UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

þ		Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		for the fiscal year ended December 31, 2010

o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		for the transition period from                      to                     .

Commission file number: 001-34089

Bancorp of New Jersey, Inc.

(Exact name of Registrant as specified in its charter)

New Jersey		20-8444387
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification)
1365 Palisade Avenue, Fort Lee, NJ		07024
(Address of principal executive offices)		(Zip Code)

201-944-8600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class		Name of each exchange on which registered
Common stock		NYSE Amex, LLC

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. 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 o No o

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:

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		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, 2010 was approximately $37,771,000 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 18, 2011 was 5,206,932.

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 2011 Annual Meeting of Shareholders to be held May 25, 2011, are incorporated by reference in Part III of this annual report on Form 10-K.

 

 

TABLE OF CONTENTS

		PAGE
PART I
Item 1 Business			3
Item 1A Risk Factors			14
Item 1B Unresolved Staff Comments			14
Item 2 Properties			15
Item 3 Legal Proceedings			15
Item 4 Removed and Reserved			15
PART II
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			16
Item 6 Selected Financial Data			17
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 7A Quantitative and Qualitative Disclosures about Market Risk			40
Item 8 Financial Statements and Supplementary Data			41
Item 9 Changes In and Disagreements with Accountants on Accounting and Financial Disclosure			79
Item 9A Controls and Procedures			79
Item 9B Other Information			80
PART III
Item 10 Directors, Executive Officers and Corporate Governance			81
Item 11 Executive Compensation			81
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			81
Item 13 Certain Relationships and Related Transactions, and Director Independence			81
Item 14 Principal Accountant Fees and Services			81
PART IV
Item 15 Exhibits, Financial Statement Schedules			82
EX-21
EX-23
EX-31.1
EX-31.2
EX-32

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 and Section 21E of the Securities Exchange Act of 1934, as amended, 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 subsidiaries and could cause those results to differ materially from those expressed in the forward-looking statements contained or incorporated by reference in this document. These factors include, but are not limited, to the following:

	•		Current economic 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 business; and
	•		That management’s analysis of these risks and factors could be incorrect, and/or that the strategies developed to address them could be unsuccessful.

Bancorp of New Jersey, Inc., referred to as “we” or the “Company,” cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, all of which change over time, and we assume no duty to update forward-looking statements, except as may be required by applicable law or regulation, and except as required by applicable law or regulation, we do not undertake, and specifically disclaim any obligation, to publicly release any revisions to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. We caution readers not to place undue reliance on any forward-looking statements. These statements speak only as of the date made, and we advise readers that various factors, including those described above, could affect our financial performance and could cause actual results or circumstances for future periods to differ materially from those anticipated or projected.

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 a 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. The only significant activities of the Company are the ownership and supervision of the Bank.

During the second quarter of 2009, the Bank formed BONJ-New York Corp. The New York subsidiary will be engaged in the business of acquiring, managing and administering portions of Bank of New Jersey’s investment and loan portfolios.

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 five 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, 320 Haworth Avenue, Haworth, New Jersey, 07641, and 4 Park Street, Harrington Park, New Jersey, 07640. A seventh location at 104 Grand Avenue, Englewood, NJ 07631 has received approval from the New Jersey Department of Banking and Insurance, “NJDOBI” and the Federal Deposit Insurance Corporation, “FDIC”. The branch is expected to open in 2011 upon construction of the building. 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 NJDOBI. 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 NJDOBI. 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 continues to offer an alternative, community-oriented style of banking in an area, which is presently dominated by larger, statewide and national institutions. Our goal remains 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:

•

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.

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. 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 five additional branch offices, two in Fort Lee, one in Hackensack, one in Haworth, and one in Harrington Park, all in Bergen County, New Jersey.

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 West Street which offers full service banking from 8:00 am to 6:00 pm weekdays and Saturday 9:00 am to 1:00 pm; Hackensack, which offers full service banking from 8:00 am to 6:00 pm weekdays but no Saturdays and Harrington Park and Haworth, which offer full service banking from 8:00 am to 6:00 pm weekdays and 9:00 am to 1:00 pm on Saturdays.

Competition

The banking business remains highly competitive and increasingly more regulated. 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. As a community bank however, our market area is concentrated in Bergen County, New Jersey, and 84.4% of our loan portfolio was collateralized by real estate, primarily in our market area, as of December 31, 2010.

Employees

At December 31, 2010, the Company employed forty-one 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.

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 and Bank’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.

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 (“SEC”) for matters relating to the offering and sale of its securities and is subject to the SEC’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 range from 12 to 45 basis points. Institutions in the lowest risk category are 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.

On February 27, 2009, the FDIC adopted an interim rule that imposed a 20 basis point emergency special assessment on all insured depository institutions on June 30, 2009. The special assessment was collected on September 30, 2009, at the same time that the risk-based assessments for the second quarter of 2010 were collected. The interim rule also permitted 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 estimated that the fund reserve ratio could fall to a level that the FDIC believed would adversely affect public confidence or to a level close to zero or negative at the end of a calendar quarter.

On May 22, 2009, the FDIC adopted a final rule imposing a 5 basis point special assessment on each insured depository institution’s assets minus Tier 1 capital as of June 30, 2009. This special assessment was collected on September 30, 2009.

On November 12, 2009, the FDIC issued a rule that required all insured depository institutions, with limited exceptions, to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The FDIC also adopted a uniform three basis point increase in assessment rates effective on January 1, 2011.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) was signed into law. The Dodd-Frank Act changed the assessment base for federal deposit insurance from the amount of insured deposits held by the depository institution to the depository institution’s average total consolidated assets less average tangible equity, eliminating the ceiling on the size of the DIF and increasing the floor of the size of the DIF. The Dodd-Frank Act established a minimum designated reserve ratio (DRR) of 1.35 percent of the estimated insured deposits, mandates the FDIC adopt a restoration plan should the fund balance fall below 1.35 percent, and provides dividends to the industry should the fund balance exceed 1.50 percent.

On February 7, 2011, the Board of Directors of the FDIC approved a final rule on Assessments, Dividend Assessment Base and Large Bank Pricing (the Final Rule). The Final Rule implements the changes to the deposit insurance assessment system as mandated by the Dodd-Frank Act. The Final Rule is effective April 1, 2011.

The Final Rule changed the assessment base for insured depository institutions from adjusted domestic deposits to the average consolidated total assets during an assessment period less average tangible equity capital during that assessment period. Tangible equity is defined in the Final Rule as Tier 1 Capital and shall be calculated monthly, unless, like the Bank, the insured depository institution has less than $1 billion in assets, then the insured depository institution will calculate the Tier 1 Capital on an end of quarter basis. Parents or holding companies of other insured depository institutions are required to report separately from their subsidiary depository institutions.

The Final Rule retains the unsecured debt adjustment, which lowers an insured depository institution’s assessment rate for any unsecured debt on its balance sheet. In general, the unsecured debt adjustment in the Final Rule will be measured to the new assessment base and will be increased by 40 basis points. The Final Rule also contains a brokered deposit adjustment for assessments. The Final Rule provides an exemption to the brokered deposit adjustment to financial institutions that are “well capitalized” and have composite CAMEL ratings of 1 or 2.

The Final Rule also creates a new rate schedule that intends to provide more predictable assessment rates to financial institutions. The revenue under the new rate schedule will be approximately the same. Moreover, it indefinitely suspends the requirement that it pay dividends from the insurance fund when it reaches 1.5 percent of insured deposits, to increase the probability that the fund reserve ratio will reach a sufficient level to withstand a future crisis. In lieu of the dividend payments, the FDIC has adopted progressively lower assessment rate schedules that become effective when the reserve ratio exceeds 2 percent and 2.5 percent.

The Dodd-Frank Act makes permanent the $250,000 limit for federal deposit insurance and increases the cash limit of Securities Investor Protection Corporation protection from $100,000 to $250,000 and provides unlimited federal deposit insurance until January 1, 2013 for noninterest-bearing demand transaction accounts at all insured depository institutions. In addition, the FDIC adopted an optional Temporary Liquidity Guarantee Program (TLGP) under which, for a fee, noninterest-bearing transaction accounts would receive unlimited insurance coverage until June 30, 2010, subsequently extended to December 31, 2010. The TLGP also included a debt component under which certain senior unsecured debt issued by institutions and their holding companies between October 13, 2008 and October 31, 2009 would be guaranteed by the FDIC through June 30, 2012, or in some cases, December 31, 2012. The Bank opted to participate in the unlimited noninterest-bearing transaction account coverage and opted not to participate in the unsecured debt guarantee program.

In addition to the assessment for deposit insurance, institutions are required to make payments on bonds issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund. This payment is established quarterly and, during the four quarters ended June 30, 2010, averaged 1.04 basis points of assessable deposits.

The FDIC has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of the Bank. Management cannot predict what insurance assessment rates will be in the future.

Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed the Federal Deposit Insurance Corporation.

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 cash 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. 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 have 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.

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, 2010, the Bank’s Tier 1 and Total Capital ratios were 16.79% and 18.04%, 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 3%. Other banks and bank holding companies generally are required to maintain a leverage ratio of 4-5%. At December 31, 2010, the Company’s, and the Bank’s, leverage ratio were 13.85% and 13.85%, respectively.

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 its 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, 2010, 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.

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 is made publicly available and is 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, 2010, 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, as amended (“Exchange Act”). 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.

Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) was signed into law by President Obama on July 21, 2010. The Dodd-Frank Act implements far-reaching changes across the financial regulatory landscape.

The Dodd-Frank Act creates the Bureau of Consumer Financial Protection (Bureau), which will be an independent bureau within the Federal Reserve System with broad authority to regulate the consumer finance industry including regulated financial institutions such as the Bank and non banks and others who are involved in the consumer finance industry. The Bureau will have exclusive authority through rulemaking, orders, policy statements, guidance and enforcement actions to administer and enforce federal consumer finance laws, to oversee non federally regulated entities, and to impose its own regulations and pursue enforcement actions when it determines that a practice is unfair, deceptive or abusive (UDA). The federal consumer finance laws are currently interpreted, administered and enforced by different federal agencies, including the Federal Deposit Insurance Corporation (FDIC), the current federal regulator of the Bank. The Treasury Secretary has determined July 21, 2011 as the date when all of the functions and responsibilities of the Bureau are transferred to it. While the Bureau has the exclusive power to interpret, administer and enforce federal consumer finance laws and UDA, the Dodd-Frank Act provides that the FDIC will continue to have examination and enforcement powers over the Bank relating to the matters within the jurisdiction of the Bureau because it has less than $10 Billion in assets. The Dodd-Frank Act also gives state attorneys general the ability to enforce federal consumer protection laws.

The Dodd-Frank Act also:

	•		Applies the same leverage and risk-based capital requirements to most bank holding companies (BHCs) that apply to insured depository institutions;
	•		Requires the FDIC to make its capital requirements for insured depository institutions countercyclical, so that capital requirements increase in times of economic expansion and decrease in times of economic contractions;
	•		Requires BHCs and banks to be both well-capitalized and well-managed in order to acquire banks located outside their home state and requires any BHC electing to be treated as a financial holding company to be both well-managed and well-capitalized;

	•		Changes the assessment base for federal deposit insurance from the amount of insured deposits held by the depository institution to the depository institution’s average total consolidated assets less tangible equity, eliminates the ceiling on the size of the DIF and increases the floor of the size of the DIF;
	•		Makes permanent the $250,000 limit for federal deposit insurance and increases the cash limit of Securities Investor Protection Corporation protection from $100,000 to $250,000 and provides unlimited federal deposit insurance until January 1, 2013 for noninterest-bearing demand transaction accounts at all insured depository institutions;
	•		Eliminates all remaining restrictions on interstate banking by authorizing national and state banks to establish de novo branches in any state that would permit a bank chartered in that state to open a branch at that location; and
	•		Repeals the federal prohibitions on the payment of interest on demand deposits, effective July 21, 2011, thereby permitting depository institutions to pay interest on business transaction and other accounts.

Many of the provisions of the Dodd-Frank Act will require the federal banking agencies to promulgate hundreds of regulations to implement its provisions.

While designed primarily to reform the financial regulatory system, the Dodd Frank Act also contains a number of corporate governance provisions that will affect public companies. The Dodd Frank Act requires the SEC to adopt rules which may affect the Bank’s executive compensation policies and disclosure. It also exempts smaller issuers such as the Bank from the requirement, originally enacted under Section 404(b) of the Sarbanes-Oxley Act of 2002, that the Bank’s independent auditor also attest to and report on management’s assessment of internal control over financial reporting.

The Bank continues to review the Dodd-Frank Act to determine its impact on the Bank. The Dodd-Frank Act could require the Bank to make material expenditures, in particular personnel training costs and additional compliance expenses, or otherwise adversely affect the Bank’s business, financial condition, results of operations or cash flow. It could also require the Bank to change certain of its business practices, adversely affect its ability to pursue business opportunities the Bank might otherwise consider engaging in, cause business disruptions and/or have other impacts that are as of yet unknown to the Bank. Failure to comply with these laws or regulations, even if inadvertent, could result in negative publicity, fines or additional expenses, any of which could have an adverse effect on the Bank’s business, financial condition, results of operations, or cash flow.

Basel III

In December 2010, the Basel Committee released its final framework for strengthening international capital and liquidity regulation, now officially identified by the Basel Committee as “Basel III”. Basel III, when implemented by the U.S. banking agencies and fully phased-in, will require bank holding companies and their bank subsidiaries to maintain substantially more capital, with a greater emphasis on common equity.

Although Base III is intended to be implemented by participating countries for large, internationally active banks, its provisions are likely to be considered by United States banking regulators in developing new regulations applicable to other banks in the United States, including the Company and the Bank.

For banks in the United States, among the most significant provisions of Basel III concerning capital are the following:

	•		A minimum ratio of common equity to risk-weighted assets reaching 4.5%, plus an additional 2.5% as a capital conservation buffer, by 2019 after a phase-in period.
	•		A minimum ratio of Tier 1 capital to risk-weighted assets reaching 6.0% by 2019 after a phase-in period.
	•		A minimum ratio of total capital to risk-weighted assets, plus the additional 2.5% capital conservation buffer, reaching 10.5% by 2019 after a phase-in period.
	•		An additional countercyclical capital buffer to be imposed by applicable national banking regulators periodically at their discretion, with advance notice.
	•		Restrictions on capital distributions and discretionary bonuses applicable when capital ratios fall within the buffer zone.
	•		Deduction from common equity of deferred tax assets that depend on future profitability to be realized.
	•		Increased capital requirements for counterparty credit risk relating to OTC derivatives, repos and securities financing activities.

•

For capital instruments issued on or after January 13, 2013 (other than common equity), a loss-absorbency requirement such that the instrument must be written off or converted to common equity if a trigger event occurs, either pursuant to applicable law or at the direction of the banking regulator. A trigger event is an event under which the banking entity would become nonviable without the write-off or conversion, or without an injection of capital from the public sector. The issuer must maintain authorization to issue the requisite shares of common equity if conversion were required.

The Basel III provisions on liquidity include complex criteria establishing the LCR and NSFR. Although Basel II is described as a “final text,” it is subject to the resolution of certain issues and to further guidance and modification, as well as to adoption by United States banking regulators, including decisions as to whether and to what extent it will apply to United States banks that are not large, internationally active banks.

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.

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.

We are heavily regulated by regulatory agencies at the federal and state levels. As a result of the recent financial crisis and economic downturn, we, like most of our competitors, have faced and expect to continue to face increased regulation and regulatory and political scrutiny, which creates significant uncertainty for us and the financial services industry in general.

Several recent regulatory initiatives were adopted that may have future impacts on our business and financial results. For instance, on September 24, 2010 the Board of Governors of the Federal Reserve System issued a final rule to regulate the compensation of mortgage loan originators and prohibits compensation to a mortgage loan originator that is based on the loan’s terms or conditions, except for the amount of credit extended. The final rule is effective April 1, 2011. In addition, the federal banking agencies released a final rule on July 28, 2010 to implement the requirement s of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 for the federal registration of mortgage loan originators (the Rule) Under the Rule, the bank and employees of a bank who engage in the business of loan originations must, among other things, register with the National Mortgage Licensing System and Registry. The registration with the NMLS must be completed within 180 days of January 31, 2011.

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 have been and are expected to continue 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.

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.

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, 2010.

		Leased		Date of Lease
Location		or Owned		Expiration
1365 Palisade Avenue		Owned		N/A
Fort Lee, NJ
204 Main Street		Leased		March, 2015
Fort Lee, NJ
401 Hackensack Avenue		Leased		August, 2020
Hackensack, NJ 07601
458 West Street		Leased		December, 2025
Fort Lee, NJ 07024
320 Haworth Avenue		Owned		N/A
Haworth, NJ 07641
4 Park Street Harrington Park, NJ, 07640		Leased		January, 2014

A seventh location is expected to open during 2011. It will be a leased facility located at 104 Grand Avenue, Englewood, NJ. The lease is not expected to commence until June, 2011. All regulatory approvals have been obtained.

ITEM 3.		LEGAL PROCEEDINGS

The Company and the Bank are subject to routine litigation 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.		(REMOVED AND RESERVED)

PART II

ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The principal market in which the Company’s Common Stock is traded is the NYSE Amex LLC exchange, formerly the American Stock Exchange. The Company’s Common Stock trades under the symbol “BKJ”.

The following table sets forth the high and low sales prices for our common stock for each of the indicated periods.

		High				Low
Year Ended December 31, 2010
Fourth quarter		$	12.63			$	10.00
Third quarter			13.64				10.65
Second quarter			13.63				10.76
First quarter			16.33				9.31
Year Ended December 31, 2009
Fourth quarter		$	10.97			$	8.49
Third quarter			11.50				9.25
Second quarter			10.90				9.25
First quarter			11.25				8.52

Holders

As of March 18, 2011, there were approximately 1,350 shareholders of our common stock, which includes an estimate of shares held in street name.

Dividends

In December, 2009, the Company declared a special $0.30 cash dividend per share to shareholders of record as of January 4, 2010. The cash dividend was paid on January 15, 2010. In October, 2010, the Company declared a special $0.33 cash dividend per share to shareholders of record as of November 12, 2010. The cash dividend was paid on December 20, 2010. The cash dividends paid have been non-recurring dividends. The decision to pay, as well as the timing and amount of any future 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 is not 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.

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.

Securities Authorized for Issuance under Equity Compensation Plans

The following table summarizes our equity compensation plan information as of December 31, 2010.

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

187,900

$

10.26

30,084

2007 Non-Qualified Stock Option Plan for Directors

414,668

$

11.50

43,334

Equity compensation plans not approved by security holders

—

—

—

Total

602,568

$

11.11

64,018

ITEM 6.		SELECTED FINANCIAL DATA

As a smaller reporting company, the Company is not required to provide the information otherwise required by this Item.

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 Part II, Item 8 of 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 numerous assumptions, risks and uncertainties, all of which can change over time, and could cause actual results to differ materially from those projected in the forward-looking statements. We assume no duty to update forward-looking statements, except as may be required by applicable law or regulation. 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 6 branch network and have received FDIC and NJDOBI approval to open our seventh location. Our main office is located at 1365 Palisade Avenue, Fort Lee, NJ 07024 and our current five 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, 320 Haworth Avenue, Haworth, NJ 07641 and 4 Park Street, Harrington Park, NJ 07640. Our seventh location will be located at 104 Grand Avenue, Englewood, NJ 07631 and is expected to open during the summer of 2011.

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 financial 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 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.

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 (“ALLL”) represents our best estimate of losses known and inherent in our loan portfolio that are both probable and reasonable to estimate. In determining the amount of the ALLL, we consider the losses inherent in our loan portfolio and changes in the nature and volume of our loan activities, along with general economic and real estate market conditions. We utilize a segmented approach which identifies: (1) impaired loans for which specific reserves are established; (2) classified loans for which a higher allowance is established; and (3) performing loans for which a general valuation allowance is established. We maintain a loan review system which provides for a systematic review of the loan portfolios and the early identification of impaired loans. The review of residential real estate and home equity consumer loans, as well as other more complex loans, is triggered by identified evaluation factors, including delinquency status, size of loan, type of collateral and the financial condition of the borrower. All commercial loans are evaluated individually for impairment. Specific loan loss allowances are established for impaired loans based on a review of such information and/or appraisals of the underlying collateral. General loan loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions and management’s judgment.

Although specific and general loan loss allowances are established in accordance with management’s best estimates, actual losses are dependent upon future events, and as such, further provisions for loan losses may be necessary in order to increase the level of the allowance for loan losses. For example, our evaluation of the allowance includes consideration of current economic conditions, and a change in economic conditions could reduce the ability of borrowers to make timely repayments of their loans. This could result in increased delinquencies and increased non-performing loans, and thus a need to make increased provisions to the allowance for loan losses. Any such increase in provisions would result in a reduction to our earnings. A change in economic conditions could also adversely affect the value of properties collateralizing real estate loans, resulting in increased charges against the allowance and reduced recoveries, and require increased provisions to the allowance for loan losses. Furthermore, a change in the composition, or growth, of our loan portfolio could result in the need for additional provisions.

At December 31, 2010 and 2009, respectively, we consider the ALLL of $3,749 and $2,792 thousand adequate to absorb probable losses inherent in 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.

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, 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. The fair value of collateral, reduced by costs to sell on a discounted basis, is used if a loan is collateral-dependent. At December 31, 2010 and 2009, the bank had seven impaired loans. All of these loans have been measured for impairment using various measurement methods, including fair value of collateral.

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 to sell a debt security prior to recovery and/or whether it is more likely than not we will have to sell the debt security prior to recovery. 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). The unrealized losses on two investments in U. S. Treasury obligations and five Government Sponsored Enterprise obligations were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intended to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2010. All of the investments with unrealized losses at December 31, 2010 were in a loss position for less than twelve months. At December 31, 2010 and 2009, respectively, we did not have any other-than-temporary impaired securities.

RESULTS OF OPERATIONS — 2010 versus 2009

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 and funds borrowed to support those assets, primarily deposits. Net interest margin is the net interest income expressed as a percentage of average interest earning assets. Net income is also affected by the amount of non-interest income and non-interest expenses, the provision for loan losses and income tax expense.

NET INCOME

For the year ended December 31, 2010, net income increased by $894 thousand, to $2,151 thousand from $1,257 thousand for the year ended December 31, 2009. The increase in net income for the year ended December 31, 2010 compared to 2009 was driven by an increase in the Bank’s net interest income. The increase in net interest income is reflective of management’s focus on earning assets and disciplined pricing which resulted in an increase in our net interest margin. The increase in net interest income, which was primarily due to our increased net interest margin, more than offset the increased total other expenses.

On a per share basis, basic and diluted earnings per share for the year ended December 31, 2010 were $0.41 as compared to basic and diluted earnings per share of $0.25 for the year ended December 31, 2009.

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 average volumes of interest-earning assets and interest bearing liabilities and yield earned or the interest paid on them. For the year ended December 31, 2010, net interest income increased by $3.1 million, or 32.6%, to $12.7 million from $9.6 million for the year ended December 31, 2009. This increase in net interest income was primarily the result of a decrease in the cost of interest bearing liabilities, which decreased by 85 basis points for 2010 as compared to 2009, and an increase in loans of $38.2 million, or 14.4%. Total loans reached $302.1 million at December 31, 2010 from $263.9 million at December 31, 2009.

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, 2010, 2009 and 2008, respectively, and reflect the average yield on assets and average cost of liabilities for the periods 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. For taxable equivalent adjustment for 2010 and 2009 was $0 and $1 thousand, respectively. 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 41% in 2010, 2009 and 2008, respectively.

For the years ended December 31,
(dollars in thousands)

		2010												2009												2008
		Average								Average				Average								Average				Average								Average
		Balance				Interest				Yield/Cost				Balance				Interest				Yield/Cost				Balance				Interest				Yield/Cost
ASSETS:
Interest-Earning Assets:
Loans		$	279,500			$	16,233				5.81	%		$	251,695			$	14,630				5.81	%		$	209,498			$	12,977				6.19	%
Securities			30,719				729				2.37				26,800				783				2.90				17,147				708				4.13
Federal Funds Sold			3,577				12				0.34				5,369				7				0.15				24,185				725				3.00
Interest-earning cash accounts*			18,324				39				0.21				23,062				75				0.33				9,091				45				0.49
Total Interest-earning Assets			332,120				17,013				5.12	%			306,926				15,496				5.05	%			259,921				14,455				5.56	%
Non-interest earning Assets			16,146												13,842												12,074
Allowance for Loan Losses			(3,269	)											(2,547	)											(2,135	)
TOTAL ASSETS		$	344,997											$	318,221											$	269,860
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-Bearing Liabilities:
Demand Deposits		$	8,558				23				0.27	%		$	6,312				11				0.18	%		$	5,632			$	63				1.12	%
Savings Deposits			4,753				18				0.38				3,593				12				0.30				3,016				8				0.26
Money Market Deposits			39,279				129				0.33				46,757				228				0.49				53,831				1,189				2.21
Time Deposits			207,723				4,166				2.01				178,749				5,681				3.18				133,266				6,273				4.71
Short Term Borrowings			—				—				—				—				—				—				378				11				2.91
Total Interest-Bearing Liabilities			260,313				4,336				1.67	%			235,411				5,932				2.52	%			196,123				7,544				3.85	%
Non-Interest Bearing Liabilities:
Demand Deposits			32,113												32,271												25,361
Other Liabilities			1,799												1,495												1,541
Total Non-Interest Bearing Liabilities			33,912												33,766												26,902
Stockholders’ Equity			50,772												49,044												46,835
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	344,997											$	318,221											$	269,860
Net Interest Income (Tax Equivalent Basis)						$	12,677											$	9,564											$	6,911
Tax Equivalent Basis Adjustment							(2	)											(5	)											0
Net Interest Income						$	12,675											$	9,559											$	6,911
Net Interest Rate Spread											3.45	%											2.53	%											1.71	%
Net Interest Margin											3.82	%											3.11	%											2.66	%
Ratio of Interest-Earning Assets to Interest-Bearing Liabilities			1.28												1.30												1.33

*		Interest-earning cash accounts includes funds held at the FRB as the FRB began paying interest on deposits during the fourth quarter of 2009.

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, 2010 and 2009, respectively (in thousands):

		Year ended December 31,												Year ended December 31,
		2010 versus 2009												2009 versus 2008
		Increase (Decrease)												Increase (Decrease)
		Due to Change in Average												Due to Change in Average
		Volume				Rate				Net				Volume				Rate				Net
Interest income:
Loans		$	1,603			$	—			$	1,603			$	2,378			$	(725	)		$	1,653
Securities			204				(255	)			(51	)			149				(79	)			70
Federal funds sold			(1	)			5				4				(323	)			(394	)			(717	)
Interest bearing deposits in banks			(13	)			(23	)			(36	)			38				(8	)			30
Total interest income			1,793				(273	)			1,520				2,242				(1,206	)			1,036
Interest expense:
Demand deposits			5				7				12				9				(61	)			(52	)
Savings deposits			4				2				6				2				2				4
Money market deposits			(33	)			(66	)			(99	)			(139	)			(822	)			(961	)
Time deposits			745				(2,260	)			(1,515	)			1,786				(2,378	)			(592	)
Short-term borrowings			—				—				—				(6	)			(6	)			(12	)
Total interest expense			721				(2,317	)			(1,596	)			1,652				(3,265	)			(1,613	)
Change in net interest income		$	1,072			$	2,044			$	3,116			$	590			$	2,059			$	2,649

PROVISION FOR LOAN LOSSES

The provision for loan losses represents our determination of the amount necessary to bring our allowance for loan losses to the level that we consider adequate to absorb probable losses inherent in our loan portfolio. See “Allowance For Loan Losses” for additional information about our allowance for loan losses and our methodology for determining the amount of the allowance. For the year ended December 31, 2010, the Company’s provision for loan losses was $1.3 million, an increase of $911,000 from the provision of $424,000 for the year ended December 31, 2009. The increased provision is the result of the application of our allowance for loan losses methodology, and contributing factors such as the increase in the Bank’s loan portfolio of approximately $37.2 million, as well as an increase in the Bank’s non-performing assets. Non-performing assets consist of non-accruing loans, restructured loans and foreclosed assets. At December 31, 2010, the Bank had non-performing assets of $5.1 million as compared to $4.0 million at December 31, 2009.

NON-INTEREST INCOME

Non-interest income, which consists primarily of service fees received from deposit accounts and gains on the sales of securities, for the year ended December 31, 2010, was $333,000, an increase of $150,000 from the $183,000 received during the year ended December 31, 2009. The increase in non-interest income was primarily due to an increase in gains on the sales of securities of $127,000.

NON-INTEREST EXPENSES

Non-interest expenses for the year ended December 31, 2010 amounted to $8.1 million, an increase of $867,000 or 12.1% over the $7,183,000 for the year ended December 31, 2009. This increase was due in most part to increases in other real estate owned related expenses, salaries and employee benefits and professional fees which increased $387,000, $161,000 and $105,000, respectively, for the year ended December 31, 2010, as compared to one year ago. The increase in other real estate owned related expenses was the result of the Bank’s foreclosure of a residential property that had previously been reported as impaired, and the costs to get the property into a saleable condition. Salaries and employee benefits increased in part due to the opening and operating of the Harrington Park branch in the second quarter of 2009, and therefore not included for the full year of 2009.

INCOME TAX EXPENSE

The income tax provision, which includes both federal and state taxes, for the years ended December 31, 2010 and 2009 was $1.5 million and $878,000, respectively. The increase in income tax expense during 2010 resulted from the increased pre-tax income in 2010. The effective tax rate for 2010 was 40.6% compared to 41.1% for 2009.

FINANCIAL CONDITION

Total consolidated assets increased $50.6 million, or 15.8%, from $319.6 million at December 31, 2009 to $370.3 million at December 31, 2010. Total loans increased from $263.9 million at December 31, 2009 to $302.1 million at December 31, 2010, an increase of $38.2 million or 14.5%. Total deposits increased from $267.1 million on December 31, 2009 to $318.4 million at December 31, 2010, an increase of $51.3 million, or 19.2%.

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 14.5% from $263.9 million at December 31, 2009, to $302.1 million at December 31, 2010. 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 future consolidation of banking institutions within our market, which we expect to see as a result of increased regulatory standards, market pressures, and the overall economy. 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, consumer loans and credit lines. 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 including credit lines, 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.

The following table sets forth the classification of the Company’s loans by major category as of December 31, 2010, 2009, 2008, 2007 and 2006, respectively (in thousands):

		December 31,
		2010				2009				2008				2007				2006
Real Estate		$	194,605			$	177,031			$	158,950			$	123,979			$	50,786
Commercial			46,073				36,036				33,205				26,642				13,716
Credit Lines			60,378				49,969				41,186				31,566				14,582
Consumer			1,047				895				1,505				1,273				1,554
Total Loans		$	302,103			$	263,931			$	234,846			$	183,460			$	80,638

The following table sets forth the maturity of fixed and adjustable rate loans as of December 31, 2010 (in thousands):

		Within				1 to 5				After 5
		One Year				Years				Years				Total
Loans with Fixed Rate
Commercial		$	35,909			$	3,244			$	3,260			$	42,413
Real Estate			35,507				19,058				133,938				188,503
Credit Lines			714				1,018				7,545				9,277
Consumer			348				699				—				1,047
Loans with Adjustable Rate
Commercial		$	3,463			$	197			$	—			$	3,660
Real Estate			3,385				1,124				1,593				6,102
Credit Lines			51,101				—				—				51,101
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, restructured loans and foreclosed assets. 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 underwriting and approval procedures. Due diligence begins at the time we begin to discuss the origination of a loan with a borrower. Documentation, including a 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.

At December 31, 2010, the Bank had six non-accrual loans totaling approximately $2.2 million, of which three loans totaling $830 thousand had specific reserves of $280 thousand and three loans totaling approximately $1.3 million had no specific reserves. The Bank recognized income of $18 thousand on these loans in 2010. If interest had been accrued, such income would have been approximately $142 thousand. These loans were considered impaired at December 31, 2010, and were evaluated in accordance with ASC Sub-topic 310-40, Troubled Debt Restructurings by Creditors. After evaluation, specific reserves of $280 thousand were deemed necessary at December 31, 2010.

At December 31, 2009, there were seven non-accruing loans totaling approximately $4.0 million. The Bank recognized income of $69 thousand on these loans in 2009. If interest had been accrued, such interest would have been approximately $261 thousand. These loans were considered impaired at December 31, 2009, and were evaluated in accordance with ASC Sub-topic 310-40. After evaluation, a specific reserve of $99 thousand was deemed necessary. At December 31, 2008, 2007 and 2006, respectively, the Bank had no non-accruing loans.

At December 31, 2010, the bank had three residential mortgage loans that met the definition of a troubled debt restructuring (“TDR”) loan. TDRs are loans where modifications could include a reduction in the interest rate of the loan, payment extensions, forgiveness of principal or other actions to maximize collection. At December 31, 2010, TDR loans had an aggregate outstanding balance of $1.3 million with specific reserves of approximately $8 thousand. Two of the TDRs, with an aggregate outstanding balance at December 31, 2010 of $843 thousand and a specific reserve of $8 thousand are included in the Bank’s impaired loan totals. During the third quarter of 2010, two loans reported as impaired in the previous quarter, which approximated $213 thousand, and which were fully reserved, were charged off. A third loan, a single family residential loan with a net value of approximately $1.9 million, was foreclosed on and placed in other real estate owned. This event caused a charge-off of approximately $160 thousand during the period. At December 31, 2009, 2008, 2007 and 2006, respectively, there were no TDRs or loans past due more than 90 days and still accruing interest.

The Bank maintains an external independent loan review auditor. The loan review auditor performs periodic examinations of a sample of commercial loans after the Bank has extended credit. This review process is intended to identify adverse developments in individual credits, regardless of payment history. The loan review auditor also monitors the integrity of our credit risk rating system. 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 ALLL 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 ALLL which we believe is adequate to absorb probable losses inherent in the loan portfolio. While we apply the methodology discussed below in connection with the establishment of our ALLL, it is subject to critical judgments on the part of management. Loan losses are charged directly to the allowance when they are judged to be uncollectable 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 earnings and the allowance is reduced by net-charge-offs, 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 ALLL. 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 ALLL remains an estimate which is subject to significant judgment and short term change.

We commenced banking operations in May, 2006, and our ALLL totaled $3,749,000, $2,792,000 and $2,371,000 respectively, at December 31, 2010, 2009, and 2008. 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 (dollars in thousands):

		2010				2009				2008				2007				2006
Balance, January 1		$	2,792			$	2,371			$	1,912			$	866			$	—
Charge-offs:
Residential mortgages			(160	)			—				—				—				—
Consumer Loans			(219	)			(4	)			—				—				—
Recoveries:
Consumer loans			1				1				—				—				—
Net charge-offs			(378	)			(3	)			—				—				—
Provision charged to expense			1,335				424				459				1,046				866
Balance, December 31		$	3,749			$	2,792			$	2,371			$	1,912			$	866
Ratio of net charge-offs to average Outstanding			0.14	%			*				N/A				N/A				N/A

*		Less than 0.01%

		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)

		2010												2009
										% of												% of
						% of				Total								% of				Total
		Amount				ALLL				Loans				Amount				ALLL				Loans
Balance applicable to:
Real Estate		$	2,178				58.09	%			65.25	%		$	2,032				72.78	%			80.92	%
Commercial			780				20.81	%			23.37	%			213				7.63	%			8.48	%
Credit Lines			358				9.55	%			10.72	%			249				8.92	%			9.92	%
Consumer			22				0.59	%			0.66	%			17				0.61	%			0.68	%
Sub-total			3,338				89.04	%			100.00	%			2,511				89.94	%			100.00	%
Unallocated Reserves			411				10.96	%							281				10.06	%
TOTAL		$	3,749				100.00	%						$	2,792				100.00	%

		2008												2007												2006
										% of												% of												% of
						% of				Total								% of				Total								% of				Total
		Amount				ALLL				Loans				Amount				ALLL				Loans				Amount				ALLL				Loans
Balance applicable to:
Real Estate		$	1,774				74.82	%			78.85	%		$	1,373				71.81	%			67.23	%		$	653				75.41	%			62.98	%
Commercial			244				10.29	%			10.84	%			241				12.61	%			14.75	%			92				10.62	%			17.01	%
Credit Lines			205				8.65	%			9.11	%			152				7.95	%			15.34	%			77				8.89	%			18.08	%
Consumer			27				1.14	%			1.20	%			5				0.26	%			2.68	%			2				0.23	%			1.93	%
Sub-total			2,250				94.90	%			100.00	%			1,771				92.63	%			100.00	%			824				95.15	%			100.00	%
Unallocated Reserves			121				5.10	%							141				7.37	%							42				4.85	%
TOTAL		$	2,371				100.00	%						$	1,912				100.00	%						$	866				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, existing levels of the ALLL may ultimately prove inadequate to absorb actual loan losses. However, we have determined, and believe, that the ALLL is at a level adequate to absorb the probable loan losses in our loan portfolio as of the balance sheet dates.

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. During 2010 and 2009, the portfolio was composed of U.S. Treasury Securities, obligations of U.S. Government Agencies and obligations of states and political subdivisions.

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 HTM 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 HTM 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, 2010, total securities aggregated $31,651,000, of which $27,923,000 were classified as AFS and $3,728,000 were classified as HTM. The Bank had no securities classified as trading.

The following table sets forth the carrying value of the Company’s security portfolio as of the December 31, 2010, 2009, and 2008, respectively (in thousands):

		2010								2009								2008
		Amortized				Fair				Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value				Cost				Value
Available for sale
U.S. Agency Obligations		$	18,994			$	18,899			$	19,000			$	19,111			$	17,641			$	17,731
U.S. Treasury obligations			9,029				9,024				2,005				2,000				—				—
Total available for sale			28,023				27,923				21,005				21,111				17,641				17,731
Held to Maturity
Obligations of states and political subdivisioins			3,728				3,724				4,296				4,297				—				—
Total held to maturity			3,728				3,724				4,296				4,297				—				—
Total Investment Securities		$	31,751			$	31,647			$	25,301			$	25,408			$	17,641			$	17,731

The following tables set forth as of December 31, 2010 and December 31, 2009, the maturity distribution of the Company’s debt investment portfolio:

Maturity of Debt Investment Securities
December 31, 2010
(in thousands)

		Securities Held to Maturity								Securities Available for Sale								Weighted
		Amortized				Fair				Amortized				Fair				Average
		Cost				Value				Cost				Value				Yield (1)
Within 1 year
Obligations of states and political subdivisions		$	3,728			$	3,724			$	—			$	—				0.80	%
U.S. Treasury obligations			—				—				999				999				0.22	%
U.S. Agency obligations			—				—				—				—
			3,728				3,724				999				999				0.68	%
1 to 5 years
U.S. Treasury obligations			—				—				8,031				8,026				1.42	%
U.S. Agency obligations			—				—				10,993				11,054				2.58	%
			—				—				19,024				19,080				2.09	%
5-10 years
U.S. Agency obligations			—				—				8,000				7,844				3.08	%
Total		$	3,728			$	3,724			$	28,023			$	27,923				1.83	%

Maturity of Debt Investment Securities
December 31, 2009
(in thousands)

		Securities Held to Maturity								Securities Available for Sale								Weighted
		Amortized				Fair				Amortized				Fair				Average
		Cost				Value				Cost				Value				Yield (1)
Within 1 year
Obligations of states and political subdivisions		$	4,296			$	4,297			$	—			$	—				2.00	%
1 to 5 years
U.S. Treasury obligations			—				—				2,005				2,000				2.32	%
U.S. Agency obligations			—				—				17,000				17,115				2.43	%
			—				—				19,005				19,115				2.42	%
5-10 years
U.S. Agency obligations			—				—				2,000				1,996				3.25	%
Total		$	4,296			$	4,297			$	21,005			$	21,111				2.42	%