10-Q 1 a12-20078_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

 

FORM 10-Q

 

(Mark one)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2012

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                            to

 

Commission file number:  001-34089

 

BANCORP OF NEW JERSEY, INC.

(Exact name of registrant as specified in its charter)

 

New Jersey

 

20-8444387

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

1365 Palisade Ave, Fort Lee, New Jersey

 

07024

(Address of principal executive offices)

 

(Zip Code)

 

(201) 944-8600

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filero

 

Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes  o  No  x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  As of November 9, 2012 there were 5,206,932 outstanding shares of the issuer’s class of common stock, no par value.

 

 

 



Table of Contents

 

INDEX

 

 

 

PAGE

Part I Financial Information

 

 

 

 

Item 1.

Financial Statements:

 

 

 

 

 

Unaudited Consolidated Statements of Financial Condition - September 30, 2012 and December 31, 2011

3

 

 

 

 

Unaudited Consolidated Statements of Income - Three Months Ended September 30, 2012 and 2011

4

 

 

 

 

Unaudited Consolidated Statements of Income — Nine Months Ended September 30, 2012 and 2011

5

 

 

 

 

Unaudited Consolidated Statements of Comprehensive Income- Three and Nine Months Ended September 30, 2012 and 2011

6

 

 

 

 

Unaudited Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2012 and 2011

7

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

36

 

 

 

Item 4.

Controls and Procedures

36

 

 

 

Part II Other Information

 

 

 

 

Item 1.

Legal Proceedings

37

 

 

 

Item 1A.

Risk Factors

37

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

 

 

 

Item 3.

Defaults Upon Senior Securities

37

 

 

 

Item 4.

Mine Safety Disclosures

37

 

 

 

Item 5.

Other Information

37

 

 

 

Item 6.

Exhibits

37

 

 

 

Signatures

 

38

 

2



Table of Contents

 

BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands, except share data)

 

 

 

September 30, 2012

 

December 31, 2011

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

1,216

 

$

642

 

Interest bearing deposits

 

30,818

 

31,117

 

Federal funds sold

 

461

 

463

 

Total cash and cash equivalents

 

32,495

 

32,222

 

 

 

 

 

 

 

Interest bearing time deposits

 

250

 

250

 

 

 

 

 

 

 

Securities available for sale, at fair value (amortized cost of $82,537 and $56,148, respectively)

 

83,225

 

56,645

 

Securities held to maturity (fair value of $3,660 and $4,787 respectively)

 

3,660

 

4,787

 

Restricted investment in bank stock, at cost

 

669

 

549

 

 

 

 

 

 

 

Loans receivable

 

418,055

 

365,160

 

Deferred loan fees and unamortized costs, net

 

(160

)

(66

)

Less: allowance for loan losses

 

(5,022

)

(4,474

)

Net loans

 

412,873

 

360,620

 

Premises and equipment, net

 

10,270

 

10,203

 

Accrued interest receivable

 

2,094

 

1,515

 

Other assets

 

3,257

 

3,051

 

TOTAL ASSETS

 

$

548,793

 

$

469,842

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Deposits

 

 

 

 

 

Noninterest-bearing

 

$

66,914

 

$

49,585

 

Savings and interest bearing transaction accounts

 

117,747

 

85,456

 

Time deposits under $100

 

49,532

 

45,918

 

Time deposits $100 and over

 

258,281

 

235,204

 

Total deposits

 

492,474

 

416,163

 

 

 

 

 

 

 

Accrued interest payable and other liabilities

 

2,089

 

1,773

 

TOTAL LIABILITIES

 

494,563

 

417,936

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, no par value, authorized 20,000,000 shares; issued and outstanding 5,206,932 at September 30, 2012 and December 31, 2011

 

49,653

 

49,546

 

Retained Earnings

 

4,143

 

2,046

 

Accumulated other comprehensive income

 

434

 

314

 

Total stockholders’ equity

 

54,230

 

51,906

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

548,793

 

$

469,842

 

 

See accompanying notes to unaudited consolidated financial statements

 

3



Table of Contents

 

BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF  INCOME

(in thousands, except per share data)

 

 

 

For the Three Months Ended September 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

INTEREST INCOME

 

 

 

 

 

Loans, including fees

 

$

5,507

 

$

4,791

 

Securities

 

493

 

211

 

Federal funds sold and other

 

19

 

12

 

TOTAL INTEREST INCOME

 

6,019

 

5,014

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

Savings and money markets

 

155

 

55

 

Time deposits

 

1,404

 

1,141

 

Short term borrowings

 

 

2

 

TOTAL INTEREST EXPENSE

 

1,559

 

1,198

 

 

 

 

 

 

 

NET INTEREST INCOME

 

4,460

 

3,816

 

Provision for loan losses

 

260

 

300

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

 

4,200

 

3,516

 

NON-INTEREST INCOME

 

 

 

 

 

Fees and service charges

 

44

 

48

 

Gains on sales of securities

 

238

 

 

TOTAL NON-INTEREST INCOME

 

282

 

48

 

 

 

 

 

 

 

NON-INTEREST EXPENSE

 

 

 

 

 

Salaries and employee benefits

 

1,278

 

1,140

 

Occupancy and equipment expense

 

534

 

360

 

FDIC premiums and related expenses

 

86

 

81

 

Data processing

 

182

 

141

 

Professional fees

 

180

 

147

 

Other expenses

 

335

 

201

 

TOTAL NON-INTEREST EXPENSE

 

2,595

 

2,070

 

Income before provision for income taxes

 

1,887

 

1,494

 

Income tax expense

 

745

 

593

 

Net income

 

$

1,142

 

$

901

 

 

 

 

 

 

 

PER SHARE OF COMMON STOCK

 

 

 

 

 

Basic and diluted earnings

 

$

0.22

 

$

0.17

 

 

See accompanying notes to unaudited consolidated financial statements

 

4



Table of Contents

 

BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF  INCOME

(in thousands, except per share data)

 

 

 

For the Nine Months Ended September 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

INTEREST INCOME

 

 

 

 

 

Loans, including fees

 

$

15,945

 

$

13,905

 

Securities

 

1,311

 

642

 

Federal funds sold and other

 

56

 

33

 

TOTAL INTEREST INCOME

 

17,312

 

14,580

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

Savings and money markets

 

348

 

161

 

Time deposits

 

4,185

 

3,244

 

Short term borrowings

 

 

3

 

TOTAL INTEREST EXPENSE

 

4,533

 

3,408

 

 

 

 

 

 

 

NET INTEREST INCOME

 

12,779

 

11,172

 

Provision for loan losses

 

885

 

898

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

 

11,894

 

10,274

 

NON-INTEREST INCOME (LOSS)

 

 

 

 

 

Fees and service charges

 

124

 

162

 

Gains on sales of securities

 

238

 

 

Loss on sale of other real estate owned

 

 

(203

)

TOTAL NON-INTEREST INCOME (LOSS)

 

362

 

(41

)

NON-INTEREST EXPENSE

 

 

 

 

 

Salaries and employee benefits

 

3,760

 

3,254

 

Occupancy and equipment expense

 

1,495

 

1,155

 

FDIC premiums and related expenses

 

239

 

380

 

Data processing

 

517

 

381

 

Professional fees

 

408

 

475

 

Other expenses

 

823

 

665

 

TOTAL NON-INTEREST EXPENSE

 

7,242

 

6,310

 

Income before provision for income taxes

 

5,014

 

3,923

 

Income tax expense

 

1,981

 

1,572

 

Net income

 

$

3,033

 

$

2,351

 

 

 

 

 

 

 

PER SHARE OF COMMON STOCK

 

 

 

 

 

Basic and diluted earnings

 

$

0.58

 

$

0.45

 

 

See accompanying notes to unaudited consolidated financial statements

 

5



Table of Contents

 

BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF  COMPREHENSIVE INCOME

(in thousands)

 

 

 

For the Three Months Ended September 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Net income

 

$

1,142

 

$

901

 

Other comprehensive income

 

 

 

 

 

Gross unrealized holding (losses) gains on securities available for sale, net of deferred income tax of $172 and $(31), respectively

 

(300

)

93

 

Reclassification adjustment for gain on sale of securities, net of tax expense of $(84) and $0, respectively

 

154

 

 

Comprehensive income (loss)

 

$

996

 

$

994

 

 

 

 

For the Nine Months Ended September 30,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Net income

 

$

3,033

 

$

2,351

 

Other comprehensive income

 

 

 

 

 

Gross unrealized holding (losses) gains on securities available for sale, net of deferred income tax of $14 and $(238), respectively

 

(33

)

402

 

Reclassification adjustment for gain on sale of securities, net of tax expense of $(84) and $0, respectively

 

154

 

 

Comprehensive income

 

$

3,154

 

$

2,753

 

 

See accompanying notes to unaudited consolidated financial statements

 

6



Table of Contents

 

BANCORP OF NEW JERSEY

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

For the Nine Months Ended September 30,

 

 

 

2012

 

2011

 

 

 

(in thousands)

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

3,033

 

$

2,351

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

369

 

314

 

Provision for loan losses

 

885

 

898

 

Recognition of stock option expense

 

107

 

117

 

Increase in deferred income taxes

 

(359

)

(205

)

Loss on sale of OREO

 

 

203

 

Gains on sale of securities available for sale

 

(238

)

 

Changes in operating assets and liabilities:

 

 

 

 

 

Increase in accrued interest receivable

 

(579

)

(172

)

Decrease in other assets

 

83

 

188

 

Increase in other liabilities

 

316

 

364

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

3,617

 

4,058

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Purchases of securities available for sale, net

 

(69,822

)

(34,010

)

Purchases of investments in bank stock

 

(120

)

(58

)

Purchases of securities held to maturity, net

 

(3,960

)

(3,910

)

Purchase of interest bearing time deposits

 

 

(250

)

Proceeds from called or matured securities available for sale

 

37,750

 

21,998

 

Proceeds from sales of securities available for sale

 

5,921

 

 

Maturities of securities held to maturity

 

5,087

 

3,728

 

Net increase in loans

 

(53,139

)

(51,135

)

Proceeds from sale of OREO

 

 

1,484

 

Purchases of premises and equipment

 

(436

)

(499

)

NET CASH USED IN INVESTING ACTIVITIES

 

(78,719

)

(62,652

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Net increase in deposits

 

76,311

 

63,139

 

Increase in borrowed funds

 

 

19,000

 

Repayment of borrowed funds

 

 

(19,000

)

Dividends

 

(936

)

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

75,375

 

63,139

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

273

 

4,545

 

Cash and cash equivalents, beginning of year

 

32,222

 

23,204

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

32,495

 

$

27,749

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

4,462

 

$

3,306

 

Income taxes

 

$

2,075

 

$

2,050

 

 

See accompanying notes to unaudited consolidated financial statements.

 

7



Table of Contents

 

BANCORP OF NEW JERSEY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1.  Significant Accounting Policies

 

Basis of Financial Statement Presentation

 

The accompanying consolidated financial statements include the accounts of Bancorp of New Jersey, Inc. (the “Company”), and its direct wholly-owned subsidiary, Bank of New Jersey (the “Bank”) and the Bank’s wholly-owned subsidiary, BONJ-New York Corp.  All significant inter-company accounts and transactions have been eliminated in consolidation.

 

The Company was incorporated under the laws of the State of New Jersey to serve as a holding company for the Bank and to acquire all the capital stock of the Bank.

 

The 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.

 

The financial information in this quarterly report has been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”); these financial statements have not been audited. Certain information and footnote disclosures required under GAAP have been condensed or omitted, as permitted by rules and regulations of the Securities and Exchange Commission.

 

8



Table of Contents

 

Organization

 

The Company is a New Jersey corporation and bank holding company registered with the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”).  The Bank is a community bank which provides a full range of banking services to individuals and corporate customers in New Jersey.  Both the Company and the Bank are subject to competition from other financial institutions.  The Bank is regulated by state and federal agencies and is subject to periodic examinations by those regulatory authorities.  The Bank conducts a traditional commercial banking business, accepting deposits from the general public, including individuals, businesses, non-profit organizations, and governmental units.  The Bank makes commercial loans, consumer loans, and both residential and commercial real estate loans.  In addition, the Bank provides other customer services and makes investments in securities, as permitted by law.  The Bank has sought to offer an alternative, community-oriented style of banking in an area, that is presently dominated by larger, statewide and national institutions.  The Bank continues to focus on establishing and retaining customer relationships by offering a broad range of traditional financial services and products, competitively-priced and delivered in a responsive manner to small businesses, professionals and individuals in the local market.  As a community bank, the Bank endeavors to provide superior customer service that is highly personalized, efficient and responsive to local needs.  To better serve its customers and expand it market reach, the Bank provides for the delivery of certain of its financial products and services to its local customers and to a broader market through the use of mail, telephone and internet banking.  The Bank seeks to deliver these products and services with the care and professionalism expected of a community bank and with a special dedication to personalized customer service.

 

Note 2.  Stockholders’ Equity and Related Transactions

 

During the nine month periods ended September 30, 2012 and September 30, 2011, respectively, the Company issued no shares of common stock.

 

Note 3.  Benefit Plans and Stock-Based Compensation

 

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.  At September 30, 2012, incentive stock options to purchase 209,900 shares have been issued to employees of the Bank, of which options to purchase 187,900 shares were outstanding.

 

Under the 2006 Stock Option Plan, there were a total of 3,033 unvested options at September 30, 2012 and approximately $13,000 remains to be recognized in expense over approximately the next three months.  Under the 2006 Stock Option Plan, no options were granted, exercised, or forfeited during the first nine months of 2012.

 

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 September 

 

9



Table of Contents

 

30, 2012, non-qualified options to purchase 460,000 shares of the Company’s stock have been issued to non-employee directors of the Company and approximately 414,668 were outstanding at September 30, 2012.   No options were granted, exercised or forfeited during the first nine months of 2012.

 

Under the 2007 Director Plan, there were a total of approximately 5,001 unvested options at September 30, 2012 and approximately $22,000 remains to be recognized in expense over approximately the next three months.

 

In connection with both the 2006 Stock Option Plan and the 2007 Director Plan, share based compensation totaled $36,000 and $39,000 for the three months ended September 30, 2012 and 2011, respectively.  For the nine months ended September 30, 2012 and 2011, respectively, share based compensation totaled $107,000 and $117,000, respectively.

 

The aggregate intrinsic value of  a stock option represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had they exercised their options on September 30, 2012.  This amount changes based on the changes in the market value in the Company’s stock.

 

The aggregate intrinsic value of options outstanding as of September 30, 2012 under the 2006 Stock Option Plan and the 2007 Director Plan was approximately $117,000.

 

The aggregate intrinsic value of options outstanding as of September 30, 2011 under the 2006 Stock Option Plan and the 2007 Director Plan was approximately $41,000.

 

2011 Equity Incentive Plan

 

During 2011, the shareholders of the Company approved the Bancorp of New Jersey, Inc. 2011 Equity Incentive Plan.  This plan authorizes the issuance of up to 250,000 shares of the Company’s common stock, subject to adjustment in certain circumstances described in the plan, pursuant to awards of incentive stock options or non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units or performance awards. Employees, directors, consultants, and other service providers of the Company and its affiliates (primarily the Bank) are eligible to receive awards under the plan, provided, that only employees are eligible to receive incentive stock options.  At September 30, 2012, no awards had been made under this plan.

 

Note 4.   Earnings Per Share.

 

Basic earnings per share is calculated by dividing the net income for a period by the weighted average number of common shares outstanding during that period.

 

Diluted earnings per share is calculated by dividing the net income for a period by the weighted average number of outstanding common shares and dilutive common share equivalents during that period.  Outstanding “common share equivalents” include options and warrants to purchase the Company’s common stock.

 

10



Table of Contents

 

The following schedule shows earnings per share for the three month periods presented:

 

 

 

For the three months ended

 

 

 

September 30,

 

(In thousands except per share data) 

 

2012

 

2011

 

Net income applicable to common stock

 

$

1,142

 

$

901

 

Weighted average number of common shares outstanding - basic

 

5,207

 

5,207

 

Basic earnings per share

 

$

0.22

 

$

0.17

 

 

 

 

 

 

 

Net income applicable to common stock

 

$

1,142

 

$

901

 

Weighted average number of common shares outstanding

 

5,207

 

5,207

 

Effect of dilutive options

 

8

 

2

 

Weighted average number of common shares and common share equivalents- diluted

 

5,215

 

5,209

 

Diluted earnings per share

 

$

0.22

 

$

0.17

 

 

Non-qualified options to purchase 414,668 shares of common stock at a weighted average price of $11.50; and 90,000 incentive stock options at a weighted average price of $11.50 were not included in the computation of diluted earnings per share for the three months ended September 30, 2012 because they were anti-dilutive.  Incentive stock options to purchase 97,900 shares of common stock at a weighted average price of $9.09 were included in the computation of diluted earnings per share for the three months ended September 30, 2012.

 

Non-qualified options to purchase 414,668 shares of common stock at a weighted average price of $11.50; and 90,000 incentive stock options at a weighted average price of $11.50 were not included in the computation of diluted earnings per share for the three months ended September 30, 2011 because they were anti-dilutive.  Incentive stock options to purchase 97,900 shares of common stock at a weighted average price of $9.09 were included in the computation of diluted earnings per share for the three months ended September 30, 2011.

 

11



Table of Contents

 

The following schedule shows earnings per share for the nine month periods presented:

 

 

 

For the nine months ended

 

 

 

September 30,

 

(In thousands except per share data) 

 

2012

 

2011

 

Net income applicable to common stock

 

$

3,033

 

$

2,351

 

Weighted average number of common shares outstanding - basic

 

5,207

 

5,207

 

Basic earnings per share

 

$

0.58

 

$

0.45

 

 

 

 

 

 

 

Net income applicable to common stock

 

$

3,033

 

$

2,351

 

Weighted average number of common shares outstanding

 

5,207

 

5,207

 

Effect of dilutive options

 

5

 

8

 

Weighted average number of common shares and common share equivalents- diluted

 

5,212

 

5,215

 

Diluted earnings per share

 

$

0.58

 

$

0.45

 

 

Non-qualified options to purchase 414,668 shares of common stock at a weighted average price of $11.50; and 90,000 incentive stock options at a weighted average price of $11.50 were not included in the computation of diluted earnings per share for the nine months ended September 30, 2012 because they were anti-dilutive.  Incentive stock options to purchase 97,900 shares of common stock at a weighted average price of $9.09 were included in the computation of diluted earnings per share for the nine months ended September 30, 2012.

 

Non-qualified options to purchase 414,668 shares of common stock at a weighted average price of $11.50; and 90,000 incentive stock options at a weighted average price of $11.50 were not included in the computation of diluted earnings per share for the nine months ended September 30, 2011 because they were anti-dilutive.  Incentive stock options to purchase 97,900 shares of common stock at a weighted average price of $9.09 were included in the computation of diluted earnings per share for the nine months ended September 30, 2011.

 

12



Table of Contents

 

Note 5.  Securities Available for Sale and Investment Securities

 

A summary of securities held to maturity and securities available for sale at September 30, 2012 and December 31, 2011 is as follows (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

September 30, 2012

 

 

 

 

 

 

 

 

 

Securities Held to Maturity:

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

$

3,660

 

$

 

$

 

$

3,660

 

 

 

 

 

 

 

 

 

 

 

Securities Available for Sale:

 

 

 

 

 

 

 

 

 

U.S. Treasury obligations

 

11,148

 

313

 

 

11,461

 

Government Sponsored Enterprise obligations

 

71,389

 

517

 

(142

)

71,764

 

Total securities available for sale

 

82,537

 

830

 

(142

)

83,225

 

 

 

 

 

 

 

 

 

 

 

Total securities

 

$

86,197

 

$

830

 

$

(142

)

$

86,885

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

December 31, 2011

 

 

 

 

 

 

 

 

 

Securities Held to Maturity:

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

$

4,787

 

$

 

$

 

$

4,787

 

 

 

 

 

 

 

 

 

 

 

Securities Available for Sale:

 

 

 

 

 

 

 

 

 

U.S. Treasury obligations

 

11,079

 

245

 

 

11,324

 

Government Sponsored Enterprise obligations

 

45,069

 

267

 

(15

)

45,321

 

Total securities available for sale

 

56,148

 

512

 

(15

)

56,645

 

 

 

 

 

 

 

 

 

 

 

Total securities

 

$

60,935

 

$

512

 

$

(15

)

$

61,432

 

 

The unrealized losses, categorized by the length of time of continuous loss position, and the fair value of related securities available for sale are as follows (in thousands):

 

 

 

Less than 12 Months

 

More than 12 Months

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

 

September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Government Sponsored Enterprise obligations

 

$

14,858

 

$

142

 

$

 

$

 

$

14,858

 

$

142

 

Total securities available for sale

 

$

14,858

 

$

142

 

$

 

$

 

$

14,858

 

$

142

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government Sponsored Enterprise obligations

 

$

4,985

 

$

15

 

$

 

$

 

$

4,985

 

$

15

 

Total securities available for sale

 

$

4,985

 

$

15

 

$

 

$

 

$

4,985

 

$

15

 

 

13



Table of Contents

 

At September 30, 2012, and December 31, 2011,  the Company held no securities held to maturity with unrealized losses.

 

The amortized cost and estimated fair value of securities held to maturity and securities available for sale at September 30, 2012 by contractual maturity are shown below.  Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):

 

 

 

Securities Held to Maturity

 

Securities Available for Sale

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

 

 

Cost

 

Value

 

Cost

 

Value

 

One year or less

 

$

3,660

 

$

3,660

 

$

2,001

 

$

2,031

 

After one to five years

 

 

 

15,017

 

15,351

 

After five to ten years

 

 

 

37,519

 

37,954

 

After ten years

 

 

 

28,000

 

27,889

 

Total

 

$

3,660

 

$

3,660

 

$

82,537

 

$

83,225

 

 

Management evaluates securities for other-than-temporary-impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

 

In determining OTTI management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than amortized cost; (2) the financial condition and near term prospects of the issuer; (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery.  The assessment of whether an OTTI decline exists involves a high degree of subjectivity and judgment and is based on information available to management at a point in time.  An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

 

When OTTI for debt securities occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis. If an entity intends to sell or more likely than not will be required  to sell the security before recovery of its amortized cost basis, the OTTI would be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date.  If the Company does not  intend to  sell  the security  and  it is not  more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the OTTI would be separated into the amount representing the credit loss and the amount related to all other factors.  The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings.  The amount of the total OTTI related to other factors would be recognized in other comprehensive income, net of applicable tax benefit.  The previous amortized cost basis less the OTTI recognized in earnings would become the new amortized cost basis of the investment.

 

At September 30, 2012, the Company’s available for sale securities portfolio consisted of 35 securities, of which five were in an unrealized loss position for less than twelve months and none were in a loss position for more than twelve months. No OTTI charges were recorded for the three or nine months ended September 30, 2012.  The Company does not intend to sell these securities and will not more likely than not be required to sell these securities. Unrealized losses primarily relate to interest rate fluctuations and not credit concerns.

 

14



Table of Contents

 

At September 30, 2012 and December 31, 2011, the Company held no securities held to maturity that have been in a continuous unrealized loss position for twelve months.

 

Securities with an amortized cost of $13.1 million and $8.0 million, respectively, and a fair value of $13.5 million and $8.3 million, respectively, were pledged to secure public funds on deposit at September 30, 2012 and December 31, 2011, repectively.

 

Note 6.   Loans.

 

The components of the loan portfolio at September 30, 2012 and December 31, 2011 are summarized as follows (in thousands):

 

 

 

September 30, 2012

 

December 31, 2011

 

 

 

 

 

 

 

Commercial real estate

 

$

228,714

 

$

186,187

 

Residential mortgages

 

54,379

 

52,595

 

Commercial

 

66,001

 

57,464

 

Home equity

 

67,676

 

67,895

 

Consumer

 

1,285

 

1,019

 

 

 

 

 

 

 

 

 

$

418,055

 

$

365,160

 

 

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 manage the potential exposure to such risks and that an allowance for loan losses is provided for management’s best estimate of probable loan losses.

 

The allowance for loan losses and recorded investment in loan receivables for the periods indicated are as follows (in thousands):

 

For the three months ended:

 

15



Table of Contents

 

September 30, 2012

 

Commercial
Real Estate

 

Residential
Mortgages

 

Commercial

 

Home Equity

 

Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

2,725

 

$

439

 

$

1,274

 

$

418

 

$

22

 

$

223

 

$

5,101

 

Charge-offs

 

 

 

(340

)

 

 

 

(340

)

Recoveries

 

 

 

1

 

 

 

 

1

 

Provisions

 

209

 

2

 

60

 

23

 

3

 

(37

)

260

 

Ending balance

 

$

2,934

 

$

441

 

$

995

 

$

441

 

$

25

 

$

186

 

$

5,022

 

Ending balance: individually evaluated for impairment

 

$

250

 

$

127

 

$

50

 

$

70

 

$

 

$

 

$

497

 

Ending balance: collectively evaluated for impairment

 

$

2,684

 

$

314

 

$

945

 

$

371

 

$

25

 

$

186

 

$

4,525

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

228,714

 

$

54,379

 

$

66,001

 

$

67,676

 

$

1,285

 

$

 

$

418,055

 

Ending balance: individually evaluated for impairment

 

$

2,105

 

$

2,467

 

$

325

 

$

1,433

 

$

 

$

 

$

6,330

 

Ending balance: collectively evaluated for impairment

 

$

226,609

 

$

51,912

 

$

65,676

 

$

66,243

 

$

1,285

 

$

 

$

411,725

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2011

 

Commercial
Real Estate

 

Residential
Mortgages

 

Commercial

 

Home Equity

 

Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

2,353

 

$

389

 

$

725

 

$

357

 

$

22

 

$

478

 

$

4,324

 

Charge-offs

 

(326

)

 

 

 

 

 

(326

)

Recoveries

 

 

 

 

 

 

 

 

Provisions

 

(94

)

9

 

217

 

(22

)

(2

)

192

 

300

 

Ending balance

 

$

1,933

 

$

398

 

$

942

 

$

335

 

$

20

 

$

670

 

$

4,298

 

Ending balance: individually evaluated for impairment

 

$

80

 

$

17

 

$

 

$

 

$

 

$

 

$

97

 

Ending balance: collectively evaluated for impairment

 

$

1,853

 

$

381

 

$

942

 

$

335

 

$

20

 

$

670

 

$

4,201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

177,649

 

$

53,504

 

$

53,413

 

$

67,442

 

$

947

 

$

 

$

352,955

 

Ending balance: individually evaluated for impairment

 

$

2,340

 

$

2,784

 

$

 

$

1,253

 

$

 

$

 

$

6,377

 

Ending balance: collectively evaluated for impairment

 

$

175,309

 

$

50,720

 

$

53,413

 

$

66,189

 

$

947

 

$

 

$

346,578

 

 

The following tables present the activity in the allowance for loan losses and recorded investment in loan receivables for the periods indicated (in thousands):

 

For the nine months ended:

 

16



Table of Contents

 

September 30, 2012

 

Commercial
Real Estate

 

Residential
Mortgages

 

Commercial

 

Home Equity

 

Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

2,408

 

$

470

 

$

827

 

$

368

 

$

21

 

$

380

 

$

4,474

 

Charge-offs

 

 

 

(340

)

 

 

 

(340

)

Recoveries

 

1

 

 

2

 

 

 

 

3

 

Provisions

 

525

 

(29

)

506

 

73

 

4

 

(194

)

885

 

Ending balance

 

$

2,934

 

$

441

 

$

995

 

$

441

 

$

25

 

$

186

 

$

5,022

 

Ending balance: individually evaluated for impairment

 

$

250

 

$

127

 

$

50

 

$

70

 

$

 

$

 

$

497

 

Ending balance: collectively evaluated for impairment

 

$

2,684

 

$

314

 

$

945

 

$

371

 

$

25

 

$

186

 

$

4,525

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

228,714

 

$

54,379

 

$

66,001

 

$

67,676

 

$

1,285

 

$

 

$

418,055

 

Ending balance: individually evaluated for impairment

 

$

2,105

 

$

2,467

 

$

325

 

$

1,433

 

$

 

$

 

$

6,330

 

Ending balance: collectively evaluated for impairment

 

$

226,609

 

$

51,912

 

$

65,676

 

$

66,243

 

$

1,285

 

$

 

$

411,725

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2011

 

Commercial
Real Estate

 

Residential
Mortgages

 

Commercial

 

Home Equity

 

Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

1,962

 

$

366

 

$

627

 

$

358

 

$

22

 

$

414

 

$

3,749

 

Charge-offs

 

(326

)

 

 

(25

)

 

 

(351

)

Recoveries

 

 

 

 

 

2

 

 

2

 

Provisions

 

297

 

32

 

315

 

2

 

(4

)

256

 

898

 

Ending balance

 

$

1,933

 

$

398

 

$

942

 

$

335

 

$

20

 

$

670

 

$

4,298

 

Ending balance: individually evaluated for impairment

 

$

80

 

$

17

 

$

 

$

 

$

 

$

 

$

97

 

Ending balance: collectively evaluated for impairment

 

$

1,853

 

$

381

 

$

942

 

$

335

 

$

20

 

$

670

 

$

4,201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

177,649

 

$

53,504

 

$

53,413

 

$

67,442

 

$

947

 

$

 

$

352,955

 

Ending balance: individually evaluated for impairment

 

$

2,340

 

$

2,784

 

$

 

$

1,253

 

$

 

$

 

$

6,377

 

Ending balance: collectively evaluated for impairment

 

$

175,309

 

$

50,720

 

$

53,413

 

$

66,189

 

$

947

 

$

 

$

346,578

 

 

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due.  The following table presents the classes of the loan portfolio summarized by the past due status as of September 30, 2012 and December 31, 2011, (in thousands):

 

17



Table of Contents

 

September 30, 2012

 

30-59 Days
Past Due

 

60-89 Days
Past Due

 

90 Days or
More Past
Due

 

Total Past
Due

 

Current

 

Total Loans
Receivables

 

Commercial real estate

 

$

 

$

 

$

1,708

 

$

1,708

 

$

227,006

 

$

228,714

 

Residential mortgages

 

 

 

2,467

 

2,467

 

51,912

 

54,379

 

Commercial

 

 

 

 

325

 

325

 

65,676

 

66,001

 

Home equity

 

 

76

 

1,433

 

1,509

 

66,167

 

67,676

 

Consumer

 

10

 

 

 

10

 

1,275

 

1,285

 

Total

 

$

10

 

$

76

 

$

5,933

 

$

6,019

 

$

412,036

 

$

418,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

30-59 Days
Past Due

 

60-89 Days
Past Due

 

90 Days or
More Past
Due

 

Total Past
Due

 

Current

 

Total Loans
Receivables

 

Commercial real estate

 

$

 

$

 

$

1,733

 

$

1,733

 

$

184,454

 

$

186,187

 

Residential mortgages

 

 

 

2,487

 

2,487

 

50,108

 

52,595

 

Commercial

 

 

 

325

 

325

 

57,139

 

57,464

 

Home equity

 

180

 

 

1,253

 

1,433

 

66,462

 

67,895

 

Consumer

 

27

 

 

 

27

 

992

 

1,019

 

Total

 

$

207

 

$

 

$

5,798

 

$

6,005

 

$

359,155

 

$

365,160

 

 

The Bank had no loans greater than ninety days delinquent and accruing interest.

 

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Bank’s internal risk rating system as of September 30, 2012 and December 31, 2011 (in thousands):

 

September 30, 2012

 

Commercial
Real Estate

 

Residential
Mortgages

 

Commercial

 

Home Equity

 

Consumer

 

Total

 

Pass

 

$

223,450

 

$

51,912

 

$

64,176

 

$

66,243

 

$

1,285

 

$

407,066

 

Special Mention

 

3,557

 

 

1,500

 

 

 

5,057

 

Substandard

 

1,707

 

2,467

 

325

 

1,433

 

 

5,932

 

Doubtful

 

 

 

 

 

 

 

Total

 

$

228,714

 

$

54,379

 

$

66,001

 

$

67,676

 

$

1,285

 

$

418,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

Commercial
Real Estate

 

Residential
Mortgages

 

Commercial

 

Home Equity

 

Consumer

 

Total

 

Pass

 

$

180,897

 

$

50,108

 

$

57,139

 

$

66,642

 

$

1,019

 

$

355,805

 

Special Mention

 

3,160

 

 

 

 

 

3,160

 

Substandard

 

2,130

 

2,487

 

325

 

1,253

 

 

6,195

 

Doubtful

 

 

 

 

 

 

 

Total

 

$

186,187

 

$

52,595

 

$

57,464

 

$

67,895

 

$

1,019

 

$

365,160

 

 

As of September 30, 2012 the Bank had eleven non-accrual loans totaling approximately $5.9 million, of which six loans totaling approximately $2.0 million had specific reserves of $497 thousand and five loans totaling approximately $3.9 million had no specific reserve.  If interest had been accrued, such income would have been approximately $86 thousand and $260 thousand, respectively, for the three and nine month periods ended September 30, 2012.  Within its non-accrual loans at September 30, 2012, the Bank had two residential mortgage loans that met the definition of a troubled debt restructuring (“TDR”) loan.  TDRs are loans where the contractual terms of the loan have been modified for a borrower experiencing financial difficulties.  These modifications could include a reduction in the interest rate of the loan, payment extensions, forgiveness of principal or other actions to maximize collection.  At September 30, 2012, these TDR loans had an outstanding balance of $797 thousand and had specific reserves of $127

 

18



Table of Contents

 

thousand.  One of the TDR loans had an outstanding balance of $310 thousand and was performing in accordance with its modified terms.

 

Non-accrual loans and related amounts recorded in the allowance for loan losses are summarized as follows (in thousands):

 

September 30, 2012

 

Recorded
Investment

 

Unpaid
Principal
Balance

 

Related
Allowance

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Nonaccrual loans with specific reserves:

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

$

957

 

$

957

 

$

250

 

$

957

 

$

 

Residential mortgages

 

797

 

840

 

127

 

798

 

9

 

Commercial

 

50

 

50

 

50

 

50

 

 

Home equity

 

180

 

180

 

70

 

135

 

 

Total nonaccrual loans with specific reserves

 

1,984

 

2,027

 

497

 

1,940

 

9

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans with no specific reserves:

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

750

 

750

 

 

766

 

 

Residential mortgages

 

1,670

 

1,670

 

 

1,683

 

 

Commercial

 

275

 

275

 

 

275

 

 

Home equity

 

1,254

 

1,254

 

 

1,253

 

 

Total nonaccrual loans with no specific reserves

 

3,949

 

3,949

 

 

3,977

 

 

Total non-accrual loans

 

$

5,933

 

$

5,976

 

$

497

 

$

5,917

 

$

9

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

Recorded
Investment

 

Unpaid
Principal
Balance

 

Related
Allowance

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Nonaccrual loans with specific reserves:

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

$

957

 

$

957

 

$

160

 

$

1,264

 

$

9

 

Residential mortgage

 

800

 

843

 

117

 

515

 

23

 

Commercial

 

50

 

50

 

50

 

10

 

2

 

Total nonaccrual loans with specific reserves

 

1,807

 

1,850