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Table of Contents

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

 

FORM 10-Q

 

(Mark one)

 

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

 

For the quarterly period ended March 31, 2016

 

OR

 

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

 

For the transition period from                            to                           

 

Commission file number:  001-34089

 

BANCORP OF NEW JERSEY, INC.

(Exact name of registrant as specified in its charter)

 

New Jersey

 

20-8444387

(State or other jurisdiction of
incorporation or organization)

 

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

 

1365 Palisade Ave, Fort Lee, New Jersey

 

07024

(Address of principal executive offices)

 

(Zip Code)

 

(201) 944-8600

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

Large accelerated filer o

 

Accelerated filer  o

Non-accelerated filer   o

 

Smaller reporting company x

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  As of  May 4, 2016 there were 6,240,041 outstanding shares of the issuer’s class of common stock, no par value.

 

 

 



Table of Contents

 

INDEX

 

 

 

 

PAGE

 

 

 

 

 

 

Part I

Financial information

 

 

 

 

 

Item 1.

 

Financial Statements:

 

 

 

 

 

 

 

Unaudited Consolidated Statements of Financial Condition — March 31, 2016 and December 31 2015

3

 

 

 

 

 

 

Unaudited Consolidated Statements of Income — Three Months Ended March 31, 2016 and March 31, 2015

4

 

 

 

 

 

 

Unaudited Consolidated Statements of Comprehensive Income — Three Months Ended March 31, 2016 and March 31, 2015

5

 

 

 

 

 

 

Unaudited Consolidated Statements of Cash Flows — Three Months Ended March 31, 2016 and March 31, 2015

6

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

7

 

 

 

 

Item 2.

 

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

25

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

34

 

 

 

 

Item 4.

 

Controls and Procedures

34

 

 

 

 

 

 

Part II

Other Information

 

 

 

 

 

Item 1.

 

Legal Proceedings

35

 

 

 

 

Item 1A.

 

Risk Factors

35

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

35

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

35

 

 

 

 

Item 4.

 

Mine Safety Disclosures

35

 

 

 

 

Item 5.

 

Other Information

35

 

 

 

 

Item 6.

 

Exhibits

35

 

 

 

 

Signatures

36

 

2



Table of Contents

 

BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except share data)

 

 

 

March 31, 2016

 

December 31, 2015

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

1,646

 

$

2,238

 

Interest bearing deposits

 

59,433

 

71,497

 

Federal funds sold

 

453

 

454

 

Total cash and cash equivalents

 

61,532

 

74,189

 

 

 

 

 

 

 

Interest bearing time deposits

 

1,000

 

1,000

 

 

 

 

 

 

 

Securities available for sale

 

61,080

 

64,750

 

Securities held to maturity (fair value approximates $5,396 and $5,829 at March 31, 2016 and December 31, 2015, respectively)

 

5,396

 

5,829

 

Restricted investment in bank stock, at cost

 

1,947

 

2,020

 

 

 

 

 

 

 

Loans receivable

 

652,293

 

645,062

 

Deferred loan fees and unamortized costs, net

 

(399

)

(381

)

Less: allowance for loan losses

 

(8,076

)

(8,020

)

Net loans

 

643,818

 

636,661

 

Premises and equipment, net

 

11,345

 

10,500

 

Accrued interest receivable

 

2,425

 

2,305

 

Other real estate owned

 

512

 

512

 

Other assets

 

4,839

 

5,154

 

TOTAL ASSETS

 

$

793,894

 

$

802,920

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Deposits

 

 

 

 

 

Non-interest bearing

 

$

121,180

 

$

117,919

 

Savings and interest bearing transaction accounts

 

244,503

 

232,456

 

Time deposits under $250

 

179,915

 

192,560

 

Time deposits $250 and over

 

146,705

 

157,804

 

Total deposits

 

692,303

 

700,739

 

Borrowed funds

 

24,908

 

26,529

 

Accrued interest payable and other liabilities

 

2,334

 

2,499

 

TOTAL LIABILITIES

 

719,545

 

729,767

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, no par value, authorized 20,000,000 shares; issued and outstanding 6,240,241 and 6,240,241 at March 31, 2016 and December 31, 2015, respectively

 

60,561

 

60,509

 

Retained earnings

 

13,858

 

12,940

 

Accumulated other comprehensive loss

 

(70

)

(296

)

Total stockholders’ equity

 

74,349

 

73,153

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

793,894

 

$

802,920

 

 

See accompanying notes to unaudited consolidated financial statements

 

3



Table of Contents

 

BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

 

 

 

For the Three Months Ended March 31,

 

 

 

2016

 

2015

 

 

 

 

 

 

 

INTEREST INCOME

 

 

 

 

 

Loans, including fees

 

$

7,753

 

$

7,569

 

Securities

 

218

 

229

 

Federal funds sold and other

 

91

 

25

 

TOTAL INTEREST INCOME

 

8,062

 

7,823

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

Time deposits

 

1,384

 

1,525

 

Savings and money markets

 

351

 

297

 

Borrowed funds

 

101

 

126

 

TOTAL INTEREST EXPENSE

 

1,836

 

1,948

 

 

 

 

 

 

 

NET INTEREST INCOME

 

6,226

 

5,875

 

Provision for loan losses

 

300

 

370

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

 

5,926

 

5,505

 

NON-INTEREST INCOME

 

 

 

 

 

Fees and service charges on deposit accounts

 

84

 

48

 

Loss on sale of securities

 

 

(5

)

TOTAL NON-INTEREST INCOME

 

84

 

43

 

 

 

 

 

 

 

NON-INTEREST EXPENSE

 

 

 

 

 

Salaries and employee benefits

 

1,992

 

1,812

 

Occupancy and equipment expense

 

701

 

740

 

Data processing

 

283

 

235

 

FDIC premiums and related expenses

 

269

 

120

 

Professional fees

 

251

 

166

 

Legal fees

 

36

 

135

 

Other real estate owned related expenses

 

3

 

168

 

Other expenses

 

456

 

452

 

TOTAL NON-INTEREST EXPENSE

 

3,991

 

3,828

 

Income before provision for income taxes

 

2,019

 

1,720

 

Income tax expense

 

727

 

596

 

Net income

 

1,292

 

1,124

 

 

 

 

 

 

 

PER SHARE OF COMMON STOCK

 

 

 

 

 

Basic

 

$

0.21

 

$

0.20

 

Diluted

 

$

0.21

 

$

0.20

 

 

See accompanying notes to unaudited consolidated financial statements

 

4



Table of Contents

 

BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

 

 

 

For the Three Months Ended March 31,

 

 

 

2016

 

2015

 

 

 

 

 

 

 

Net income

 

$

1,292

 

$

1,124

 

Other comprehensive income:

 

 

 

 

 

Gross unrealized holding gains on securities available for sale, net of deferred income tax expense of $142 and $280, respectively

 

226

 

496

 

Reclassification adjustment for loss on sale of securities, net of tax benefit of $0 and $2, respectively

 

 

(3

)

Other comprehensive income

 

226

 

493

 

Comprehensive income

 

$

1,518

 

$

1,617

 

 

See accompanying notes to unaudited consolidated financial statements

 

5



Table of Contents

 

BANCORP OF NEW JERSEY

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

For the Three Months Ended March 31,

 

 

 

2016

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

1,292

 

$

1,124

 

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

 

 

 

 

 

Provision for loan losses

 

300

 

370

 

Write down of other real estate owned

 

 

160

 

Deferred tax benefit

 

(178

)

 

Amortization of securities premiums

 

37

 

27

 

Depreciation and amortization

 

188

 

149

 

Stock based compensation

 

52

 

54

 

Accretion of net loan origination fees

 

18

 

5

 

Loss on sale of securities

 

 

5

 

Changes in operating assets and liabilities:

 

 

 

 

 

Increase in accrued interest receivable

 

(120

)

(57

)

Decrease (increase) in other assets

 

352

 

(170

)

Decrease in other liabilities

 

(165

)

(269

)

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

1,776

 

1,398

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Purchases of securities held to maturity, net

 

(2,417

)

(2,464

)

Proceeds from maturities of securities held to maturity

 

2,850

 

7,126

 

Proceeds from maturities of securities available for sale

 

4,000

 

 

Proceeds from sales of securities available for sale

 

 

2,995

 

Proceeds from the call of restricted investments in bank stock

 

73

 

72

 

Net increase in loans

 

(7,475

)

(16,517

)

Purchases of premises and equipment

 

(1,033

)

(161

)

NET CASH USED IN INVESTING ACTIVITIES

 

(4,002

)

(8,949

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Net (decrease) increase in deposits

 

(8,436

)

30,062

 

Net decrease in borrowed funds

 

(1,621

)

(1,596

)

Net proceeds from the sale of common stock through the private placement

 

 

9,297

 

Dividends

 

(374

)

(374

)

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

 

(10,431

)

37,389

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

(12,657

)

29,838

 

Cash and cash equivalents, beginning of year

 

74,189

 

22,060

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

61,532

 

$

51,898

 

 

 

 

 

 

 

Supplemental information:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

1,900

 

$

1,927

 

Income taxes

 

$

858

 

$

915

 

 

 

See accompanying notes to unaudited consolidated financial statements.

 

6



Table of Contents

 

BANCORP OF NEW JERSEY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1.  Significant Accounting Policies

 

Basis of Financial Statement Presentation

 

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

 

The Company was incorporated under the laws of the State of New Jersey to serve as a holding company for the Bank and to acquire all the capital stock of the Bank (referred to herein as the “holding company reorganization”).

 

The Company’s class of common stock has no par value and the Bank’s class of common stock has a par value of $10 per share.

 

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

 

Organization

 

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

 

Note 2.  Benefit Plans and Stock-Based Compensation

 

2006 Stock Option Plan

 

During 2006, the Bank’s stockholders approved the 2006 Stock Option Plan.  At the time of the holding company reorganization, the 2006 Stock Option Plan was assumed by the Company.  This plan allows the Company to grant options to directors and employees of the Company to purchase up to 239,984 shares of the Company’s common stock.  At March 31, 2016, incentive stock options to purchase 209,900 shares have been issued to employees of the Bank under the 2006 Stock Option Plan, of which options to purchase 159,700 shares were outstanding.

 

7



Table of Contents

 

Under the 2006 Stock Option Plan, there were no unvested options at March 31, 2016 and accordingly no unrecognized share based compensation expense.  Under the 2006 Stock Option Plan, no options were granted, exercised, or forfeited during the first three months of 2016.

 

2007 Director Plan

 

During 2007, the Bank’s stockholders approved the 2007 Non-Qualified Stock Option Plan for Directors (the “2007 Director Plan”).  At the time of the holding company reorganization, the 2007 Director Plan was assumed by the Company. This plan provides for 480,000 options to purchase shares of the Company’s common stock to be issued to non-employee directors of the Company.  At March 31, 2016, non-qualified options to purchase 460,000 shares of the Company’s stock have been issued to non-employee directors of the Company under the 2007 Director Plan and approximately 331,334 were outstanding at March 31, 2016.  No options were granted, exercised or forfeited during the first three months of 2016.

 

Under the 2007 Director Plan, there were no unvested options at March 31, 2016 and accordingly no unrecognized share based compensation expense.

 

In connection with both the 2006 Stock Option Plan and the 2007 Director Plan, no share based compensation expense was recognized for the three months ended March 31, 2016 and 2015.

 

The aggregate intrinsic value of a stock option represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had they exercised their options on March 31, 2016.  This amount changes based on the changes in the market value in the Company’s common stock.

 

The aggregate intrinsic value of options outstanding as of March 31, 2016 under the 2006 Stock Option Plan and the 2007 Director Plan was approximately $538 thousand.

 

The aggregate intrinsic value of options outstanding as of March 31, 2015 under the 2006 Stock Option Plan and the 2007 Director Plan was approximately $303 thousand.

 

2011 Equity Incentive Plan

 

During 2011, the shareholders of the Company approved the Bancorp of New Jersey, Inc. 2011 Equity Incentive Plan ( the “2011 Plan”).  This plan authorizes the issuance of up to 250,000 shares of the Company’s common stock, subject to adjustment in certain circumstances described in the 2011 Plan, pursuant to awards of incentive stock options or non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units or performance awards. Employees, directors, consultants, and other service providers of the Company and its affiliates (primarily the Bank) are eligible to receive awards under the 2011 Plan, provided, that only employees are eligible to receive incentive stock options.  During the quarter ended March 31, 2016, no shares of common stock were issued or forfeited under the 2011 Plan.  For the three months ended March 31, 2016 and 2015, $52,000 and $54,000, respectively, was recorded as expense for restricted stock that has been issued through the 2011 Plan in prior years.

 

Note 3.   Earnings Per Share

 

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

 

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

 

8



Table of Contents

 

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

 

 

 

For the Quarter Ended

 

 

 

March 31,

 

(In thousands except per share data)

 

2016

 

2015

 

Net income applicable to common stock

 

$

1,292

 

$

1,124

 

Weighted average number of common shares outstanding - basic

 

6,240

 

5,659

 

Basic earnings per share

 

$

0.21

 

$

0.20

 

 

 

 

 

 

 

Net income applicable to common stock

 

$

1,292

 

$

1,124

 

Weighted average number of common shares outstanding

 

6,240

 

5,659

 

Effect of dilutive options

 

13

 

15

 

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

 

6,253

 

5,674

 

Diluted earnings per share

 

$

0.21

 

$

0.20

 

 

Incentive stock options to purchase 84,700 shares of common stock at a weighted average price of $9.09; and 32,250 unvested shares of restricted common stock were included in the computation of diluted earnings per share for the three months ended March 31, 2016.

 

Incentive stock options to purchase 86,900 shares of common stock at a weighted average price of $9.09; and 48,500 unvested shares of restricted common stock were included in the computation of diluted earnings per share for the three months ended March 31, 2015.

 

9



Table of Contents

 

Note 4.  Securities Available for Sale and Investment Securities

 

A summary of securities held to maturity and securities available for sale at March 31, 2016 and December 31, 2015 is as follows (in thousands):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

March 31, 2016

 

Cost

 

Gains

 

Losses

 

Value

 

Securities Held to Maturity:

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

$

5,396

 

$

 

$

 

$

5,396

 

Total securities held to maturity

 

5,396

 

 

 

5,396

 

 

 

 

 

 

 

 

 

 

 

Securities Available for Sale:

 

 

 

 

 

 

 

 

 

U.S. Treasury obligations

 

6,484

 

 

(48

)

6,436

 

Government Sponsored Enterprise obligations

 

54,710

 

14

 

(80

)

54,644

 

Total securities available for sale

 

61,194

 

14

 

(128

)

61,080

 

 

 

 

 

 

 

 

 

 

 

Total securities

 

$

66,590

 

$

14

 

$

(128

)

$

66,476

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

December 31, 2015

 

Cost

 

Gains

 

Losses

 

Value

 

Securities Held to Maturity:

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

$

5,829

 

$

 

$

 

$

5,829

 

Total securities held to maturity

 

5,829

 

 

 

5,829

 

 

 

 

 

 

 

 

 

 

 

Securities Available for Sale:

 

 

 

 

 

 

 

 

 

U.S. Treasury obligations

 

6,512

 

 

(159

)

6,353

 

Government sponsored enterprise obligations

 

58,720

 

 

(323

)

58,397

 

Total securities available for sale

 

65,232

 

 

(482

)

64,750

 

 

 

 

 

 

 

 

 

 

 

Total securities

 

$

71,061

 

$

 

$

(482

)

$

70,579

 

 

10



Table of Contents

 

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

 

 

 

Less than 12 Months

 

More than 12 Months

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

March 31, 2016

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury obligations

 

$

 

$

 

$

6,436

 

$

(48

)

6,436

 

(48

)

Government Sponsored Enterprise obligations

 

2,993

 

(8

)

18,427

 

(72

)

21,420

 

(80

)

Total securities available for sale

 

$

2,993

 

$

(8

)

$

24,863

 

$

(120

)

$

27,856

 

$

(128

)

 

 

 

Less than 12 Months

 

More than 12 Months

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

December 31, 2015

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury obligation

 

 

 

6,354

 

(159

)

6,354

 

(159

)

Government Sponsored Enterprise obligations

 

15,707

 

(12

)

42,689

 

(311

)

58,396

 

(323

)

Total securities available for sale

 

15,707

 

(12

)

49,043

 

(470

)

64,750

 

(482

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities

 

$

15,707

 

$

(12

)

$

49,043

 

$

(470

)

$

64,750

 

$

(482

)

 

The amortized cost and fair value of securities held to maturity and securities available for sale at March 31, 2016 by contractual maturity are shown below.  Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):

 

 

 

Securities Held to Maturity

 

Securities Available for Sale

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

 

 

Cost

 

Value

 

Cost

 

Value

 

One year or less

 

$

5,396

 

$

5,396

 

$

15,709

 

$

15,718

 

After one to five years

 

 

 

45,485

 

45,362

 

Total

 

$

5,396

 

$

5,396

 

$

61,194

 

$

61,080

 

 

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

 

When OTTI for debt securities occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis, the OTTI would be recognized in earnings equal to

 

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

 

At March 31, 2016, the Company’s available for sale securities portfolio consisted of 22 securities, of which 10 were in an unrealized loss position for more than twelve months. No OTTI charges were recorded during the three months ended March 31, 2016. The Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell these securities. Unrealized losses primarily relate to interest rate fluctuations and not credit concerns.

 

Securities with an amortized cost of $31.3 million and a fair value of $31.2 million, were pledged to secure public funds on deposit at March 31, 2016.  Securities with an amortized cost of $31.3 million and a fair value of $31.0 million, were pledged to secure public funds on deposit at December 31, 2015.

 

During the first quarter of 2016, the Company did not sell any securities from its available for sale or held to maturity portfolios. During the first quarter of 2015, the Company sold one security from its available for sale portfolio.  It recognized a loss of approximately $5 thousand from this sale.  The Company did not sell any securities from its held to maturity portfolio during the first quarter of 2015.

 

Note 5.  Loans

 

The components of the loan portfolio at March 31, 2016 and December 31, 2015 are summarized as follows (in thousands):

 

 

 

March 31, 2016

 

December 31, 2015

 

Commercial real estate

 

$

476,460

 

$

460,396

 

Residential mortgages

 

45,069

 

48,698

 

Commercial

 

66,431

 

69,855

 

Home equity

 

62,221

 

63,308

 

Consumer

 

2,112

 

2,805

 

 

 

 

 

 

 

 

 

$

652,293

 

$

645,062

 

 

The Company grants commercial, mortgage and installment loans to those New Jersey residents and businesses within its local trading area.  Its borrowers’ abilities to repay their obligations are dependent upon various factors, including the borrowers’ income and net worth, cash flows generated by the underlying collateral, value of the underlying collateral and priority of the Company’s lien on the property.  Such factors are dependent upon various economic conditions and individual circumstances beyond the Company’s control; the Company is therefore subject to risk of loss.  The Company believes its lending policies and procedures adequately manage the potential exposure to such risks and that an allowance for loan losses is provided for management’s best estimate of probable loan losses.

 

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

 

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For the three months ended and as of:

 

March 31, 2016

 

Commercial
Real Estate

 

Residential
Mortgages

 

Commercial

 

Home
Equity

 

Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

5,566

 

$

572

 

$

1,066

 

$

573

 

$

39

 

$

204

 

$

8,020

 

Charge-offs

 

 

(90

)

 

(154

)

 

 

(244

)

Recoveries

 

 

 

 

 

 

 

 

Provisions

 

187

 

15

 

(42

)

131

 

(7

)

16

 

300

 

Ending balance

 

$

5,753

 

$

497

 

$

1,024

 

$

550

 

$

32

 

$

220

 

$

8,076

 

Ending balance: individually evaluated for impairment

 

$

 

$

175

 

$

 

$

5

 

$

 

$

 

$

180

 

Ending balance: collectively evaluted for impairment

 

$

5,753

 

$

322

 

$

1,024

 

$

545

 

$

32

 

$

220

 

$

7,896

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

476,460

 

$

45,069

 

$

66,431

 

$

62,221

 

$

2,112

 

$

 

$

652,293

 

Ending balance: individually evaluted for impairment

 

831

 

4,379

 

 

2,456

 

 

 

7,666

 

Ending balance: collectively evaluated for impairment

 

$

475,629

 

$

40,690

 

$

66,431

 

$

59,765

 

$

2,112

 

$

 

$

644,627

 

 

March 31, 2015

 

Commercial
Real Estate

 

Residential
Mortgages

 

Commercial

 

Home
Equity

 

Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

4,950

 

$

348

 

$

1,128

 

$

500

 

$

24

 

$

242

 

$

7,192

 

Charge-offs

 

(60

)

 

 

 

 

 

(60

)

Recoveries

 

 

 

 

 

 

 

 

Provisions

 

288

 

187

 

31

 

(164

)

(4

)

32

 

370

 

Ending balance

 

$

5,178

 

$

535

 

$

1,159

 

$

336

 

$

20

 

$

274

 

$

7,502

 

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

5,566

 

$

572

 

$

1,066

 

$

573

 

$

39

 

$

204

 

$

8,020

 

Ending balance: individually evaluated for impairment

 

$

 

$

267

 

$

 

$

80

 

$

 

$

 

$

347

 

Ending balance: collectively evaluted for impairment

 

$

5,566

 

$

305

 

$

1,066

 

$

493

 

$

39

 

$

204

 

$

7,673

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

460,396

 

$

48,698

 

$

69,855

 

$

63,308

 

$

2,805

 

$

 

$

645,062

 

Ending balance: individually evaluted for impairment

 

842

 

4,524

 

 

2,626

 

 

 

$

7,992

 

Ending balance: collectively evaluated for impairment

 

$

459,554

 

$

44,174

 

$

69,855

 

$

60,682

 

$

2,805

 

$

 

$

637,070

 

 

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Table of Contents

 

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due.  The following table presents the classes of the loan portfolio summarized by the past due status as of March 31, 2016 and December 31, 2015 (in thousands):

 

March 31, 2016

 

30-59 Days
Past Due

 

60-89 Days
Past Due

 

Greater than
90 Days

 

Total Past
Due

 

Current

 

Total Loans
Receivables

 

Nonaccrual
Loans

 

Commercial real estate

 

$

 

$

 

$

831

 

$

831

 

$

475,629

 

$

476,460

 

$

831

 

Residential mortgages

 

1,110

 

 

3,850

 

4,960

 

40,109

 

45,069

 

3,850

 

Commercial

 

 

 

 

 

66,431

 

66,431

 

 

Home equity

 

 

475

 

2,353

 

2,828

 

59,393

 

62,221

 

2,353

 

Consumer

 

 

 

 

 

2,112

 

2,112

 

 

Total

 

$

1,110

 

$

475

 

$

7,034

 

$

8,619

 

$

643,674

 

$

652,293

 

$

7,034

 

 

December 31, 2015

 

30-59 Days
Past Due

 

60-89 Days
Past Due

 

Greater than
90 Days

 

Total Past
Due

 

Current

 

Total Loans
Receivables

 

Nonaccrual
Loans

 

Commercial real estate

 

$

402

 

$

 

$

842

 

$

1,244

 

$

459,152

 

$

460,396

 

$

842

 

Residential mortgages

 

428

 

 

3,992

 

4,420

 

44,278

 

48,698

 

3,992

 

Commercial

 

 

 

 

 

69,855

 

69,855

 

 

Home equity

 

 

475

 

2,522

 

2,997

 

60,311

 

63,308

 

2,522

 

Consumer

 

 

 

 

 

2,805

 

2,805

 

 

Total

 

$

830

 

$

475

 

$

7,356

 

$

8,661

 

$

636,401

 

$

645,062

 

$

7,356

 

 

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

 

If nonaccrual loans had been current in accordance with their original terms and had been outstanding throughout the three-month periods ended March 31, 2016 and 2015, the gross interest income that would have been recorded in such periods would have been approximately $48 thousand and $95 thousand, respectively.  The amount of interest income on those loans that was included in net income for the three-month periods ended March 31, 2016 and 2015 was $0.

 

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The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system as of March 31, 2016 and December 31, 2015 (in thousands):

 

March 31, 2016

 

Commercial
Real Estate

 

Residential
Mortgages

 

Commercial

 

Home Equity

 

Consumer

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

468,516

 

$

45,069

 

$

58,964

 

$

56,352

 

$

2,112

 

$

631,013

 

Special Mention

 

4,090

 

 

3,898

 

4,871

 

 

12,859

 

Substandard

 

3,854

 

 

3,569

 

998

 

 

8,421

 

Doubtful

 

 

 

 

 

 

 

Total

 

$

476,460

 

$

45,069

 

$

66,431

 

$

62,221

 

$

2,112

 

$

652,293

 

 

December 31, 2015

 

Commercial
Real Estate

 

Residential
Mortgages

 

Commercial

 

Home Equity

 

Consumer

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

 

$

450,193

 

$

48,698

 

$

62,367

 

$

57,910

 

$

2,805

 

$

621,973

 

Special Mention

 

7,644

 

 

3,919

 

4,400

 

 

15,963

 

Substandard

 

2,559

 

 

3,569

 

998

 

 

7,126

 

Doubtful

 

 

 

 

 

 

 

Total

 

$

460,396

 

$

48,698

 

$

69,855

 

$

63,308

 

$

2,805

 

$

645,062

 

 

A loan is considered impaired when based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.  The following table provides information about the Company’s impaired loans at March 31, 2016 and December 31, 2015 (in thousands):

 

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Table of Contents

 

March 31, 2016

 

Recorded
Investment

 

Unpaid
Principal
Balance

 

Related
Allowance

 

Impaired loans with specific reserves:

 

 

 

 

 

 

 

Residential mortgage

 

$

3,269

 

$

3,795

 

$

175

 

Home equity

 

$

103

 

$

103

 

$

5

 

Total impaired loans with specific reserves

 

3,372

 

3,898

 

180

 

 

 

 

 

 

 

 

 

Impaired loans with no specific reserves:

 

 

 

 

 

 

 

Commercial real estate

 

831

 

856

 

 

Residential mortgage

 

1,110

 

1,290

 

 

Home equity

 

2,353

 

2,614

 

 

Total impaired loans with no specific reserves

 

4,294

 

4,760

 

 

Total impaired loans

 

$

7,666

 

$

8,658

 

$

180

 

 

December 31, 2015

 

Recorded
Investment

 

Unpaid
Principal
Balance

 

Related
Allowance

 

Impaired loans with specific reserves:

 

 

 

 

 

 

 

Residential mortgages

 

$

3,568

 

$

4,055

 

$

267

 

Home equity

 

$

278

 

$

175

 

$

80

 

 

 

3,846

 

4,230

 

347

 

 

 

 

 

 

 

 

 

Impaired loans with no specific reserves:

 

 

 

 

 

 

 

Commercial real estate

 

842

 

867

 

 

Residential mortgages

 

956

 

1,045

 

 

Home equity

 

2,348

 

2,723

 

 

 

 

4,146

 

4,635

 

 

 

 

$

7,992

 

$

8,865

 

$

347

 

 

The following table provides information about the Company’s impaired loans and related amounts recorded in the allowance for loan losses for the three month periods ended March 31, 2016 and 2015  (in thousands):

 

 

 

2016

 

2015

 

 

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Impaired loans with specific reserves:

 

 

 

 

 

 

 

 

 

Residential mortgage

 

$

3,294

 

 

$

1,053

 

 

Home equity

 

103

 

 

 

 

Total impaired loans with specific reserves

 

3,397

 

 

1,053

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans with no specific reserves:

 

 

 

 

 

 

 

 

 

Commercial real estate

 

837

 

 

1,767

 

 

Residential mortgage

 

1,157

 

 

3,243

 

 

Home equity

 

2,438

 

 

2,505

 

 

Total impaired loans with no specific reserves

 

4,432

 

 

7,515

 

 

Total impaired loans

 

$

7,829

 

$

 

$

8,568

 

$

 

 

Troubled debt restructuring loans (“TDRs”) are loans where the contractual terms of the loan have been modified for a borrower experiencing financial difficulties.  These modifications could include a reduction in the interest rate of the loan, payment extensions, forgiveness of principal, a combination of these concessions or other actions to maximize collection.

 

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Table of Contents

 

The following table summarizes information in regards to TDRs by loan portfolio class as of March 31, 2016 and December 31, 2015 (in thousands):

 

March 31, 2016

 

Accrual
Status

 

Number of
Loans

 

Nonaccrual
Status

 

Number of
Loans

 

Total

 

Residential mortgages

 

$

529

 

2

 

$

3,325

 

4

 

$

3,854

 

Commercial real estate

 

 

 

356

 

1

 

356

 

Home equity

 

103

 

2

 

847

 

1

 

950

 

 

 

$

632

 

4

 

$

4,528

 

6

 

$

5,160

 

 

December 31, 2015

 

Accrual
Status

 

Number of
Loans

 

Nonaccrual
Status

 

Number of
Loans

 

Total

 

Residential mortgages

 

$

532

 

2

 

$

3,468

 

4

 

$

4,000

 

Commercial real estate

 

 

 

367

 

1

 

367

 

Home equity

 

104

 

2

 

859

 

1

 

963

 

 

 

$

636

 

4

 

$

4,694

 

6

 

$

5,330

 

 

During the three months ended March 31, 2016 and 2015, there were no new TDRs that occurred.

 

During the three months ended March 31, 2016 and 2015, there were no defaults of loans modified in troubled debt restructurings during the previous twelve months.

 

We may obtain physical possession of real estate collateralizing a residential mortgage loan or home equity loan via foreclosure or an in-substance repossession. As of March 31, 2016 and December 31, 2015, we have no foreclosed residential real estate properties as a result of obtaining physical possession. As of March 31, 2016 and December 31, 2015, we had residential mortgage loans and home equity loans with a carrying value of $2.1 million collateralized by residential real estate property for which formal foreclosure proceedings were in process.

 

Note 6. Guarantees

 

The Company does not issue any guarantees that would require liability recognition or disclosure, other than the Bank’s standby letters of credit.  Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.  Generally, all letters of credit, when issued have expiration dates within one year.  The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers.  The Bank generally holds collateral and/or personal guarantees supporting these commitments.  As of March 31, 2016, the Bank had $3.7 million of commercial and similar letters of credit.  Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payment required under the corresponding guarantees.  Management believes that the current amount of the liability as of March 31, 2016 for guarantees under standby letters of credit issued is not material.

 

Note 7 — Borrowed Funds

 

Borrowings may consist of long-term debt fixed rate advances from the Federal Home Loan Bank of New York (“FHLBNY”) as well as short term borrowings through lines of credit with other financial institutions.  Information concerning long-term borrowings at March 31, 2016, and December 31, 2015, is as follows (in thousands):

 

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March 31, 2016

 

Amount

 

Rate

 

Original 
Term (years)

 

Maturity

 

Fixed Rate Amortizing Note

 

$

3,375

 

1.50

%

5

 

June 2019

 

Fixed Rate Amortizing Note

 

5,186

 

1.51

%

5

 

July 2019

 

Fixed Rate Amortizing Note

 

4,955

 

1.51

%

5

 

August 2019

 

Fixed Rate Amortizing Note

 

3,987

 

2.02

%

7

 

August 2021

 

Fixed Rate Amortizing Note

 

7,405

 

1.48

%

5

 

October 2019

 

 

 

 

 

 

 

 

 

 

 

Total FHLB Advances

 

$

24,908

 

1.58

%

 

 

 

 

 

December 31, 2015

 

Amount

 

Rate

 

Original 
Term (years)

 

Maturity

 

Fixed Rate Amortizing Note

 

$

3,621

 

1.50

%

5

 

June 2019

 

Fixed Rate Amortizing Note

 

5,555

 

1.51

%

5

 

July 2019

 

Fixed Rate Amortizing Note

 

5,299

 

1.51

%

5

 

August 2019

 

Fixed Rate Amortizing Note

 

4,158

 

2.02

%

7

 

August 2021

 

Fixed Rate Amortizing Note

 

7,896

 

1.48

%

5

 

October 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

$

26,529

 

1.58

%

 

 

 

 

 

The Bank has a $16 million overnight line of credit facility available with Zions First National Bank, a $12.0 million overnight line of credit available with First Tennessee Bank and a $10.0 million overnight line of credit with Atlantic Community Bankers Bank for the purchase of federal funds in the event that temporary liquidity needs arise.  Additionally, the Bank is a member of the FHLBNY.  The FHLBNY relationship provides additional borrowing capacity.  There were no borrowings on any of the lines of credit at March 31, 2016 and December 31, 2015.

 

Note 8. Fair Value Measurements and Fair Value of Financial Instruments

 

U. S. GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

 

The three levels of the fair value hierarchy are described below:

 

·                  Level 1 Inputs - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

 

·                  Level 2 Inputs - Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

 

·                  Level 3 Inputs - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (that is, supported with little or no market activity).

 

The level of an asset or liability within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement of that asset or liability.

 

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For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2016 and December 31, 2015, respectively, are as follows (in thousands):

 

 

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Description

 

March 31, 2016

 

Quoted Prices in 
Active Markets for
Identical Assets

 

Significant Other
Observable Inputs

 

Significant 
Unobservable Inputs

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

U.S. Treasury obligations

 

$

6,436

 

$

 

$

6,436

 

$

 

Government Sponsored

 

 

 

 

 

 

 

 

 

Enterprise obligations

 

54,644

 

 

54,644

 

 

Total securities available for sale

 

$

61,080

 

$

 

$

61,080

 

$

 

 

 

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Description

 

December 31, 2015

 

Quoted Prices in 
Active Markets for
Identical Assets

 

Significant Other

Observable Inputs

 

Significant 
Unobservable Inputs

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

U.S. Treasury obligations

 

$

6,353

 

$

 

$

6,353

 

$

 

Government sponsored enterprise obligations

 

58,397

 

 

58,397

 

 

Total securities available for sale

 

$

64,750

 

$

 

$

64,750

 

$

 

 

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2016 and December 31, 2015, respectively, follows (in thousands):

 

 

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Description

 

March 31, 2016

 

Quoted Prices in 
Active Markets for

Identical Assets

 

Significant Other
Observable Inputs

 

Significant 

Unobservable Inputs

 

 

 

 

 

 

 

 

 

 

 

Impaired Loans

 

$

3,453

 

 

 

$

3,453

 

 

 

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Description

 

December 31, 2015

 

Quoted Prices in 
Active Markets for
Identical Assets

 

Significant Other
Observable Inputs

 

Significant 
Unobservable Inputs

 

Impaired loans

 

$

258

 

$

 

$

 

$

258

 

 

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value (in thousands):

 

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March 31, 2016

 

Fair Value 
Estimate

 

Valuation 
Techniques

 

Unobservable 
Input

 

Range (Weighted Average)

 

 

 

 

 

 

 

 

 

 

 

Impaired Loans

 

$

3,453

 

Appraisal of Collateral (1)

 

Appraisal Adjustments (2)

 

0% - 47.4% (-8.6)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liquidation Expenses (2)

 

0% - 12.5% (-9.9)%

 

 

December 31, 2015

 

Fair Value 
Estimate

 

Valuation 
Techniques

 

Unobservable 
Input

 

Range (Weighted Average)

 

 

 

 

 

 

 

 

 

 

 

Impaired loans

 

$

258

 

Appraisal of Collateral (1)

 

Appriasal Adjustments (2)

 

0% - 1.0% (-0.5)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liquidation Expenses (2)

 

0% - 48.1% (-33.8)%

 

 


(1)   Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

 

(2)   Appraisals may be adjusted for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

 

Management uses its best judgment in estimating the fair value of the Company’s financial instruments, however, there are inherent weaknesses in any estimation technique.  Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in sales transactions on the dates indicated.  The estimated fair value amounts have been measured as of their respective period end and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates.  As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period end.

 

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities.  Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

 

Fair value estimates and assumptions are set forth below for the Company’s financial instruments at March 31, 2016 and December 31, 2015 (in thousands):

 

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(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

March 31, 2016

 

Quoted Prices in 
Active Markets for

 

Significant Other

 

Significant 
Unobservable

 

 

 

Carrying amount

 

Fair Value

 

Identical Assets

 

Observable Inputs

 

Inputs

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

61,532

 

$

61,532

 

$

61,532

 

 

 

Interest bearing time deposits

 

1,000

 

1,000

 

 

1,000

 

 

Securities available for sale

 

61,080

 

61,080

 

 

61,080

 

 

Securities held to maturity

 

5,396

 

5,396

 

 

5,396

 

 

Restricted investment in bank stock

 

1,947

 

1,947

 

 

1,947

 

 

Net loans

 

643,818

 

646,314

 

 

 

646,314

 

Accrued interest receivable

 

2,425

 

2,425

 

 

2,425

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

692,303

 

683,675

 

365,683

 

317,992

 

 

Borrowed funds

 

24,908

 

24,896

 

 

24,896

 

 

Accrued interest payable

 

652

 

652

 

 

652

 

 

 

 

 

 

 

 

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

December 31, 2015

 

Quoted Prices in 
Active Markets for

 

Significant Other

 

Significant 
Unobservable

 

 

 

Carrying amount

 

Fair Value

 

Identical Assets

 

Observable Inputs

 

Inputs

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

74,189

 

$

74,189

 

$

74,189

 

$

 

$

 

Interest bearing time deposits

 

1,000

 

1,000

 

 

1,000

 

 

Securities available for sale

 

64,750

 

64,750

 

 

64,750

 

 

Securities held to maturity

 

5,829

 

5,829

 

 

5,829

 

 

Restricted investment in bank stock

 

2,020

 

2,020

 

 

2,020

 

 

Net loans

 

636,661

 

639,525

 

 

 

639,525

 

Accrued interest receivable

 

2,305

 

2,305

 

 

2,305

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

700,739

 

702,593

 

350,375

 

352,218

 

 

Borrowed funds

 

26,529

 

26,517

 

 

26,517

 

 

Accrued interest payable

 

716

 

716

 

 

716

 

 

 

Cash and Cash Equivalents and Interest Bearing Time Deposits

 

The carrying amounts reported in the balance sheet for cash and cash equivalents, and interest bearing time deposits approximate those assets’ fair values.

 

Securities

 

The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.  For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquiditiy and/or

 

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non-transferability, and such adjustments are generally based on available market evidence (Level 3).  In the absence of such evidence, management’s best estimate is used.  Management’s best estimate consists of both internal and external support on certain Level 3 investments.  Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) were used to support fair values of certain Level 3 investments.

 

Restricted Investment in Bank Stock

 

The carrying amount of restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities.

 

Loans Receivable

 

The fair value of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and the interest rate-risk inherent in the loans.  Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal.  Generally, for variable rate loans that re-price frequently and with no significant change in credit risk, fair values approximate carrying values.

 

Impaired Loans

 

Impaired loans are those for which the Company has measured impairment generally based on the fair value of the loan’s collateral or discounted cash flows based upon the expected proceeds.  Fair value is generally based upon independent third-party appraisals of the properties.  These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

 

Accrued Interest Receivable and Payable

 

The carrying amount of accrued interest receivable and accrued interest payable approximates fair value.

 

Other Real Estate Owned

 

Other real estate owned assets are adjusted to fair value less estimated selling costs upon transfer of the loans to other real estate owned.  The fair value of other real estate owned is based upon independent third party appraisal values of the collateral or management’s estimation of the value of the collateral.  These assets are included as Level 3 fair values.

 

Deposits

 

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts).  Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities of time deposits.

 

Limitation

 

The preceding fair value estimates were made at March 31, 2016 and December 31, 2015 based on pertinent market data and relevant information on the financial instrument.  These estimates do not include any premium or discount that could result from an offer to sell at one time the Company’s entire holdings of a particular financial instrument or category thereof.  Since no market exists for a substantial portion of the Company’s financial instruments, fair value estimates were necessarily based on judgments regarding future expected loss experience, current economic conditions, risk assessment of various financial instruments, and other factors.  Given the innately subjective nature of these estimates, the uncertainties surrounding them

 

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and the matter of significant judgment that must be applied, these fair value estimates cannot be calculated with precision.  Modifications in such assumptions could meaningfully alter these estimates.

 

Since these fair value approximations were made solely for on and off balance sheet financial instruments at March 31, 2016 and December 31, 2015, no attempt was made to estimate the value of anticipated future business.  Furthermore, certain tax implications related to the realization of the unrealized gains and losses could have a substantial impact on these fair value estimates and have not been incorporated into the estimates.

 

Note 9. Accumulated Other Comprehensive Income

 

There were no reclassifications out of accumulated other comprehensive income for the three months ended March 31, 2016.

 

Reclassifications out of accumulated other comprehensive income for the three months ended March 31, 2015 are as follows:

 

Details About Accumulated Other 
Comprehensive Income Components

 

Amount Reclassified from 
Accumulated Other 
Comprehensive Income

 

Affected Line Item in the 
Statements of Income

 

Available for Sale Securities

 

 

 

 

 

Realized loss on sale of securities

 

$

(5

)

Losses on sale of securities

 

 

 

2

 

Income tax expense

 

Total reclassifications

 

$

(3

)

Net of tax

 

 

Note 10. Recent Accounting Pronouncements

 

This note provides a summary description of recent accounting standards that have significant implications (elected or required) within the consolidated financial statements, or that management expects may have a significant impact on financial statements issued in the near future.

 

ASU 2014-09, Revenue from Contracts with Customers (Topic 606)

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers.   The amendments in this ASU establish a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry-specific guidance such as the real estate, construction and software industries.  The revenue standard’s core principle is built on the contract between a vendor and a customer for the provision of goods and services.  It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled.  To accomplish this objective, the standard requires five basic steps: i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation.  Public entities will apply the new standard for annual periods beginning after December 15, 2016, including interim periods therein.  Three basic transition methods are available — full retrospective, retrospective with certain practical expedients, and a cumulative effect approach.  Under the third alternative, an entity would apply the new revenue standard only to contracts that are incomplete under legacy U.S. GAAP at the date of initial application (e.g. January 1, 2017) and recognize the cumulative effect of the new standard as an adjustment to the opening balance of retained earnings.  That is, prior years would not be restated and additional disclosures would be required to enable users of the financial statements to understand the impact of adopting the new standard in the current year compared to prior years that are presented under legacy U.S. GAAP.  Early adoption is prohibited under U.S. GAAP.  The same three transition alternatives apply. The implementation of ASU 2014-09 should not have a material impact on the Company’s financial position or results of operations.

 

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ASU 2016-1, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.

 

In January 2016 the FASB issued ASU 2016-1, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01  requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-01 will be effective for us on January 1, 2018 and is not expected to have a material impact on the Company’s financial position or results of operations.

 

ASU 2016-02, Leases.

 

In February 2016 the FASB issued ASU 2016-02, Leases. ASU 2016-02 amends existing lease accounting guidance to include the requirement to recognize most lease arrangements on the balance sheet. The adoption of this standard will require the Company to recognize the rights and obligations arising from operating leases as assets and liabilities. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2018, early adoption is permitted. The Company is presently evaluating the potential impact of the adoption of this accounting pronouncement to its financial position or results of operations.

 

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ITEM 2

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

 

You should read this discussion and analysis in conjunction with the unaudited interim consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, and with our audited consolidated financial statements for the year ended December 31, 2015 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented in our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the Securities and Exchange Commission.

 

Statements Regarding Forward Looking Information

 

This document contains forward-looking statements, in addition to historical information.  Forward looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” and variations of such words and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions.  The U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, provide a safe harbor in regard to the inclusion of forward-looking statements in this document and documents incorporated by reference.

 

You should note that many factors, some of which are discussed elsewhere in this document and in the documents that are incorporated by reference, could affect the future financial results of Bancorp of New Jersey, Inc. and its subsidiaries and could cause those results to differ materially from those expressed in the forward-looking statements contained or incorporated by reference in this document.  These factors include, but are not limited, to the following:

 

·                  Economic conditions affecting the financial industry;

 

·                  Changes in interest rates and shape of the yield curve;

 

·                  Credit risk associated with our lending activities;

 

·                  Risks relating to our market area, significant real estate collateral and the real estate market;

 

·                  Legislative and regulatory changes and our ability to comply with the significant laws and regulations impacting the banking and financial services industry;

 

·                  Operating, legal and regulatory compliance risk;

 

·                  Regulatory capital requirements and our ability to raise and maintain capital;

 

·                  Our ability to prevent, detect and respond to any cyberattacks in order to protect our information assets and supporting infrastructure including information of our customers;

 

·                  Our ability to attract and retain well-qualified management;

 

·                  Fiscal and monetary policy;

 

·                  Economic, political and competitive forces affecting our business;

 

·                  Risks associated with potential business combinations; 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

 

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our financial performance and could cause actual results or circumstances for future periods to differ materially from those anticipated or projected.

 

Critical Accounting Policies, Judgments and Estimates

 

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 Consolidated Financial Statements included in Part I, Item 1 of this report.  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 future periods.  Financial assets and liabilities required to be recorded at, or adjusted to reflect, fair value require the use of estimates, assumptions, and judgments.  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 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 the general valuation allowance for the respective loan type is deemed to be inadequate; 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 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. Specific reserves are established for impaired loans based on a review of such information and/or appraisals of the underlying collateral. General reserves 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 reserves 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 maintain the allowance for loan losses at an adequate level.  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 additional provisions for loan losses. Any provision reduces our net income. While the allowance is increased by the provision for loan losses, it is decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. A change in economic conditions could adversely affect the value of properties collateralizing real estate loans, resulting in increased charges against the allowance and reduced recoveries, and require additional provisions for loan losses. Furthermore, growth or a change in the composition of our loan portfolio could require additional provisions for loan losses.

 

Deferred Income Taxes

 

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the period in which the deferred tax asset or liability is expected to be settled or realized.  The effect on deferred

 

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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.

 

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Results of Operations

 

Three Months Ended March 31, 2016 compared to Three Months Ended March 31, 2015

 

Our results of operations depend primarily on net interest income, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities.  Interest-earning assets consist principally of loans and investment securities, while interest-bearing liabilities consist primarily of deposits.  Net income is also affected by the provision for loan losses and the level of non-interest income, as well as by non-interest expenses, including salaries and employee benefits, occupancy and equipment expense, and other expenses, and income tax expense.

 

Net Income

 

Net income for the first quarter of 2016 was $1.3 million, compared to $1.1 million for the first quarter of 2015, representing an increase of approximately 14.9%. The increase in the first quarter net income resulted from an increase in interest income on higher average loans, lower interest expense driven by lower cost deposits and a decrease in the provision for loan losses offset by increases in income taxes and non-interest expense.  On a per share basis, basic and diluted earnings per share increased $0.01 for the first quarter of 2016 to $0.21 compared to $0.20 per share for the first quarter in 2015.

 

Net Interest Income

 

Net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them.  For the three month period ended March 31, 2016, the growth in net interest income was powered primarily by increased interest income from loans and interest on federal funds.  Interest income on loans increased by $184 thousand in the first three months of 2016, as compared to the same period last year.  This increase in income was due to a $2.7 million increase in the average balance of loans during the quarter ended March 31, 2016, up to $649.4 million as compared to the first quarter of 2015 average loan balance of $646.7 million. Yield on loans increased slightly from 4.74% for the three months ended March 31, 2015 up to 4.80% for the three months ended March 31, 2016, an increase of 6 basis points.  Interest expense  decreased by $112 thousand for the quarter ended March 31, 2016, as compared to the quarter ended March 31, 2015, due to a  decrease in the average balance of  time deposits of $29 million, to $343 million during the quarter ended March 31, 2016 from $372 million during the quarter ended March 31, 2015.  The average interest rate paid on interest bearing deposits also decreased  to 1.17% for the quarter ended March 31, 2016, from  1.24% for the same period last year, a 7 basis point drop.

 

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.  The provision for loan losses was $300 thousand for the three months ended March 31, 2016 as compared to $370 thousand for the three months ended March 31, 2015.

 

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Non-interest Income

 

Non-interest income consists primarily of service fees received from deposit accounts. Non-interest income increased by $41 thousand to $84 thousand for the three months ended March 31, 2016 from $43 thousand for the three months ended March 31, 2015.

 

Non-interest Expense

 

Non-interest expense grew to $4.0 million during the first quarter of 2016 compared to $3.8 million in the first quarter of 2015, an increase of approximately $163 thousand.  This increase was due in most part to increases in salaries and employee benefits and FDIC assessment expense of $180 thousand and $149 thousand, respectively, which were partially offset by a decrease of $165 thousand in OREO related expense.  The increase in salaries and employee benefits was primarily due to general increases in staff, salaries and benefits. The bank recorded OREO property write downs of $160 thousand in the first quarter of 2015 versus none in the first quarter of 2016.

 

Income Tax Expense

 

The income tax provision increased $131 thousand to $727 thousand for the quarter ended March 31, 2016, as compared to $596 thousand for the quarter ended March 31, 2015.  The increase in the income tax expense for the quarter ended March 31, 2016 as compared to the quarter ended March 31, 2015 was due primarily to the increase in the Company’s pre-tax income of $299 thousand.  The effective tax rate for the first quarter of 2016 was 36.0% compared to 34.7% for the first quarter of 2015.

 

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FINANCIAL CONDITION

 

Total consolidated assets decreased $9.0 million, or approximately  1.1%, from $802.9 million at December 31, 2015 to $793.9 million at March 31, 2016.  Cash and cash equivalents decreased by $ 12.7 million to $61.5 million at March 31, 2016 from $ 74.2 million at December 31, 2015.  Loans receivable, or “total loans,” increased from $645.1 million at December 31, 2015 to $652.3 million at March 31, 2016, an increase of approximately $7.2 million, or  1.1%.  Total deposits  decreased from $700.7 million at December 31, 2015 to $ 692.3 million at March 31, 2016, a  decrease of $ 8.4 million, or approximately  1.2%.

 

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 1.1% to reach $652.3 million at March 31, 2016 from $645.1 million at December 31 2015.  Commercial real estate mortgages increased $16.1 million during the three months ended March 31, 2016 as compared to December 31, 2015,  the increase was partially offset  by decreases in commercial loans, residential mortgages, home equity loans and consumer loans of $3.4 million, $3.6 million, $1.1 million and $693 thousand respectively.  We believe that we will continue to have opportunities for loan growth within the Bergen County market of northern New Jersey, due in part, to our customer service and competitive rate structures.

 

Our loan portfolio consists of commercial and residential real estate loans, commercial loans, consumer loans and home equity loans.  Commercial loans are made for the purpose of providing working capital, financing the purchase of equipment or inventory, as well as for other business purposes.  Real estate loans consist of loans secured by commercial or residential real property and loans for the construction of commercial or residential property.  Consumer loans and home equity loans, are made for the purpose of financing the purchase of consumer goods, home improvements, and other personal needs, and are generally secured by the personal property being owned or being purchased.

 

Our loans are primarily to businesses and individuals located in Bergen County, New Jersey.  We have not made loans to borrowers outside of the United States.  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.

 

For more information on the loan portfolio, see Note 5 in Notes to the Unaudited Consolidated Financial Statements in Part I, Item 1of this Quarterly Report on Form 10-Q.

 

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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 past due and restructured loans, potential problem loans and loan concentrations.

 

Non-performing assets include loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more and accruing loans that are 90 days past due, troubled debt restructuring loans and foreclosed assets.  When a loan is classified as nonaccrual, interest accruals discontinue and all past due interest, including interest applicable to prior years, is reversed and charged against current income.  Until the loan becomes current, any payments received from the borrower are applied to outstanding principal until such time as management determines that the financial condition of the borrower and other factors merit recognition of such payments of interest.

 

We attempt to manage overall credit risk through loan diversification and our loan underwriting and approval procedures.  Due diligence begins at the time we begin to discuss the origination of a loan with a borrower.  Documentation, including a 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.

 

As of March 31, 2016 the Bank had  fourteen nonaccrual loans totaling approximately $7.0 million, of which  two loans totaling approximately $2.7 million had specific reserves of $143 thousand and twelve loans totaling approximately $4.3 million had no specific reserve.  If nonaccrual loans had been current in accordance with their original terms and had been outstanding throughout the three month period ended March 31, 2016, the gross interest income that would have been recorded in such period would have been approximately $48 thousand.

 

Within its nonaccrual loans at March 31, 2016, the Bank had  four residential mortgage loans,  one home equity loan and one commercial real estate loan that met the definition of a troubled debt restructuring (“TDR”) loan.  TDRs are loans where the contractual terms of the loan have been modified for a borrower experiencing financial difficulties.  These modifications could include a reduction in the interest rate of the loan, payment extensions, forgiveness of principal, a combination of these concessions or other actions to maximize collection.  At March 31, 2016, nonaccrual TDR loans had an outstanding balance of $4.5 million and had specific reserves of $180 thousand connected with them.   Two residential mortgage loans and two  home equity loans, classified as TDRs, totaling $528 thousand, and $103 thousand, respectively, are performing in accordance with their modified terms.

 

During the first quarter of 2016 and 2015, there were no new TDR loans.

 

As a community bank, our market area is concentrated in Bergen County, New Jersey, and as a result we have a concentration of loans collateralized by real estate, primarily in our market area at March 31, 2016 and December 31, 2015.

 

Investment Securities

 

Securities held as available for sale (“AFS”) were $61.1 million at March 31, 2016 compared to $64.8 million at December 31, 2015.

 

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Deposits

 

Deposits remain our primary source of funds.  Total deposits decreased to $692.3 million at March 31, 2016 from $700.7 million at December 31, 2016, a decrease of $8.4 million, or 1.2%.  Time deposits, decreased by $23.7 million while savings and interest bearing transaction accounts increased by $12.0 million. Noninterest bearing deposits increased by $3.3 million during the first quarter of 2016.  The Company has no foreign deposits, nor are there any material customer concentrations of deposits.

 

Borrowed Funds

 

At March 31, 2016 borrowings consisted of long term advances from the Federal Home Loan Bank of New York (“FHLBNY”).  The long term advances are secured under terms of a blanket collateral agreement by a pledge of qualifying securities and mortgage loans.  At March 31, 2016 and December 31, 2015, the Bank had outstanding borrowings of $24.9 million and $26.5 million, respectively, with the FHLBNY.

 

Liquidity

 

Our liquidity is a measure of our ability to fund loans, withdrawals or maturities of deposits, and other cash outflows in a cost-effective manner.  Our principal sources of funds are deposits, scheduled amortization and prepayments of loan principal, maturities of investment securities, and funds provided by operations.  While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit flow and loan prepayments are greatly influenced by prevailing interest rates, economic conditions, and competition.  In addition, if warranted, we would be able to borrow funds.

 

Our total deposits equaled $692.3 million and $700.7 million, respectively, at March 31, 2016 and December 31, 2015.    Cash and cash equivalents  decreased from $74.2 million on December 31, 2015 to $61.5  million on March 31, 2016.   The decrease in cash is a result of deposits outflow of approximately $8.4 million and loan growth of $7.2 million for the quarter ended March 31, 2016 as compared to December 31, 2015.

 

Through the investment portfolio, we have generally sought to obtain a safe, yet slightly higher yield than would have been available to us as a net seller of overnight federal funds, while maintaining liquidity.  Through our investment portfolio, we also attempt to manage our maturity gap, by seeking maturities of investments which coincide with maturities of deposits.  The investment portfolio also includes securities available for sale to provide liquidity for anticipated loan demand and other liquidity needs.

 

As of March 31, 2016, we had a $16 million overnight line of credit with Zions First National Bank, a $12 million overnight line of credit with First Tennessee Bank and a $10 million overnight line of credit with Atlantic Central Bankers Bank for the purchase of federal funds in the event that temporary liquidity needs arise.  There were no amounts outstanding under any of the facilities at March 31, 2016.  We are an approved member of the Federal Home Loan Bank of New York, or “FHLBNY.”  The FHLBNY relationship could provide additional sources of liquidity, if required.  At March 31, 2016, we have $ 24.9 million of borrowed funds from the FHLBNY.

 

We believe that our current sources of funds provide adequate liquidity for our current cash flow needs.

 

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Capital Resources

 

A significant measure of the strength of a financial institution is its capital base.

 

The banking regulators have established guidelines for leverage capital requirements, expressed in terms of Tier 1 or core capital as a percentage of average assets, to measure the soundness of a financial institution. In addition, banking regulators have established risk-based capital guidelines for U.S. banking organizations.

 

Under the final capital rules that became effective on January 1, 2015, there was a requirement for a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and is being phased in over a four-year period, increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019.

 

The aforementioned capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 capital to Risk Weighted Assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

 

The following table summarizes the Bank’s risk-based capital and leverage ratios at March 31, 2016, the applicable minimum ratios, the applicable minimum required based on the Phase-in provisions and the minimum required to be considered well capitalized:

 

 

 

 

 

 

 

 

 

To Be Well

 

 

 

 

 

Minimum Required

 

Minimum Capital

 

Capitalized Under

 

 

 

 

 

For Capital

 

With Phase-in

 

Prompt Corrective

 

 

 

March 31, 2016

 

Adequacy Purposes

 

Buffer Schedule

 

Action Regulations

 

 

 

 

 

 

 

 

 

 

 

Risk-Based Capital:

 

 

 

 

 

 

 

 

 

Common Equity Tier 1 Capital

 

11.01

%

4.50

%

5.125

%

6.50

%

Tier 1 Capital Ratio

 

11.01

%

6.00

%

6.625

%

8.00

%

Total Capital Ratio

 

12.25

%

8.00

%

8.625

%

10.00

%

 

 

 

 

 

 

 

 

 

 

Leverage Ratio

 

9.14

%

4.00

%

N/A

 

5.00

%

 

The Company is subject to similar regulatory capital requirements, and its capital ratios are similar to the Bank’s capital ratios as presented in the table above.

 

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ITEM 3. Quantitative and Qualitative Disclosures about Market/Interest Risk

 

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

 

ITEM 4. Controls and Procedures

 

Evaluation of disclosure controls and procedures.

 

As of March 31, 2016, the Company’s management including the Chief Executive Officer and President (our Principal Executive Officer) and Senior Vice President and Chief Financial Officer (our Principal Financial and Accounting Officer), evaluated the Company’s disclosure controls and procedures related to the recording, processing, summarization, and reporting of information in the Company’s periodic reports that the Company files with the Securities and Exchange Commission.

 

Based on their evaluation as of March 31, 2016, the Company’s Chief Executive Officer and President and the Company’s Senior Vice President and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.

 

Changes in internal controls over financial reporting.

 

There was no change in our internal control over financial reporting identified during the quarter ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II  OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

The Company and the Bank are periodically parties to or otherwise involved in legal proceedings arising in the normal course of business, such as claims to enforce liens, claims involving the making and servicing of real property loans, and other issues incident to the Bank’s business. Management does not believe that there are any pending proceedings against the Company or the Bank which, if determined adversely, would have a material effect on the business, financial position or results of operations of the Company or the Bank.

 

Item 1A.  Risk Factors

 

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

 

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

 

None

 

Item 3.   Defaults Upon Senior Securities

 

None

 

Item 4.   Mine Safety Disclosures

 

Not Applicable

 

Item 5.   Other Information

 

None.

 

Item 6.   Exhibits

 

The exhibits filed or incorporated by reference as part of this report are listed in the Exhibit Index, which appears at page 37.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Bancorp of New Jersey, Inc.

 

 

 

 

 

 

Date:May 16, 2016

By:

/s/ Nancy E. Graves

 

 

Nancy E. Graves

 

 

Chief Executive Officer and President

 

 

(Principal Executive Officer)

 

 

 

 

 

 

 

By:

/s/ Matthew Levinson

 

 

Matthew Levinson

 

 

Senior Vice President and

 

 

Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibit 
No.

 

Description

31.1

 

Rule 13a-14(a) Certification of Principal Executive Officer

31.2

 

Rule 13a-14(a) Certification of Principal Financial Officer

32

 

Section 1350 Certifications

101

 

Interactive Data Files

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

XBRL Taxonomy Extension Labels Linkbase Document

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 


*              Management compensatory plan, contract or arrangement.

 

37