STOCKHOLDERS' EQUITY, CAPITAL AND REGULATORY MATTERS

12 Months Ended

Dec. 31, 2019

STOCKHOLDERS' EQUITY, CAPITAL AND REGULATORY MATTERS

STOCKHOLDERS' EQUITY, CAPITAL AND REGULATORY MATTERS

NOTE 23 – STOCKHOLDERS’ EQUITY, CAPITAL AND REGULATORY MATTERS

In 2017, the Company closed a public offering of 1,136,363 shares of the Company’s common stock at a public offering price of $24.00 per share. The Company granted the underwriters a 30‑day option to purchase up to an additional 113,636 shares of its common stock, which was exercised in full by the Underwriters on June 16, 2017. The net proceeds to the Company (including the proceeds from the exercise of the Underwriters’ option) after deducting underwriting discounts and commissions was $28.0 million, which will be used for general corporate purposes. The Company incurred $470 thousand in offering expenses which reduced net proceeds.

The Company is required to maintain cash reserve balances either in vault cash or with the Federal Reserve Bank. The total of those reserve balances was approximately $1.3 million at December 31, 2019.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet the minimum capital requirements can initiate certain mandatory and possibly 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 Bank must meet specific capital guidelines that involve quantitative measures of 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.

The federal banking agencies have substantially amended the regulatory risk-based capital rules applicable to the Bank in 2013, and subsequently adopted in 2019 (effective January 1, 2020) a final rule intended to further simplify the Capital Rules applicable to depository institutions and their holding companies that have less than $10 billion in total consolidated assets. The 2013 amendments implemented the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act.

Pursuant to the Capital Rules, effective January 1, 2015, the minimum capital ratios are as follows:

· 4.5% CET1 to risk-weighted assets;

· 6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets;

· 8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets; and

· 4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (called “leverage ratio”)

The Capital Rules also include a “capital conservation buffer,” composed entirely of CET1, in addition to these minimum risk-weighted asset ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions that do not hold the requisite capital conservation buffer will face constraints on dividends, capital instrument repurchases, interest payments on capital instruments and discretionary bonus payments based on the amount of the shortfall. Thus, the capital standards applicable to the Company include an additional capital conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios inclusive of the capital conservation buffer of (i) CET1 to risk-weighted assets of at least 7%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, and (iii) total capital to risk-weighted assets of at least 10.5%

An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that could be utilized for such actions.

As of December 31, 2019, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category.

Effective January 1, 2020 community banks with total consolidated assets under $10 billion, total off-balance sheet exposures of 25% or less of total consolidated assets, leverage ratio greater than 9% and trading assets and liabilities of 5% or less of total consolidated assets can opt into the Community Bank Leverage Ratio (“CBLR”) framework.  A qualifying bank can opt into the CBLR framework at any time or opt out and become subject to general capital rules by completing the associated reporting data in the FFIEC Call Report. The impact of this regulatory simplification allows the electing bank to not have to complete the risk weighting schedules for schedule RC-R in the FFIEC Call Report. Instead, if the Company opts into the CBLR framework and meets the qualifying criteria, it will be considered to have satisfied the risk-based and leverage capital requirements in the generally applicable Capital Rules and to have met the well-capitalized ratio requirements for PCA purposes. As of December 31, 2019, the Company has not made a decision on whether to elect to adopt the CBLR framework.

The Bank’s actual capital amounts and ratios at December 31, 2019 and 2018 are presented below:

							To be Well Capitalized
					For Capital Adequacy		under Prompt
					Purposes plus Capital		Corrective Action
	Actual				Conservation Buffer		Provisions
(Dollars in thousands)	Amount		Ratio		Amount	Ratio	Amount	Ratio
As of December 31, 2019
Total capital (to risk-weighted assets):	$	205,317	12.27	%	>175,748	>10.50%	>167,379	>10.00%
Tier I capital (to risk-weighted assets):		195,050	11.65	%	>142,272	>8.50	>133,903	>8.00
Common equity tier I capital (to average assets):		195,050	11.65	%	>117,166	>7.00	>108,797	>6.50
Tier I capital (to average assets):		195,050	10.16	%	>76,796	>4.00	>95,995	>5.00
As of December 31, 2018
Total capital (to risk-weighted assets):	$	188,647	12.94	%	>143,984	>9.88%	>145,733	>10.00%
Tier I capital (to risk-weighted assets):		179,872	12.34	%	>114,837	>7.88	>116,586	>8.00
Common equity tier I capital (to average assets):		179,872	12.34	%	>92,977	>6.38	>94,726	>6.50
Tier I capital (to average assets):		179,872	12.06	%	>59,673	>4.00	>74,591	>5.00

The Bank is subject to certain restrictions on the amount of dividends that it may declare due to regulatory considerations. The State of New Jersey banking laws specify that no dividend shall be paid by the Bank on its capital stock unless, following the payment of such dividend, the capital stock of the Bank will be unimpaired and the Bank will have a surplus of not less than 50% of its capital stock or, if not, the payment of such dividend will not reduce the surplus of the Bank.

At December 31, 2019, the Bank’s funds available for payment of dividends were $216.5 million. Accordingly, $4.4 million of the Company’s equity in the net assets of the Bank was restricted as of December 31, 2019.

In addition, dividends paid by the Bank to the Company would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements.