2,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities with an amortized cost of $2.0 million, and a fair value of $2.0 million, were
pledged to secure public funds on deposit at December 31, 2008. Securities with an amortized
cost of $1.9 million, and a fair value of $2.0 million, were pledged to secure public funds
on deposit at December 31, 2007.
During 2008, the Company sold a security from its AFS portfolio and recognized a gain of
$2,000 from the transaction. During 2007, the Company sold its entire AFS portfolio in order
to fund loan growth and recognized a gain of $4,000 from the transaction.
The following tables set forth as of December 31, 2008, the maturity distribution of the
Company’s available for sale portfolio (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Amortized |
|
|
Fair |
|
| |
|
Cost |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
1 to 5 years |
|
$ |
13,391 |
|
|
$ |
13,478 |
|
|
|
|
|
|
|
|
|
|
Over 5 years |
|
$ |
4,250 |
|
|
$ |
4,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,641 |
|
|
$ |
17,731 |
|
|
|
|
|
|
|
|
48
NOTE 3. Loans and Allowance for Loan Losses
Loans at December 31, 2008 and 2007, respectively, are summarized as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
Real estate |
|
$ |
159,058 |
|
|
$ |
123,335 |
|
Commercial |
|
|
33,319 |
|
|
|
27,056 |
|
Credit lines |
|
|
37,962 |
|
|
|
28,133 |
|
Consumer |
|
|
4,507 |
|
|
|
4,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
234,846 |
|
|
$ |
183,460 |
|
|
|
|
|
|
|
|
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 Bank’s lien on the property. Such factors are dependent upon various
economic conditions and individual circumstances beyond the Bank’s control; the Bank is
therefore subject to risk of loss. The Bank believes its lending policies and procedures
adequately minimize the potential exposure to such risks and that adequate provisions for
loan losses are provided for all known and inherent risks.
The activity in the allowance for loan losses is as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Years ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
$ |
1,912 |
|
|
$ |
866 |
|
|
|
|
|
|
|
|
|
|
Provision charged to expense |
|
|
459 |
|
|
|
1,046 |
|
Loans charged off |
|
|
— |
|
|
|
— |
|
Recoveries |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
2,371 |
|
|
$ |
1,912 |
|
|
|
|
|
|
|
|
At December 31, 2008, the Bank had one impaired (non-accrual) residential mortgage loan of
approximately $2.0 million, with a specific reserve of approximately $20 thousand. The
specific reserve was determined based on the fair value of collateral and expected future
cash flows. Interest income on such loans is recognized only when actually collected.
During the year ended December 31, 2008, the Bank recognized interest income of approximately
$45 thousand. Interest income that would have been record had the loan been on the accrual
status, amounted to approximately $90 thousand.
NOTE 4. Premises and Equipment
At December 31, premises and equipment consists of the following (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Land |
|
$ |
5,152 |
|
|
$ |
3,350 |
|
Building |
|
|
4,642 |
|
|
|
4,409 |
|
Furniture and fixtures |
|
|
507 |
|
|
|
375 |
|
Equipment |
|
|
576 |
|
|
|
414 |
|
|
|
|
|
|
|
|
|
|
|
10,877 |
|
|
|
8,548 |
|
|
|
|
Less accumulated depreciation and amortization |
|
|
593 |
|
|
|
248 |
|
|
|
|
|
|
|
|
Total premises and equipment, net |
|
$ |
10,284 |
|
|
$ |
8,300 |
|
|
|
|
|
|
|
|
Depreciation expense amounted to $345 thousand and $193 thousand for the years ended December
31, 2008 and 2007, respectively.
49
NOTE 5. Deposits
At December 31, 2008 and 2007, respectively, a summary of the maturity of time deposits
(which includes certificates of deposit and individual retirement account (IRA) certificates)
is as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Three months or less |
|
$ |
48,760 |
|
|
$ |
20,408 |
|
Over three months through twelve months |
|
|
113,028 |
|
|
|
112,475 |
|
Over 1 year through 2 years |
|
|
1,815 |
|
|
|
921 |
|
Over 2 years through 3 years |
|
|
127 |
|
|
|
141 |
|
Over 3 years through 4 years |
|
|
— |
|
|
|
12 |
|
Over 4 years through 5 years |
|
|
1,800 |
|
|
|
47 |
|
Over 5 years |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
$ |
165,530 |
|
|
$ |
134,004 |
|
|
|
|
|
|
|
|
NOTE 6. Short Term Borrowings
At December 31, 2008, we drew down approximately $853 thousand through our overnight line of credit
at Atlantic Central Bankers Bank. We have a $12 million overnight line of credit facility
available 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. Additionally, we were approved as a member of the Federal Home Loan Bank of New York
(FHLBNY) in November, 2007. 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.
50
NOTE 7. Income Taxes
Income tax expense from operations for the years ended December 31 is as follows (in
thousands):
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
Federal: |
|
|
|
|
|
|
|
|
Current |
|
$ |
480 |
|
|
$ |
519 |
|
Deferred |
|
|
(160 |
) |
|
|
(349 |
) |
State: |
|
|
|
|
|
|
|
|
Current |
|
|
146 |
|
|
|
162 |
|
Deferred |
|
|
(46 |
) |
|
|
(258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
$ |
420 |
|
|
$ |
74 |
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities as of December 31 are as follows (in
thousands):
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Start up expenses |
|
$ |
433 |
|
|
$ |
468 |
|
Allowance for loan losses |
|
|
854 |
|
|
|
744 |
|
Accrued expenses |
|
|
76 |
|
|
|
50 |
|
Stock compensation plans |
|
|
162 |
|
|
|
39 |
|
|
|
|
|
|
|
|
Total gross deferred tax assets |
|
|
1,525 |
|
|
|
1,301 |
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Deferred loan costs |
|
|
(68 |
) |
|
|
(63 |
) |
Prepaid expenses |
|
|
(57 |
) |
|
|
(36 |
) |
Unrealized gains on AFS securities |
|
|
(36 |
) |
|
|
— |
|
Other |
|
|
(23 |
) |
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities |
|
|
(184 |
) |
|
|
(130 |
) |
|
|
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
1,341 |
|
|
$ |
1,171 |
|
|
|
|
|
|
|
|
The realizability of deferred tax assets is dependent upon a variety of factors, including the
generation of future taxable income, the existence of taxes paid and recoverable, the reversal of
deferred tax liabilities and tax planning strategies. During 2007 and 2008, the Company sustained
continued profitability, continued to pay taxes, and recognized deferred tax benefits. Based upon
these and other factors, management believes it is more likely than not that the Company will
realize the benefits of these remaining deferred tax assets. The net deferred tax asset is
included in other assets on the consolidated balance sheet.
51
Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate
of 34% to income taxes as a result of the following (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Computed “expected” tax expense |
|
$ |
322 |
|
|
$ |
303 |
|
Increase(decrease) in taxes resulting from: |
|
|
|
|
|
|
|
|
State taxes, net of federal income tax
(benefit)expense |
|
|
66 |
|
|
|
(63 |
) |
Non-deductible penalties |
|
|
— |
|
|
|
5 |
|
Stock-based compensation |
|
|
29 |
|
|
|
28 |
|
Meals and entertainment |
|
|
3 |
|
|
|
3 |
|
Change in valuation allowance |
|
|
— |
|
|
|
(202 |
) |
|
|
|
|
|
|
|
|
|
$ |
420 |
|
|
$ |
74 |
|
|
|
|
|
|
|
|
The Company is subject to income taxes in the U.S. and various state and local jurisdictions. Tax
regulations are subject to interpretation of the related tax laws and regulations and require
significant judgment to apply. Corporate tax returns for the years 2005 through 2008 remain open
to examination by taxing authorities.
NOTE 8. Leases
The Bank leases banking facilities under operating leases which expire at various dates through
December 31, 2026. These leases do contain certain options to renew the leases. Rental expense
amounted to $454,000 and $430,000, respectively, for the years ended December 31, 2008 and
December 31, 2007.
The following is a schedule of future minimum lease payments (exclusive of payments for
maintenance, insurance, taxes and any other costs associated with offices) for operating leases
with initial or remaining terms in excess of one year from December 31, 2008 (in thousands):
| |
|
|
|
|
Year ending December 31: |
|
|
|
|
2009 |
|
$ |
437 |
|
2010 |
|
|
330 |
|
2011 |
|
|
262 |
|
2012 |
|
|
269 |
|
2013 |
|
|
277 |
|
Thereafter |
|
|
2,941 |
|
|
|
|
|
|
|
$ |
4,516 |
|
|
|
|
|
52
NOTE 9. Related-party Transactions
The Bank has made, and expects to continue to make, loans in the future to our directors and
executive officers and their family members, and to firms, corporations, and other entities
in which they and their family members maintain interests. All such loans require the prior
approval of our board of directors. None of such loans at December 31, 2008 and 2007,
respectively, were nonaccrual, past due, restructured or potential problems, and all of such
loans were made in the ordinary course of business, on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for comparable loans
with persons not related to the Company or the Bank and did not involve more than the normal
risk of collectibility or present other unfavorable features.
The following table represents a summary of related-party loans during 2008 (in thousands)
| |
|
|
|
|
Outstanding loans at beginning of the year |
|
$ |
13,849 |
|
New Loans |
|
|
11,959 |
|
Repayments |
|
|
(6,003 |
) |
Outstanding loans at end of the year |
|
$ |
19,805 |
|
|
|
|
|
Two of our directors have acted as the Bank’s counsel on several loan closings. During 2008,
and 2007 the total cost of such work has been reimbursed by the respective loan customers and
totals $88,000 and $149,000, respectively. Additionally, one of these directors has acted as
legal counsel to the Bank on several matters. The total amount paid for legal fees, for
non-loan related matters was approximately $11,000 in 2008 and approximately $10,000 in 2007.
The Company’s or the Bank’s commercial insurance policy, as well as other policies, has been
placed with various insurance carriers by an insurance agency of which one of our directors
is the President. Gross insurance premiums paid to carriers through this agency was
approximately $87,000 and $73,000 in 2008 and 2007, respectively.
One of our directors provided appraisal services on several loan closings. Although certain
of these payments are reimbursed by our customer, the total amount paid for appraisal
services during 2008 and 2007 was approximately $24,000 and $13,000, respectively.
Our disinterested directors have reviewed all transactions and relationships with directors
and the businesses in which they maintain interests, have determined that each is on
arm’s-length terms, and have approved each such transaction and relationship.
53
NOTE 10. Earnings Per Share
All weighted average, actual shares and per share information have been adjusted retroactively for
the effects of the 2007 10% stock distribution and the 2007 2 for 1 stock split. The Company’s
calculation of earnings per share in accordance with SFAS No. 128 is as follows:
| |
|
|
|
|
|
|
|
|
| |
|
For the Year Ended |
|
| |
|
December 31, |
|
| (In thousands, except per share data) |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock |
|
$ |
527 |
|
|
$ |
816 |
|
Weighted average number of common
shares outstanding — basic |
|
|
5,023 |
|
|
|
4,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.10 |
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stock |
|
$ |
527 |
|
|
$ |
816 |
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding — diluted |
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding |
|
|
5,023 |
|
|
|
4,856 |
|
|
|
|
|
|
|
|
|
|
Effect of dilutive warrants |
|
|
67 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding |
|
|
5,090 |
|
|
|
4,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
0.10 |
|
|
$ |
0.17 |
|
|
|
|
|
|
|
|
Stock options for 614,968 and 658,300 shares of common stock were not considered in computing
diluted earnings per common share for 2008 and 2007, respectively, because they were anti-dilutive.
54
NOTE 11. Stockholders’ Equity and Dividend Restrictions
Under its initial stock offering which closed in 2005, the Bank sold 4,798,594 shares of
common stock at $9.09 per share, as adjusted for the subsequent 10% stock distribution and
the 2 for 1 stock split. The stock offering resulted in net proceeds of $42,684,000. For
every five shares of common stock purchased in the offering, one warrant to purchase one
additional share of the Bank’s common stock was issued, exercisable at any time through May
10, 2009. Subsequent to year end, the Company has extended the expiration date of the
warrants to September 15, 2009. 959,720 warrants were issued to purchase common stock at
$10.91 per share, as adjusted for the 10% stock distribution and the 2 for 1 stock split.
Between 2006 and 2008, there were 181,131 warrants exercised for total proceeds of
$1,974,000. As part of the holding company reorganization on July 31, 2007, all outstanding
warrants were exchanged to purchase Bancorp of New Jersey, Inc. common stock. At December
31, 2008, there were 778,488 warrants outstanding.
During 2007, the Company sold 43,478 shares of common stock at $11.50 per share, as adjusted
for the 10% stock distribution and the 2 for 1 stock split, to one of its directors for total
proceeds of $500,000.
The Company declared a 2 for 1 stock split during the fourth quarter of 2007. This split was
payable on December 31, 2007.
The Bank declared a 10% stock distribution and paid that distribution during January 2007 by
issuing 436,336 shares.
Under applicable New Jersey law, the Company will not be permitted to pay dividends on its
capital stock if, following the payment of the dividend, it would be unable to pay its debts
as they become due in the usual course of business, or its total assets would be less than
its total liabilities. Further, it is the policy of the Federal Reserve Bank that bank
holding companies should pay dividends only out of current earnings and only if future
retained earnings would be consistent with the holding company’s capital, asset quality and
financial condition. Because it will have no significant independent sources of income, the
ability of the Company to pay dividends will be dependent on its ability to receive dividends
from the Bank.
Under the New Jersey Banking Act of 1948, as amended, the Bank may declare and pay dividends
only if, after payment of the dividend, the capital stock of the Bank will be unimpaired and
either the Bank will have a surplus of not less than 50% of its capital stock or the payment
of the dividend will not reduce the Bank’s surplus. The FDIC prohibits payment of cash
dividends if, as a result, the Bank would be undercapitalized. Further, during the first
three years of operation, cash dividends shall only be paid from net operating income, and
only after an appropriate allowance for loan losses is established and overall capital is
adequate.
55
NOTE 12. Benefit Plans
2006 Stock Option Plan
During 2006, the Bank’s 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
Company’s common stock, in each case as adjusted following our ten percent (10%) stock
distribution in January 2007 and the 2 for 1 stock split effective December 31, 2007. The
option price per share is the market value of the Bank’s stock on the date of grant. The
option price and number of shares underlying options outstanding on the date of our ten
percent (10%) stock distribution in January 2007 and the December 2007 2 for 1 stock split
have been equitably adjusted to account for such stock distributions. At December 31, 2008,
incentive stock options to purchase 220,300 shares have been issued to employees of the Bank.
During 2006, the Bank awarded Incentive Stock Options (ISO) which vested over a 2 year period
and ISO options which vested over a 3 year period. The per share weighted-average fair
values of stock options granted during 2006, which vested over a 2 year period and a 3 year
period, were $1.26 and $2.17, respectively, on the date of grant using the Black Scholes
option-pricing model, as adjusted for the 2007 stock distribution and the 2007 stock split.
The options which vested over a 2 year period used the following assumptions in determining
the grant date fair value of the 2006 option grants: expected dividend yields of 0.00%,
risk-free interest rates of 4.77%, expected volatility of 16.00%; and average expected lives
of 2 years. The options which vested over a 3 year period used the following assumptions
used in determining the grant date fair value of the 2006 option grants: expected dividend
yields of 0.00%, risk-free interest rates of 4.77%, expected volatility of 22.00%; and
average expected lives of 3.5 years.
During 2007, the Company awarded Incentive Stock Options (ISO) which vest over a 5 year
period. The per share weighted average fair values of ISO stock options granted during 2007
were $3.07 on the date of the grant using the Black Scholes option-pricing model, as adjusted
for the 2007 stock distribution and the 2007 stock split. These options used the following
assumptions in determining the grant date fair value of the 2007 option grants: expected
dividend yield of 0.00%, risk-free interest rate of 3.28%, expected volatility of 21.69%, and
average expected lives of 5.15 years.
56
A summary of stock option activity under the 2006 Stock Option Plan during 2008 and 2007 is
presented below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted Average |
|
|
Average |
|
| |
|
Number of |
|
|
Exercise price |
|
|
Intrinsic |
|
| |
|
Shares |
|
|
per share |
|
|
Value (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006 |
|
|
124,300 |
|
|
$ |
9.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
96,000 |
|
|
$ |
11.50 |
|
|
|
|
|
Forfeited |
|
|
— |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(22,000 |
) |
|
$ |
9.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
198,300 |
|
|
$ |
10.26 |
|
|
$ |
246,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
|
|
Forfeited |
|
|
(9,400 |
) |
|
$ |
10.37 |
|
|
|
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
188,900 |
|
|
$ |
10.26 |
|
|
$ |
139,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008 |
|
|
106,673 |
|
|
$ |
9.53 |
|
|
$ |
156,810 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
The aggregate instirinsic value of a stock option in the table above 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 December 31, 2008. This amount changes based on
the changes in the market value in the Company’s stock. |
Information pertaining to options outstanding under the 2006 Stock Option Plan at December
31, 2008 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted Average |
|
|
Weighted |
|
| |
|
Number |
|
|
Remaining |
|
|
Average |
|
| Range of Exercise Prices |
|
Outstanding |
|
|
Contractual life (years) |
|
|
Exercise Price |
|
$9.09 |
|
|
97,900 |
|
|
|
7.83 |
|
|
$ |
9.09 |
|
$11.50 |
|
|
91,000 |
|
|
|
8.92 |
|
|
$ |
11.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under the 2006 Stock Option Plan, there were a total of 82,227 unvested options at December
31, 2008, and approximately $252,000 remains to be recognized in expense over the next four
years. There were no options related to the 2006 Stock Option Plan exercised during 2008.
The total intrinsic value for options that were exercised during 2007 was approximately
$53,000.
57
2007 Director Plan
During 2007, the Bank’s stockholders approved the 2007 Non-Qualified Stock Option Plan for
Directors. At the time of the holding company reorganization, the 2007 Non-Qualified Stock
Option Plan was assumed by the Company. This plan provides for 480,000 options to purchase
shares of the Company’s common stock to be issued to non-employee directors of the Company.
At December 31, 2008, non-qualified options to purchase 414,668 shares of the Company’s stock
were issued to non-employee directors of the Company.
During 2007, the Company awarded Non-Qualified Stock Options (NQO) to its Non-Employee Board
members which vest over a 34 month period and NQO options which vest over a 5 year period.
The per share weighted average fair values of NQO stock options granted during 2007, which
vested over a 34 month period and a 5 year period, were $2.26 and $3.03, respectively, on the
date of the grant using the Black Scholes option-pricing model, as adjusted for the 2007
stock distribution and the 2007 stock split. The options which vest over a 34 month period
used the following assumptions in determining the grant date fair value of the 2007 option
grants: expected dividend yield of 0.00%, risk-free interest rate of 4.05%, expected
volatility of 14.33%, and average expected lives of 4.01 years. The options which vest over
a 5 year period used the following assumptions in determining the grant date fair value of
the 2007 option grants: expected dividend yield of 0.00%, risk-free interest rate of 3.28%,
expected volatility of 21.69%, and average expected lives of 5.03 years.
A summary of the stock option activity during 2008 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Average |
|
|
|
|
|
|
Weighted Average |
|
| |
|
Number |
|
|
Exercise |
|
|
Average |
|
|
Remaining |
|
| |
|
of |
|
|
price per |
|
|
Intrinsic |
|
|
Contractual life |
|
| |
|
Shares |
|
|
share |
|
|
Value (1) |
|
|
(years) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
460,000 |
|
|
$ |
11.50 |
|
|
$ |
— |
|
|
|
8.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(23,334 |
) |
|
$ |
11.50 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(21,998 |
) |
|
$ |
11.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
414,668 |
|
|
$ |
11.50 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008 |
|
|
86,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
The aggregate instirinsic value of a stock option in the table above 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 December 31, 2008 and 2007, respectively. This
amount changes based on the changes in the market value in the Company’s stock. |
Under the 2007 Directors Stock Option Plan, there were a total of 414,668 outstanding options
at December 31, 2008, and approximately $757,000 remains to be recognized in expense over the
next four years. During 2008, no Director Options were granted.
58
NOTE 12. Benefit Plans (continued)
Weighted Average Assuptions for options granted
The fair value of each option grant is estimated on the date of the grant using the
Black-Scholes option-pricing model with the following weighted average assumptions:
| |
|
|
|
|
|
|
|
|
| |
|
2007 Director Plan |
|
|
2006 Stock Option Plan |
|
|
|
|
|
|
|
|
|
|
Dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
Expected life |
|
4.50 years |
|
|
2.44 years |
|
|
|
|
|
|
|
|
|
|
Expected volatility |
|
|
17.72 |
% |
|
|
17.75 |
% |
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
3.70 |
% |
|
|
4.77 |
% |
There were no options granted during 2008.
The dividend yield assumpton is based on the Company’s expectation of dividend payouts. The
expected life is based upon historical and expected exercise experience. The expected
volatility is based on historical volatiltiy of a peer group over a similar period. The
risk-free interest rates for periods within the contractual life of the awards is based upon
the U.S. Treasury yield curve in effect at the time of the grant.
Defined Contribution Plan
The Company currently offers a 401(k) profit sharing plan covering all full-time employees,
wherein employees can invest up to 15% of their pretax earnings, up to the legal limit. The
Company matches a percentage of employee contributions at the board’s discretion. The
Company made a matching contribution of approximately $41,000 and $33,000 during 2008 and
2007, respectively.
59
NOTE 13. Regulatory Capital Requirements
The Company and the Bank are subject to various capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can initiate certain
mandatory — and possible additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company’s financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, the Company
and the Bank must meet specific capital guidelines that involve quantitative measures of the
Company’s and the Bank’s assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank’s capital amounts and
classification are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulations to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of
total and Tier 1 capital (as defined in the regulations) to risk-wieghted assets (as
defined), and of Tier 1 capital (as defined) to average assets (as defined). As of December
31, 2008, management believes that the Company and the Bank meet all capital adequacy
requirements to which they are subject.
60
Further, the most recent FDIC notification categorized the Bank as a well-capitalized
institution under the prompt corrective action regulations. There have been no conditions or
events since that notification that management believes have changed the Bank’s capital
classification.
The following is a summary of the Bank’s actual capital amounts and ratios as of December 31,
2008 and 2007, respectively, compared to the FDIC minimum capital adequacy requirements and
the FDIC requirements for classification as a well-capitalized institution (dollars in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
FDIC requirements |
|
| |
|
|
|
|
|
|
|
|
|
Minimum capital |
|
|
For classification |
|
| |
|
Bank actual |
|
|
adequacy |
|
|
as well capitalized |
|
| |
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage (Tier 1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
$ |
47,811 |
|
|
|
16.95 |
% |
|
$ |
11,281 |
|
|
|
4.00 |
% |
|
$ |
14,101 |
|
|
|
5.00 |
% |
Risk-based capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 |
|
$ |
47,811 |
|
|
|
21.16 |
% |
|
$ |
9,040 |
|
|
|
4.00 |
% |
|
$ |
13,560 |
|
|
|
6.00 |
% |
Total |
|
$ |
50,182 |
|
|
|
22.20 |
% |
|
$ |
18,080 |
|
|
|
8.00 |
% |
|
$ |
22,600 |
|
|
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage (Tier 1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
$ |
45,840 |
|
|
|
22.27 |
% |
|
$ |
8,235 |
|
|
|
4.00 |
% |
|
$ |
10,293 |
|
|
|
5.00 |
% |
Risk-based capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 |
|
$ |
45,840 |
|
|
|
25.06 |
% |
|
$ |
7,315 |
|
|
|
4.00 |
% |
|
$ |
10,973 |
|
|
|
6.00 |
% |
Total |
|
$ |
47,752 |
|
|
|
26.11 |
% |
|
$ |
14,631 |
|
|
|
8.00 |
% |
|
$ |
18,289 |
|
|
|
10.00 |
% |
The Bank’s capital amounts (in thousands) and ratios as presented in the table above are
similar to those of the Company.
In addition to the above, as part of the Bank’s application for deposit insurance with the
FDIC and as part of the bank charter approval by the New Jersey Department of Banking, the
Bank is required to maintain not less than 8% Tier 1 Capital to total assets, as defined,
through the first three years of operation.
61
NOTE 14. Financial Instruments with Off-Balance Sheet Risk
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course
of business in order to meet the financing needs of its customers. These financial
instruments consist of commitments to extend credit and letters of credit and involve, to
varying degrees, elements of credit and interest rate risk in excess of the amount recognized
in the accompanying consolidated balance sheets.
The Bank uses the same credit policies and collateral requirements in making commitments and
conditional obligations as it does for on-balance-sheet loans. Commitments to extend credit
are agreements to lend to customers as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since the commitments may expire
without being drawn upon, therefore, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on management’s credit evaluation of the borrower. Outstanding
available loan commitments, primarily for commercial real estate, construction, and land
development loans at December 31, 2008 totaled $30.9 million compared to $48.6 million at
December 31, 2007.
Most of the Bank’s lending activity is with customers located in Bergen County, New Jersey.
At December 31, 2008 and 2007, the Bank had outstanding letters of credit to customers
totaling $574,000 and $1,103,000, respectively, whereby the Bank guarantees performance to a
third party. These letters of credit generally have fixed expiration dates of one year or
less. The fair value of these letters of credits is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining terms of the
agreements. At December 31, 2008 and 2007, such amounts were deemed not material.
NOTE 15. Financial Information of Parent Company
The parent company, Bancorp of New Jersey, Inc, was incorporated during November, 2006. The
holding company reorganization with Bank of New Jersey was consummated on July 31, 2007.
Accordingly, the financial information of the parent company, Bancorp of New Jersey, Inc, for
2007 is only available as of and for the five month period ended December 31, 2007. The
following information represents the parent only Balance Sheets as of December 31, 2008 and
2007, respectively, and the Statements of Income for the twelve months ended December 31,
2008 and for the five months ended December 31, 2007 and should be read in conjunction with
the notes to the consolidated financial statements.
Balance Sheet
(in thousands)
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiary, net |
|
$ |
47,864 |
|
|
$ |
45,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
47,864 |
|
|
$ |
45,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
$ |
47,864 |
|
|
$ |
45,840 |
|
|
|
|
|
|
|
|
62
Statement of Income
For the twelve month period ended December 31, 2008 and
the five month period ended December 31, 2007
(in thousands)
| |
|
|
|
|
|
|
|
|
Equity in undistributed
earnings of subsidiary bank |
|
$ |
527 |
|
|
$ |
816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
527 |
|
|
$ |
816 |
|
|
|
|
|
|
|
|
Statement of Cash Flow
For the twelve months ended December 31, 2008 and
the five months ended December 31, 2007
(in thousands)
| |
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
527 |
|
|
$ |
816 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Equity in undistributed earnings of the
subsidiary bank |
|
|
(527 |
) |
|
|
(816 |
) |
Decrease in other assets, net |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital contributed to subsidiary bank |
|
|
(1,051 |
) |
|
|
(1,585 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(1,051 |
) |
|
|
(1,585 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants |
|
|
821 |
|
|
|
1,085 |
|
Proceeds from issuance of common stock |
|
|
230 |
|
|
|
500 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
1,051 |
|
|
|
1,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash for the period |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Net cash at beginning of year |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash at end of year |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
63
NOTE 16. Fair Value Measurement and Fair Value of Financial Instruments
Management uses its best judgment in estimating the fair value of the Company’s 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 year-ends 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 each year-end.
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement No.
157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes a framework
for measuring fair value under GAAP, and expands disclosures about fair value measurements.
SFAS 157 applies to other accounting pronouncements that require or permit fair value
measurements. The Company adopted SFAS 157 effective for its fiscal year beginning January
1, 2008.
In December 2007, the FASB issued FASB Staff Position 157-2, Effective Date of FASB Statement
No. 157 (“FSP 157-2”). FSP 157-2 delays the effective date of SFAS 157 for all non-financial
assets and liabilities, except those that are recognized or disclosed at fair value on a
recurring basis (at least annually) to fiscal years beginning after November 15, 2008 and
interim periods within those fiscal years. As such, the Company only partially adopted the
provisions of SFAS 157, and will begin to account and report for non-financial assets and
liabilities in 2009. In October, 2008, the FASB issued FASB Staff Position 157-3,
Determining the Fair Value of a Financial Asset When the Market for that Asset is Not Active
(“FSP 157-3”), to clarify the application of the provisions of SFAS 157 in an inactive market
and how an entity would determine fair value in an inactive market. FSP 157-3 is effective
immediately and applies to the Company’s December 31, 2008 consolidated financial statements.
The adoption of SFAS 157 and FSP 157-3 had no impact on the amounts reported in the
financial statements.
SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation methods
used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair
value hierarchy under SFAS 157 are as follows:
| |
• |
|
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 (i.e. supported with little or
no market activity). |
An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of
input that is significant to the fair value measurement.
64
For financial assets measured at fair value on a recurring basis, the fair value measurements
by level within the fair value hierarchy used at December 31, 2008 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
(Level 1) |
|
|
|
|
|
|
|
| |
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
| |
|
|
|
|
|
Prices in |
|
|
(Level 2) |
|
|
|
|
| |
|
|
|
|
|
Active |
|
|
Significant |
|
|
(Level 3) |
|
| |
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
| |
|
December 31, |
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
| Description |
|
2008 |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
Securities
available for sale |
|
$ |
17,731 |
|
|
$ |
— |
|
|
$ |
17,731 |
|
|
$ |
— |
|
For financial assets measured at fair value on a nonrecurring basis, the fair value
measurements by level within the fair value hierarchy used at December 31, 2008 are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
(Level 1) |
|
|
|
|
|
|
|
| |
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
| |
|
|
|
|
|
Prices in |
|
|
(Level 2) |
|
|
|
|
| |
|
|
|
|
|
Active |
|
|
Significant |
|
|
(Level 3) |
|
| |
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
| |
|
December 31, |
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
| Description |
|
2008 |
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
Impaired loans |
|
$ |
1,977 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,977 |
|
As discussed above, the Company has delayed its disclosure requirements of non-financial
assets and liabilities.
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
Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree
of subjectivity used in making the estimates, comparisons between the Company’s disclosures
and those of other companies may not be meaningful. The following methods and assumptions
were used to estimate the fair values of the Company’s finanical instruments at December 31,
2008 and 2007:
Cash and Cash Equivalents (Carried at cost)
The carrying amounts reported in the balance sheet for cash and cash equivalents
approximate those assets’ fair values.
65
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, management’s best estimate is used. Management’s 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
Impaired loans are those that are accounted for under FASB Statement No. 114, Accounting
by Creditors for Impairment of a Loan (“SFAS 114”), in which the Company has measured
impairment generally based on the fair value of the loan’s collateral. Fair value is
generally deteremined based upon independent third-party appraisals of the properties, 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.
The fair value consists of the loan balance of $1,997,000 net of a specific reserve of
$20,000. Additonal provisions for loan losses of $439,000 were recorded during the year.
Accrued Interest Receivable and Payable (Carried at Cost)
The carrying amount of accrued interest receivable and accrued interest payable
approximates fair value.
66
Deposits (Carried at Cost)
The fair values disclosed for demand deposits (e.g., interest and noninterest checking,
passbook savings and money market accounts) are, by definition, equal to the amount
payable on demand at the reporting date (i.e., 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.
Federal Funds Purchased and Short-Term Borrowings (Carried at Cost)
The carrying amount of federal funds purchased approximates fair value.
Fair value estimates and assumptions are set forth below for the Company’s financial
instruments at December 31, 2008 and 2007 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
| |
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
| |
|
amount |
|
|
Fair Value |
|
|
amount |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
40,480 |
|
|
$ |
40,480 |
|
|
$ |
66,115 |
|
|
$ |
66,115 |
|
Securities available for sale |
|
|
17,641 |
|
|
|
17,731 |
|
|
|
— |
|
|
|
— |
|
Securities held to maturity |
|
|
— |
|
|
|
— |
|
|
|
1,996 |
|
|
|
2,014 |
|
Restricted investment in bank stock |
|
|
346 |
|
|
|
346 |
|
|
|
328 |
|
|
|
328 |
|
Net loans |
|
|
232,565 |
|
|
|
232,744 |
|
|
|
181,624 |
|
|
|
181,068 |
|
Accrued interest receivable |
|
|
847 |
|
|
|
847 |
|
|
|
613 |
|
|
|
613 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
254,005 |
|
|
|
255,935 |
|
|
|
212,941 |
|
|
|
212,933 |
|
Federal funds purchased |
|
|
853 |
|
|
|
853 |
|
|
|
— |
|
|
|
— |
|
Accrued interest payable |
|
|
541 |
|
|
|
541 |
|
|
|
917 |
|
|
|
917 |
|
Limitation
The preceding fair value estimates were made at December 31, 2008 and 2007 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 Company’s entire holdings of a particular financial instrument or
category thereof. Since no market exists for a substantial portion of the Company’s
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 December 31, 2008 and 2007, 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.
67
NOTE 17. Quarterly Financial Data (unaudited)
The following represents summarized unaudited quarterly financial data of the Company.
Three Months Ended
(in thousands, except per share data)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31 |
|
|
September 30 |
|
|
June 30 |
|
|
March 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
3,653 |
|
|
$ |
3,543 |
|
|
$ |
3,530 |
|
|
$ |
3,729 |
|
Interest expense |
|
|
1,779 |
|
|
|
1,689 |
|
|
|
1,862 |
|
|
|
2,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
1,874 |
|
|
|
1,854 |
|
|
|
1,668 |
|
|
|
1,515 |
|
Provision for loan losses |
|
|
146 |
|
|
|
88 |
|
|
|
67 |
|
|
|
158 |
|
Other expense, net |
|
|
1,422 |
|
|
|
1,349 |
|
|
|
1,422 |
|
|
|
1,312 |
|
Provision for federal and state
income taxes |
|
|
132 |
|
|
|
179 |
|
|
|
77 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
174 |
|
|
$ |
238 |
|
|
$ |
102 |
|
|
$ |
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.03 |
|
|
$ |
0.05 |
|
|
$ |
0.02 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.03 |
|
|
$ |
0.05 |
|
|
$ |
0.02 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
3,328 |
|
|
$ |
2,886 |
|
|
$ |
2,391 |
|
|
$ |
1,965 |
|
Interest expense |
|
|
1,649 |
|
|
|
1,242 |
|
|
|
903 |
|
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
1,679 |
|
|
|
1,644 |
|
|
|
1,488 |
|
|
|
1,324 |
|
Provision for loan losses |
|
|
140 |
|
|
|
278 |
|
|
|
239 |
|
|
|
389 |
|
Other expense, net |
|
|
1,290 |
|
|
|
1,066 |
|
|
|
963 |
|
|
|
880 |
|
Provision(benefit) for federal and state
income taxes |
|
|
111 |
|
|
|
(144 |
) |
|
|
80 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
138 |
|
|
$ |
444 |
|
|
$ |
206 |
|
|
$ |
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.03 |
|
|
$ |
0.09 |
|
|
$ |
0.04 |
|
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.03 |
|
|
$ |
0.09 |
|
|
$ |
0.04 |
|
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
NOTE 18. Recent Accounting Pronouncements
FASB statement No. 141 (R) “Business Combinations” was issued in December of 2007. This Statement
establishes principles and requirements for how the acquirer of a business recognizes and measures
in its financial statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in the acquired entity. The Statement also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and determines what
information to disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. The guidance will become effective as of the
beginning of a company’s fiscal year beginning after December 15, 2008. This new pronouncement will
impact the Company’s accounting for business combinations completed beginning January 1, 2009.
FASB statement No. 160 “Non-controlling Interests in Consolidated Financial Statements—an amendment
of ARB No. 51” was issued in December of 2007. This Statement establishes accounting and reporting
standards for the non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. The guidance will become effective as of the beginning of a company’s fiscal year
beginning after December 15, 2008. This statement is not expected to have a material impact on the
Company’s consolidated financial statements.
Staff Accounting Bulletin No. 110 (SAB 110) amends and replaces Question 6 of Section D.2 of Topic
14, “Share-Based Payment,” of the Staff Accounting Bulletin series. Question 6 of Section D.2 of
Topic 14 expresses the views of the staff regarding the use of the “simplified” method in
developing an estimate of expected term of “plain vanilla” share options and allows usage of the
“simplified” method for share option grants prior to December 31, 2007. SAB 110 allows public
companies which do not have historically sufficient experience to provide a reasonable estimate to
continue use of the “simplified” method for estimating the expected term of “plain vanilla” share
option grants after December 31, 2007. SAB 110 became effective January 1, 2008 and did not have a
material impact on the consolidated financial statements.
Staff Accounting Bulletin No. 109 (SAB 109), “Written Loan Commitments Recorded at Fair Value
Through Earnings” expresses the views of the staff regarding written loan commitments that are
accounted for at fair value through earnings under generally accepted accounting principles. To
make the staff’s views consistent with current authoritative accounting guidance, the SAB revises
and rescinds portions of SAB No. 105, “Application of Accounting Principles to Loan
Commitments.” Specifically, the SAB revises the Securities and Exchange Commission staff’s views
on incorporating expected net future cash flows related to loan servicing activities in the fair
value measurement of a written loan commitment. The SAB retains the staff’s views on incorporating
expected net future cash flows related to internally-developed intangible assets in the fair value
measurement of a written loan commitment. The staff expects registrants to apply the views in
Question 1 of SAB 109 to derivative loan commitments issued or modified in fiscal quarters
beginning after December 15, 2007. The guidance in SAB 109 became effective on January 1, 2008
and did not have a material impact on the Company’s financial statements.
In February 2008, the FASB issued a FASB Staff Position (“FSP”) FAS 140-3, Accounting for
Transfers of Financial Assets and Repurchase Financing Transactions. This FSP addresses
the issue of whether or not these transactions should be viewed as two separate transactions or as
one “linked” transaction. The FSP includes a “rebuttable presumption” that presumes linkage of the
two transactions unless the presumption can be overcome by meeting certain criteria. The FSP will
be effective for fiscal years beginning after November 15, 2008 and will apply only to original
transfers made after that date; early adoption was not allowed. Management does not expect the
implementation of this FSP to have a material impact on the Company’s consolidated financial
statements.
69
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities—an amendment of FASB Statement No. 133, (Statement 161). SFAS No. 161
requires entities that utilize derivative instruments to provide qualitative disclosures
about their objectives and strategies for using such instruments, as well as any
details of credit-risk-related contingent features contained within derivatives. SFAS No. 161
also requires entities to disclose additional information about the amounts and location of
derivatives located within the financial statements, how the provisions of SFAS No. 133 have been
applied, and the impact that hedges have on an entity’s financial position, financial performance,
and cash flows. SFAS No. 161 is effective for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. Management does not expect the
implementation of this FSP to have a material impact on the Company’s consolidated financial
statements.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles. SFAS No. 162 identifies the sources of accounting principles and the framework for
selecting the principles to be used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with GAAP. The hierarchy of authoritative accounting
guidance is not expected to change current practice but is expected to facilitate the FASB’s plan
to designate as authoritative its forthcoming codification of accounting standards. This Statement
is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight
Board’s (“PCAOB”) related amendments to AU Section 411, The Meaning of Present Fairly in Conformity
with Generally Accepted Accounting Principles, to remove the GAAP hierarchy from its auditing
standards. The hierarchical guidance provided by SFAS No. 162 is not expected to have a
significant impact on the Company’s consolidated financial condition or results of operations.
In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement). FSP APB 14-1 requires issuers
of convertible debt that may be settled wholly or partly in cash to account for the debt and equity
components separately. The FSP is effective for financial statements issued for fiscal years
beginning after December 15, 2008 and interim periods within those years, and must be applied
retrospectively to all periods presented. Early adoption was prohibited. FSP APB 14-1 is not
expected to have a significant impact on the Company’s consolidated financial condition or results
of operations.
In June 2008, the EITF of the FASB discussed public comments received on EITF Issue No. 08-3,
Accounting by Lessees for Nonrefundable Maintenance Deposits. The Task Force reached a consensus
that lessees should account for nonrefundable maintenance deposits as deposit assets if it is
probable that maintenance activities will occur and the deposit is therefore realizable. Amounts
on deposit that are not probable of being used to fund future maintenance activities should be
charged to expense. The consensus is effective for fiscal years beginning after December 15, 2008,
and should be initially applied by recording a cumulative-effect adjustment to opening retained
earnings in the period of adoption. Early application is not permitted. EITF Issue No. 08-3 is
not expected to have a significant impact on the Company’s consolidated financial condition or
results of operations.
70
In September 2008, the FASB issued FSP 133-1 and FIN 45-4, Disclosures about Credit Derivatives and
Certain Guarantees: An Amendment of FASB Statement No.133 and FASB Interpretation No. 45; and
Clarification of the Effective Date of FASB Statement No. 161 (FSP 133-1 and FIN 45-4). FSP 133-1
and FIN 45-4 amend and enhance disclosure requirements for sellers of credit derivatives and
financial guarantees. They also clarify that the disclosure requirements of SFAS No. 161 are
effective for quarterly periods beginning after November 15, 2008, and fiscal years that include
those periods. FSP 133-1 and FIN 45-4 is effective for reporting periods (annual or interim)
ending after November 15, 2008. The implementation of this standard did not have a material impact
on the Company’s consolidated financial condition or results of operations.
In September 2008, the FASB ratified EITF Issue No. 08-5, Issuer’s Accounting for Liabilities
Measured at Fair Value With a Third-Party Credit Enhancement (EITF 08-5). EITF 08-5 provides
guidance for measuring liabilities issued with an attached third-party credit enhancement (such as
a guarantee). It clarifies that the issuer of a liability with a third-party credit enhancement
should not include the effect of the credit enhancement in the fair value measurement of the
liability. EITF 08-5 is effective for the first reporting period beginning after December 15,
2008. The implementation of this standard did not have a material impact on the Company’s
consolidated financial condition or results of operations.
In October 2008, the FASB issued FSP SFAS No. 157-3, Determining the Fair Value of a Financial
Asset When The Market for That Asset Is Not Active (FSP 157-3), to clarify the application of the
provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an
inactive market. FSP 157-3 was effective immediately and applied to our September 30, 2008
financial statements. The application of the provisions of FSP 157-3 did not materially affect the
Company’s consolidated financial condition or results of operations as of and for the year ended
December 31, 2008.
71
|
|
|
| ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form10-K, the Company’s management
including the Chief Executive Officer and Chief Financial Officer, evaluated the Company’s
disclosure controls and procedures related to the recording, processing, summarization, and
reporting of information in the Company’s periodic reports that the Company files with the
Securities and Exchange Commission.
Based on their evaluation as of December 31, 2008, the Company’s Chief Executive Officer and Chief
Financial Officer have concluded that the Company’s 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.
Management’s Annual Report On Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company.
Our internal control over financial reporting is a process designed by, or under the supervision
of, our chief executive officer and chief financial officer, and effected by our board of
directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. It includes policies and
procedures that pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management and board of directors; and provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on the financial statements.
Our management, with the participation of our chief executive officer and chief financial officer,
evaluated the effectiveness of our internal control over financial reporting as of December 31,
2008 using the “Internal Control — Integrated Framework” set forth by the Committee of Sponsoring
Organizations (“COSO”). Based on such evaluation, management determined that, as of December 31,
2008, our internal control over financial reporting was effective.
This annual report does not include an attestation report of our registered public accounting firm
regarding internal control over financial reporting. Management’s report was not subject to
attestation by our registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in this annual report.
72
Changes in Internal Controls Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred
during the last fiscal quarter to which this Annual Report on Form 10-K relates that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
Limitations on Effectiveness of Controls
All internal control systems, no matter how well designed and operated, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurance that
the objectives of the internal control system will be met. The design of any control system is
based, in part, upon the benefits of the control system relative to its costs. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in decision making can be
faulty, and that controls can be circumvented by the individual acts of some persons, by collusion
of two or more people or by management override of controls. In addition, over time, controls may
become inadequate because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. In addition, the design of any control system is based in part upon
certain assumptions about the likelihood of future events. Because of inherent limitation in a cost
effective control system, misstatements due to error or fraud may occur and not be detected.
ITEM 9B. OTHER INFORMATION
Not applicable.
73
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Company responds to this Item by incorporating by reference the material responsive to this
Item in the Company’s definitive proxy statement to be filed with the Securities and Exchange
Commission in connection with its 2009 Annual Meeting of Shareholders to be held May 21, 2009.
ITEM 11. EXECUTIVE COMPENSATION
The Company responds to this Item by incorporating by reference the material responsive to this
Item in the Company’s definitive proxy statement to be filed with the Securities and Exchange
Commission in connection with its 2009 Annual Meeting of Shareholders to be held May 21, 2009.
|
|
|
| ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The Company responds to this Item by incorporating by reference the material responsive to this
Item in the Company’s definitive proxy statement to be filed with the Securities and Exchange
Commission in connection with its 2009 Annual Meeting of Shareholders to be held May 21, 2009.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The Company responds to this Item by incorporating by reference the material responsive to this
Item in the Company’s definitive proxy statement to be filed with the Securities and Exchange
Commission in connection with its 2009 Annual Meeting of Shareholders to be held May 21, 2009.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company responds to this Item by incorporating by reference the material responsive to this
Item in the Company’s definitive proxy statement to be filed with the Securities and Exchange
Commission in connection with its 2009 Annual Meeting of Shareholders to be held May 21, 2009.
74
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| |
(a) |
|
The following portions of the Company’s consolidated financial statements are
set forth in Item 8 of this Annual Report: |
| |
(i) |
|
Consolidated Balance Sheets as of December 31, 2008 and 2007. |
| |
| |
(ii) |
|
Consolidated Statements of Income for the years ended
December 31, 2008 and 2007. |
| |
| |
(iii) |
|
Consolidated Statements of Stockholders’ Equity for the
years ended December 31, 2008 and 2007. |
| |
| |
(iv) |
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2008 and 2007. |
| |
| |
(v) |
|
Notes to Consolidated Financial Statement |
| |
| |
(vi) |
|
Reports of Independent Registered Public Accounting Firms |
| |
(b) |
|
Financial Statement Schedules |
All financial statement schedules are omitted as the information, if applicable, is
presented in the consolidated financial statement or notes thereto.
The exhibits filed or incorporated by reference as a part of this report are listed
in the Exhibit Index which appears at page 78.
75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
| |
|
|
|
|
| |
BANCORP OF NEW JERSEY, INC.
|
|
| |
By: |
/s/ Albert F. Buzzetti
|
|
| |
|
Albert F. Buzzetti |
|
| |
|
Chairman, President and CEO |
|
Dated : March 31, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
| |
|
|
|
|
| Name |
|
Title |
|
Date |
|
|
|
|
|
/s/ Albert F. Buzzetti
Albert F. Buzzetti
|
|
Chairman, President, and
Chief Executive Officer
|
|
March 31, 2009 |
|
|
|
|
|
/s/ Armand Leone, Jr.
Armand Leone, Jr.
|
|
Vice Chairman and Director
|
|
March 31, 2009 |
|
|
|
|
|
/s/ Michael Bello
Michael Bello
|
|
Director
|
|
March 31, 2009 |
|
|
|
|
|
|
|
Director
|
|
March 31, 2009 |
|
|
|
|
|
/s/ Albert L. Buzzetti
Albert L. Buzzetti
|
|
Director
|
|
March 31, 2009 |
|
|
|
|
|
/s/ Gerald A. Calabrese, Jr.
Gerald A. Calabrese, Jr.
|
|
Director
|
|
March 31, 2009 |
|
|
|
|
|
/s/ Stephen Crevani
Stephen Crevani
|
|
Director
|
|
March 31, 2009 |
|
|
|
|
|
/s/ John K. Daily
John K. Daily
|
|
Director
|
|
March 31, 2009 |
|
|
|
|
|
/s/ Anthony M. Lo Conte
Anthony M. Lo Conte
|
|
Director
|
|
March 31, 2009 |
|
|
|
|
|
/s/ Rosario Luppino
Rosario Luppino
|
|
Director
|
|
March 31, 2009 |
76
| |
|
|
|
|
| Name |
|
Title |
|
Date |
|
|
|
|
|
/s/ Howard Mann
Howard Mann
|
|
Director
|
|
March 31, 2009 |
|
|
|
|
|
/s/ Josephine Mauro
Josephine Mauro
|
|
Director
|
|
March 31, 2009 |
|
|
|
|
|
/s/ Joel P. Paritz
Joel P. Paritz
|
|
Director
|
|
March 31, 2009 |
|
|
|
|
|
/s/ Christopher M. Shaari
Christopher M. Shaari
|
|
Director
|
|
March 31, 2009 |
|
|
|
|
|
/s/ Anthony Siniscalchi
Anthony Siniscalchi
|
|
Director
|
|
March 31, 2009 |
|
|
|
|
|
/s/ Mark Sokolich
Mark Sokolich
|
|
Director
|
|
March 31, 2009 |
|
|
|
|
|
/s/ Diane M. Spinner
Diane M. Spinner
|
|
Executive Vice President and
Director
|
|
March 31, 2009 |
|
|
|
|
|
77
| |
|
|
|
|
| Exhibit |
|
|
| No. |
|
Description |
| |
2.1 |
(A) |
|
Plan of Acquisition |
| |
3.1 |
(A) |
|
Certificate of Incorporation |
| |
3.2 |
(A) |
|
Amended and Restated Bylaws |
| |
4.1 |
(A) |
|
Specimen form of stock certificate |
| |
10.1 |
(A) |
|
Change In Control Agreement between the Bank and Albert F.
Buzzetti* |
| |
10.2 |
(A) |
|
Change In Control Agreement between the Bank and Michael Lesler* |
| |
10.3 |
(A) |
|
Change In Control Agreement between the Bank and Leo J. Faresich* |
| |
10.4 |
(A) |
|
Change In Control Agreement between the Bank and Diane M.
Spinner* |
| |
10.5 |
(A) |
|
2006 Stock Option Plan* |
| |
10.6 |
(A) |
|
Form of Stock Option Award Agreement* |
| |
10.7 |
(B) |
|
2007 Non-Qualified Stock Option Plan For Directors |
| |
10.8 |
(C) |
|
Form of Stock Option Award Agreement |
| |
21 |
|
|
Subsidiaries of the Registrant |
| |
23 |
|
|
Consent of Beard Miller Company LLP |
| |
31.1 |
|
|
Rule 13a-14(a) Certification of the Principal Executive Officer |
| |
31.2 |
|
|
Rule 13a-14(a) Certification of the Principal Financial Officer |
| |
32 |
|
|
Section 1350 Certifications |
| |
|
|
| * |
|
Management contract or compensatory plan, contract or arrangement. |
| |
| (A) |
|
Incorporated by reference to the exhibit to registrant’s Registration Statement on Form S-4
(Registration No. 333-141124), filed with the Securities and Exchange Commission on March 7,
2007, as amended by Amendment No. 1 on Form S-4/A, filed on April 27, 2007, and Amendment No.
2 on Form S-4/A, filed on May 15, 2007 |
| |
| (B) |
|
Incorporated by reference to “Exhibit A” to the proxy statement/prospectus included in the
registrant’s Registration Statement on Form S-4 (Registration No. 333-141124), filed with the
Securities and Exchange Commission on March 7, 2007, as amended by Amendment No. 1 on Form
S-4/A, filed on April 27, 2007, and Amendment No. 2 on Form S-4/A, filed on May 15, 2007 |
| |
| (C) |
|
Incorporated by reference to the registrant’s Quarterly Report on Form 10-Q, for the
quarterly period ended September 30, 2007, filed with the Securities and Exchange Commission
on November 14, 2007 |
78