Bancorp of New Jersey, Inc. - FORM 10-Q

Attached files

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EX-32 - EX-32 - Bancorp of New Jersey, Inc.	bkj-20170630xex32.htm
EX-31.2 - EX-31.2 - Bancorp of New Jersey, Inc.	bkj-20170630ex312dcff38.htm
EX-31.1 - EX-31.1 - Bancorp of New Jersey, Inc.	bkj-20170630ex3113dc7ed.htm

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2017

☐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 ☒ No ☐

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 ☒ No ☐

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


Large accelerated filer ◻	Accelerated filer ◻	Non-accelerated filer ◻	Smaller reporting company ☒
		(Do not check if a smaller reporting company)	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 1, 2017 there were 6,707,125 outstanding shares of the issuer’s class of common stock, no par value.

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INDEX

		PAGE

Part I Financial Information

Item 1.	Financial Statements:

	Unaudited Consolidated Statements of Financial Condition — June 30, 2017 and December 31, 2016	3

	Unaudited Consolidated Statements of Income - Three Months Ended June 30, 2017 and 2016	4

	Unaudited Consolidated Statements of Income – Six Months Ended June 30, 2017 and 2016	5

	Unaudited Consolidated Statements of Comprehensive Income- Three and six months Ended June 30, 2017 and 2016	6

	Unaudited Consolidated Statements of Stockholders’ Equity – Six Months Ended June 30, 2017 and 2016	7

	Unaudited Consolidated Statements of Cash Flows – Six Months Ended June 30, 2017 and 2016	8

	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

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

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BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except for per share data)


	June 30, 2017		December 31, 2016
Assets
Cash and due from banks	$	2,855	$	2,628
Interest bearing deposits		114,143		73,896
Federal funds sold		452		452
Total cash and cash equivalents		117,450		76,976
Interest bearing time deposits		1,000		1,000
Securities available for sale		49,666		61,589
Securities held to maturity (fair value $7,076 and $7,343 at June 30, 2017 and December 31, 2016, respectively)		7,076		7,343
Restricted investment in bank stock, at cost		1,665		1,983
Loans receivable		676,033		660,571
Deferred loan fees and costs, net		(719)		(586)
Allowance for loan losses		(7,993)		(8,287)
Net loans		667,321		651,698
Premises and equipment, net		13,736		13,497
Accrued interest receivable		2,294		2,366
Other real estate owned		456		614
Other assets		5,211		5,374
Total assets	$	865,875	$	822,440
Liabilities and Stockholders’ Equity
LIABILITIES:
Deposits:
Noninterest-bearing demand deposits	$	143,045	$	137,564
Savings and interest bearing transaction accounts		282,178		287,682
Time deposits $250 and under		223,979		156,477
Time deposits over $250		117,354		136,265
Total deposits		766,556		717,988
Borrowed funds - Long Term		16,709		25,008
Accrued expenses and other liabilities		2,316		2,300
Total liabilities		785,581		745,296
Stockholders’ equity:
Common stock, no par value, authorized 20,000,000 shares; issued and outstanding 6,707,223 at June 30, 2017 and 6,316,291 at December 31, 2016		67,487		61,524
Retained earnings		12,894		15,813
Accumulated other comprehensive loss		(87)		(193)
Total stockholders’ equity		80,294		77,144
Total liabilities and stockholders’ equity	$	865,875	$	822,440

See accompanying notes to unaudited consolidated financial statements

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BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except for per share data)


	For the Three Months Ended June 30,
	2017		2016
INTEREST INCOME
Loans, including fees	$	7,684	$	7,467
Securities		189		198
Federal funds sold and other		290		109
TOTAL INTEREST INCOME		8,163		7,774

INTEREST EXPENSE
Savings and interest bearing transaction accounts		442		373
Time deposits		1,435		1,238
Borrowed funds		73		115
TOTAL INTEREST EXPENSE		1,950		1,726

NET INTEREST INCOME		6,213		6,048
Provision for loan losses		—		150
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		6,213		5,898
NON-INTEREST INCOME
Fees and service charges		112		105
TOTAL NON-INTEREST INCOME		112		105

NON-INTEREST EXPENSE
Salaries and employee benefits		2,256		2,201
Occupancy and equipment expense		682		647
FDIC premiums and related expenses		208		270
Legal fees		57		98
Other real estate owned expenses		9		69
Professional fees		246		189
Data processing		332		289
Other expenses		516		657
TOTAL NON-INTEREST EXPENSE		4,306		4,420
Income before provision for income taxes		2,019		1,583
Income tax expense		730		552
Net income	$	1,289	$	1,031

PER SHARE OF COMMON STOCK
Basic	$	0.19	$	0.17
Diluted	$	0.19	$	0.16

See accompanying notes to unaudited consolidated financial statements

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BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except for per share data)


	For the Six Months Ended June 30,
	2017		2016
INTEREST INCOME
Loans, including fees	$	15,069	$	15,220
Securities		389		415
Federal funds sold and other		480		201
TOTAL INTEREST INCOME		15,938		15,836

INTEREST EXPENSE
Savings and interest bearing transaction accounts		880		724
Time deposits		2,643		2,622
Borrowed funds		160		216
TOTAL INTEREST EXPENSE		3,683		3,562

NET INTEREST INCOME		12,255		12,274
Provision for loan losses		—		450
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		12,255		11,824
NON-INTEREST INCOME
Fees and service charges		230		190
TOTAL NON-INTEREST INCOME		230		190

NON-INTEREST EXPENSE
Salaries and employee benefits		4,548		4,193
Occupancy and equipment expense		1,420		1,348
FDIC premiums and related expenses		441		539
Legal fees		140		134
Other real estate owned expenses		11		72
Professional fees		733		440
Data processing		636		572
Other expenses		878		1,113
TOTAL NON-INTEREST EXPENSE		8,807		8,411
Income before provision for income taxes		3,678		3,603
Income tax expense		1,327		1,280
Net income	$	2,351	$	2,323

PER SHARE OF COMMON STOCK
Basic	$	0.35	$	0.37
Diluted	$	0.35	$	0.37

See accompanying notes to unaudited consolidated financial statements

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BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)


	For the Three Months Ended June 30,
	2017		2016
Net income	$	1,289	$	1,031
Other comprehensive income:
Unrealized holding gains on securities available for sale, net of deferred income tax expense of $24 and $39, respectively		39		63
Comprehensive income	$	1,328	$	1,094


	For the Six Months Ended June 30,
	2017		2016

Net income	$	2,351	$	2,323
Other comprehensive income
Unrealized holding gains on securities available for sale, net of deferred income tax expense of $68 and $181, respectively		106		289
Comprehensive income	$	2,457	$	2,612

See accompanying notes to unaudited consolidated financial statements

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BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)


					Accumulated
					Other
	Common		Retained		Comprehensive
	Stock		Earnings		(Loss)		Total
Balance at January 1, 2016		60,509		12,940		(296)		73,153
Exercise of stock options		280		—		—		280
Stock based compensation		133		—		—		133
Dividends on common stock ($0.12 per share)		—		(751)		—		(751)
Net income		—		2,323		—		2,323
Total other comprehensive income		—		—		289		289
Balance at June 30, 2016	$	60,922	$	14,512	$	(7)	$	75,427

Balance at January 1, 2017		61,524		15,813		(193)		77,144
Exercise of stock options		523		—		—		523
Stock based compensation		170		—		—		170
5% Stock dividend (319,392 shares)		5,270		(5,270)		—		—
Net income		—		2,351		—		2,351
Total other comprehensive income		—		—		106		106
Balance at June 30, 2017	$	67,487	$	12,894	$	(87)	$	80,294

See accompanying notes to unaudited consolidated financial statements

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BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	For the Six Months Ended June 30,
	2017		2016
Cash flows from operating activities:
Net income	$	2,351	$	2,323
Adjustments to reconcile net income to net cash provided by Operating activities:
Provision for loan losses		—		450
Amortization of securities premiums		96		39
Deferred tax benefit		(98)		(458)
Depreciation and amortization		327		334
Stock based compensation		170		133
Accretion of net loan origination fees and costs		133		56
Gain on sale of other real estate owned		(18)		—
Write down of other real estate owned		—		56
Changes in operating assets and liabilities:
Decrease in accrued interest receivable		72		34
Decrease in other assets		193		121
Increase in accrued interest payable and other liabilities		16		28
NET CASH PROVIDED BY OPERATING ACTIVITIES		3,242		3,116

Cash flows from investing activities:
Purchases of securities available for sale		—		(12,000)
Purchases of securities held to maturity		(8,501)		(5,096)
Proceeds from maturities of securities held to maturity		8,768		5,829
Proceeds from called or matured securities available for sale		12,000		18,500
Purchase of restricted investment in bank stock		(56)		(706)
Proceeds from calls of restricted investment of bank stock		374		145
Proceeds from sale of other real estate owned		176		—
Net increase in loans		(15,756)		(10,222)
Purchases of premises and equipment		(566)		(2,209)
NET CASH USED IN INVESTING ACTIVITIES		(3,561)		(5,759)

Cash flows from financing activities:
Net increase in deposits		48,568		4,422
Net (decrease) increase in borrowed funds		(8,299)		11,752
Dividends paid		—		(750)
Proceeds from exercise of options		524		280
NET CASH PROVIDED BY FINANCING ACTIVITIES		40,793		15,704
Increase in cash and cash equivalents		40,474		13,061
Cash and cash equivalents at beginning of year		76,976		74,189
CASH AND CASH EQUIVALENTS, END OF YEAR	$	117,450	$	87,250
Supplemental information:
Cash paid during the year for:
Interest	$	3,780	$	3,680
Taxes	$	1,003	$	1,708

Supplemental disclosure of non-cash investing and financing transactions:
Loans transferred to other real estate owned	$	—	$	158
See accompanying notes to unaudited consolidated financial statements

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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 subsidiaries, 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.

These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the related notes for the year ended December 31, 2016, which are included in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission. In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred between June 30, 2017, and the date these consolidated financial statements were issued.

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 primarily 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 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.

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Note 2. Benefit Plans and Stock-Based Compensation

Stock option and restricted share information, and the related activity, for the periods presented have been adjusted for a 5% stock dividend declared on June 26, 2017.

2006 Stock Option Plan

During 2006, the Bank’s stockholders approved the 2006 Stock Option Plan. At the time of the holding company reorganization, the 2006 Stock Option Plan was assumed by the Company. The plan allows the Company to grant options to directors and employees of the Company to purchase up to 251,983 shares of the Company’s common stock. At June 30, 2017, stock options to purchase 225,026 shares, net of forfeitures, have been issued to directors and employees of the Company under the 2006 Stock Option Plan, of which options to purchase 71,684 shares were outstanding. There are no shares available for grants under the 2006 Stock Options Plan as the plan has expired.

During 2016, the Company granted 67,158 Non-Qualified Stock Options (NQO) to employees of the Company. The fair value of the NQOs granted was $2.63 per NQO on the date of grant. The fair value of the NQOs was determined using the Black-Scholes option pricing model. The following assumptions were used in determining the fair value of the NQOs granted: expected dividend yield of 2.149%, risk free interest rate of 1.57%, expected volatility of 26.54% and expected lives of 10 years. One third of the NQOs granted, vest each on February 1, 2017, February 1, 2018 and February 1, 2019.

Under the 2006 Stock Option Plan, there were 37,149 unvested options at June 30, 2017 and $91 thousand in unrecognized compensation expense. For the three and six months ended June 30, 2017, $14 thousand and $34 thousand, respectively, were recorded as expense for NQOs that have been issued through the 2006 Stock Option Plan. No share based compensation expense was recognized for the three and six months ended June 30, 2016.

During the six months ended June 30, 2017 options to purchase 15,750 and 567 shares of common stock at a price of $10.95 and $10.64 per share respectively, were exercised for a total price of $179 thousand and 2,783 options were forfeited.

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 that date. This amount changes based on the changes in the market value in the Company’s stock.The aggregate intrinsic value of options outstanding as of June 30, 2017 under the 2006 Stock Option Plan was approximately $376 thousand.

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 504,000 options to purchase shares of the Company’s common stock to be issued to non-employee directors of the Company. At June 30, 2017, stock options to purchase 373,099 shares, net of forfeitures, have been issued to non-employee directors of the Company under the 2007 Director Plan, of which, options to purchase 262,500 shares were outstanding. The 2007 Director Plan is due to expire in July 2017 and thereafter no additional grants may be made under the 2007 Director Plan.

Under the 2007 Director Plan, there were no unvested options at June 30, 2017 and no unrecognized compensation expense. In connection with the 2007 Director Plan, no share based compensation expense was recognized for the three and six months ended June 30, 2017.

During the six months ended June 30, 2017 options to purchase 31,500 shares of common stock at a price of $10.95 were exercised for a total price of $345 thousand and 31,500 options were forfeited.

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market value in the Company’s stock.The aggregate intrinsic value of options outstanding as of June 30, 2017 under the 2007 Director Plan was approximately $1.3 million.

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 262,500 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. At June 30, 2017, there were 142,241 shares, net of forfeitures, issued to employees and directors of the Company under the 2011 Plan.

During the six months ended June 30, 2017, 31,500 shares of restricted common stock were issued under the 2011 Plan and 4,200 shares of restricted common stock were forfeited. For the three and six months ended June 30, 2017 $86 thousand and $121 thousand, respectively, were recorded as expense for restricted stock that has been issued through the 2011 Plan. For the three and six months ended June 30, 2016 $80 thousand and $133 thousand, respectively, were recorded as expense for restricted stock that has been issued through the 2011 Plan. At June 30, 2017, there were a total of 43,050 shares of unvested restricted stock and approximately $496 thousand in unrecognized compensation expense realted to the unvested restrcted stock.

During 2016, the Company granted 31,500 Non-Qualified Stock Options (NQO) to an executive of the Company. The fair value of the 31,500 NQOs granted was $2.78 per NQO on the date of grant. The fair value of the NQOs was determined using the Black-Scholes option pricing model. The following assumptions were used in determining the fair value of the NQOs granted: expected dividend yield of 2.137%, risk free interest rate of 1.87%, expected volatility of 27.0% and expected lives of 10 years. One third of the NQOs granted, vested immedialty, with the remaining NQOs vesting over a two year period. No NQOs were exercised or forfeited during the first six months of 2017 under the 2011 Plan.

Under the 2011 Plan, there were 10,500 unvested options at June 30, 2017 and $24 thousand in unrecognized compensation expense. For the three and six months ended June 30, 2017, $7 thousand and $15 thousand were recorded as expense for NQOs that have been issued through the 2011 Plan.

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 that date. This amount changes based on the changes in the market value in the Company’s stock. The aggregate intrinsic value of NQOs outstanding as of June 30, 2017 under the 2011 Plan was approximately $165 thousand.

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 outstanding during that period. Outstanding “common share equivalents” include options and warrants to purchase the Company’s common stock.

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


	For the three months ended
	June 30,
(In thousands except per share data)	2017		2016
Net income applicable to common stock	$	1,289	$	1,031
Weighted average number of common shares outstanding - basic		6,696		6,245
Basic earnings per share	$	0.19	$	0.17

Net income applicable to common stock	$	1,289	$	1,031
Weighted average number of common shares outstanding		6,696		6,245
Effect of dilutive options		67		10
Weighted average number of common shares outstanding- diluted		6,763		6,255
Diluted earnings per share	$	0.19	$	0.16

Incentive stock options to purchase 15,750 shares of common stock at a price of $10.95 and non-qualified options to purchase 349,934 shares of common stock at a weighted average price of $10.88 were included in the computation of diluted earnings per share for the three months ended June 30, 2017.

Incentive stock options to purchase 49,500 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 June 30, 2016. Incentive stock options to purchase 56,000 shares of common stock at a weighted average price of $11.50, non-qualified options to purchase 331,334 shares of common stock at a weighted average price of $11.50 and non-qualified options to purchase 30,000 shares of common stock at a weighted average price of $11.23 were not included in the computation of diluted earnings per share for the three months ended June 30, 2016, because they were anti-dilutive.

The following table shows earnings per share for the six month periods presented:


	For the six months ended
	June 30,
(In thousands except per share data)	2017		2016
Net income applicable to common stock	$	2,351	$	2,323
Weighted average number of common shares outstanding - basic		6,672		6,243
Basic earnings per share	$	0.35	$	0.37

Net income applicable to common stock	$	2,351	$	2,323
Weighted average number of common shares outstanding		6,672		6,243
Effect of dilutive options		57		9
Weighted average number of common shares and common share equivalents- diluted		6,729		6,252
Diluted earnings per share	$	0.35	$	0.37

Incentive stock options to purchase 15,750 shares of common stock at a weighted average price of $10.95 and non-qualified options to purchase 349,934 shares of common stock at a weighted average price of $10.88 were included in the computation of diluted earnings per share for the six months ended June 30, 2017.

Incentive stock options to purchase 49,500 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 six months ended June 30, 2016. Incentive stock options to purchase 56,000 shares of common stock at a weighted average price of $11.50, non-qualified options to purchase 331,334 shares of common stock at a weighted average price of $11.50 and non-qualified options to purchase 30,000 shares of common stock at a weighted average price of $11.23 were not included in the computation of diluted earnings per share for the six months ended June 30, 2016, because they were anti-dilutive.

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Note 4. Securities Available for Sale and Held to Maturity Securities

A summary of securities held to maturity and securities available for sale at June 30, 2017 and December 31, 2016 is as follows (in thousands):


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
June 30, 2017	Cost		Gains		Losses		Value
Securities Held to Maturity:
Obligations of states and political subdivisions	$	7,076	$	—	$	—	$	7,076
Total securities held to maturity		7,076		—		—		7,076

Securities Available for Sale:
U.S. Treasury obligations		6,343		—		(72)		6,271
Government sponsored enterprise obligations		43,467		42		(114)		43,395
Total securities available for sale		49,810		42		(186)		49,666

	$	56,886	$	42	$	(186)	$	56,742


			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2016	Cost		Gains		Losses		Value
Securities Held to Maturity:
Obligations of states and political subdivisions	$	7,343	$	—	$	—	$	7,343
Total securities held to maturity		7,343		—		—		7,343

Securities Available for Sale:
U.S. Treasury obligations		6,400		—		(132)		6,268
Government sponsored enterprise obligations		55,506		6		(191)		55,321
Total securities available for sale		61,906		6		(323)		61,589

	$	69,249	$	6	$	(323)	$	68,932

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
June 30, 2017	Value		Losses		Value		Losses		Value		Losses
Securities Available for Sale:
U.S. Treasury obligation		—		—		6,271		(72)		6,271		(72)
Government Sponsored Enterprise obligations		33,464		(114)		—		—		33,464		(114)
Total securities available for sale		33,464		(114)		6,271		(72)		39,735		(186)

Total securities	$	33,464	$	(114)	$	6,271	$	(72)	$	39,735	$	(186)

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	Less than 12 Months				More than 12 Months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2016	Value		Losses		Value		Losses		Value		Losses
Securities Available for Sale:
U.S. Treasury obligation		—		—		6,268		(132)		6,268		(132)
Government Sponsored Enterprise obligations		34,473		(158)		6,966		(33)		41,439		(191)
Total securities available for sale		34,473		(158)		13,234		(165)		47,707		(323)

Total securities	$	34,473	$	(158)	$	13,234	$	(165)	$	47,707	$	(323)

The amortized cost and fair value of securities held to maturity and securities available for sale at June 30, 2017 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	$	7,076	$	7,076	$	10,005	$	9,996
After one to five years		—		—		39,805		39,670
Total	$	7,076	$	7,076	$	49,810	$	49,666

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 other-than-temporary-impairment decline exists involves a high degree of subjectivity and judgment and is based on information available to management at a point in time. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

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

At June 30, 2017, the Company’s available for sale securities portfolio consisted of thirteen securities, of which two were in an unrealized loss position for more than twelve months, nine were in a loss position for less than twelve months and two had unrealized gains. No OTTI charges were recorded for the three or six months ended June 30, 2017. The Company does not intend to sell these securities and it is not likely 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 $27.3 million and a fair value of $27.1 million, were pledged to secure public funds on deposit at June 30, 2017. Securities with an amortized cost of $11.1 milion and a fair value of $11.1 million were pledged to secure borrowings with the Federal Home Loan Bank of New York (“FHLBNY”) as of June 30, 2017. Securities with an amortized cost of $37.4 million and a fair value of $37.2 million, were pledged to secure public funds on deposit at December 31, 2016. In addition, securities with an amortized cost of $11.2 million and a fair value of $11.1 million were pledged to secure borrowings with FHLBNY as of December 31, 2016.

During the three and six months ended June 30, 2017 and 2016, the Company did not sell securities from its available for sale or held to maturity portfolios.

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Note 5. Loans.

The components of the loan portfolio at June 30, 2017 and December 31, 2016 are summarized as follows (in thousands):


	June 30, 2017		December 31, 2016
Commercial real estate	$	526,419	$	492,296
Residential mortgages		68,870		78,961
Commercial and industrial		26,283		30,259
Home equity		54,125		58,399
Consumer		336		656
	$	676,033	$	660,571

The Company grants loans primarily to residents and businesses within its New Jersey 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 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):

For the three months ended and as of:


	Commercial		Residential		Commercial
June 30, 2017	Real Estate		Mortgages		& Industrial		Home Equity		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	5,857	$	468	$	702	$	435	$	5	$	774	$	8,241
Charge-offs		—		—		—		(153)		(96)		—		(249)
Recoveries		—		—		—		—		1		—		1
Provision		(402)		(87)		(103)		61		93		438		—
Ending balance	$	5,455	$	381	$	599	$	343	$	3	$	1,212	$	7,993
Ending balance: individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively evaluated for impairment	$	5,455	$	381	$	599	$	343	$	3	$	1,212	$	7,993

Loan receivables:
Ending balance	$	526,419	$	68,870	$	26,283	$	54,125	$	336	$	—	$	676,033
Ending balance: individually evaluated for impairment	$	9,896	$	9,160	$	3,138	$	3,352	$	—	$	—	$	25,546
Ending balance: collectively evaluated for impairment	$	516,523	$	59,710	$	23,145	$	50,773	$	336	$	—	$	650,487

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	Commercial		Residential		Commercial
June 30, 2016	Real Estate		Mortgages		& Industrial		Home Equity		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	5,753	$	497	$	1,024	$	550	$	32	$	220	$	8,076
Charge-offs		—		—		—		(1)						(1)
Recoveries		—		—		1		—		—		—		1
Provision		113		(203)		75		(25)		(15)		205		150
Ending balance	$	5,866	$	294	$	1,100	$	524	$	17	$	425	$	8,226

December 31, 2016
Allowance for loan losses:
Ending balance	$	5,925	$	554	$	809	$	425	$	6	$	568	$	8,287
Ending balance: individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Ending balance: collectively evaluated for impairment	$	5,925	$	554	$	809	$	425	$	6	$	568	$	8,287

Loan receivables:
Ending balance	$	492,296	$	78,961	$	30,259	$	58,399	$	656	$	—	$	660,571
Ending balance: individually evaluated for impairment	$	10,485	$	9,731	$	3,257	$	4,543	$	—	$	—	$	28,016
Ending balance: collectively evaluated for impairment	$	481,811	$	69,230	$	27,002	$	53,856	$	656	$	—	$	632,555

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

For the six months ended:


	Commercial		Residential		Commercial
June 30, 2017	Real Estate		Mortgages		& Industrial		Home Equity		Consumer		Unallocated		Total
Allowance for loan losses
Beginning Balance	$	5,925	$	554	$	809	$	425	$	6	$	568	$	8,287
Charge-offs		—		(47)		—		(153)		(96)		—		(296)
Recoveries		—		1		—		—		1		—		2
Provisions		(470)		(127)		(210)		71		92		644		—
Ending balance	$	5,455	$	381	$	599	$	343	$	3	$	1,212	$	7,993


	Commercial		Residential			Commercial
June 30, 2016	Real Estate		Mortgages		& Industrial		Home Equity		Consumer		Unallocated		Total
Allowance for loan losses
Beginning Balance	$	5,566	$	572	$	1,066	$	573	$	39	$	204	$	8,020
Charge-offs		—		(90)		—		(155)		—		—		(245)
Recoveries		—		—		1		—		—		—		1
Provisions		300		(188)		33		106		(22)		221		450
Ending balance	$	5,866	$	294	$	1,100	$	524	$	17	$	425	$	8,226

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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 June 30, 2017 and December 31, 2016, (in thousands):


	30-59 Days		60-89 Days		Greater than		Total Past				Total Loans		Nonaccrual
June 30, 2017	Past Due		Past Due		90 Days		Due		Current		Receivables		Loans
Commercial real estate	$	—	$	1,979	$	1,663	$	3,642	$	522,777	$	526,419	$	1,663
Residential mortgages		—		3,067		5,154		8,221		60,649		68,870		5,154
Commercial and industrial		125		—		3,138		3,263		23,020		26,283		3,138
Home equity		2,204		160		7,304		9,668		44,457		54,125		7,304
Consumer		—		—		—		—		336		336		—
	$	2,329	$	5,206	$	17,259	$	24,794	$	651,239	$	676,033	$	17,259


	30-59 Days		60-89 Days		Greater than		Total Past				Total Loans		Nonaccrual
December 31, 2016	Past Due		Past Due		90 Days		Due		Current		Receivables		Loans
Commercial real estate	$	2,744	$	—	$	5,992	$	8,736	$	483,560	$	492,296	$	5,992
Residential mortgages		—		—		3,907		3,907		75,054		78,961		3,907
Commercial and industrial		—		—		3,257		3,257		27,002		30,259		3,257
Home equity		1,590		—		5,597		7,187		51,212		58,399		5,597
Consumer		—		—		—		—		656		656		—
	$	4,334	$	—	$	18,753	$	23,087	$	637,484	$	660,571	$	18,753

The Company had no loans greater than ninety days delinquent and accruing interest at June 30, 2017 and December 31, 2016.

If nonaccrual loans had been current in accordance with their original terms and had been outstanding throughout the three and six month periods ended June 30, 2017, the gross interest income would have been $118 thousand and $283 thousand, respectively. If nonaccrual loans had been current in accordance with their original terms and had been outstanding throughout the three and six month periods ended June 30, 2016, the gross interest income would have been $43 thousand and $89 thousand, respectively. There was no interest income recognized on these loans during the three and six months ended June 30, 2017 and 2016.

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 June 30, 2017 and December 31, 2016 (in thousands):


	Commercial		Residential		Commercial
June 30, 2017	Real Estate		Mortgages		& Industrial		Home Equity		Consumer		Total
Pass	$	514,757	$	58,582	$	22,841	$	50,774	$	336	$	647,290
Special Mention		1,766		1,128		304		—		—		3,198
Substandard		9,896		9,160		3,138		3,351		—		25,545
Doubtful		—		—		—		—		—		—
	$	526,419	$	68,870	$	26,283	$	54,125	$	336	$	676,033


	Commercial		Residential		Commercial
December 31, 2016	Real Estate		Mortgages		& Industrial		Home Equity		Consumer		Total
Pass	$	481,211	$	67,204	$	26,681	$	53,856	$	656	$	629,608
Special Mention		600		2,026		321		—		—		2,947
Substandard		10,485		9,731		3,257		4,543		—		28,016
Doubtful		—		—		—		—		—		—
	$	492,296	$	78,961	$	30,259	$	58,399	$	656	$	660,571

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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 June 30, 2017 and December 31, 2016 (in thousands):


			Unpaid
	Recorded		Principal		Related
June 30, 2017	Investment		Balance		Allowance
Commercial real estate	$	9,920	$	9,896	$	—
Residential mortgages		10,425		9,160		—
Commercial and industrial		3,148		3,138		—
Home equity		3,577		3,352		—
Total impaired loans	$	27,070	$	25,546	$	—


			Unpaid
	Recorded		Principal		Related
December 31, 2016	Investment		Balance		Allowance
Commercial real estate	$	10,485	$	10,509	$	—
Residential mortgages		9,731		10,804		—
Commercial and industrial		3,257		3,257		—
Home equity		4,543		4,675		—
Total impaired loans	$	28,016	$	29,245	$	—

The following tables provide information about the Company’s impaired loans for the three and six month ended June 30, 2017 and 2016 (in thousands):


	Three Months Ended				Three Months Ended
	June 30, 2017				June 30, 2016
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Received		Investment		Received
Commercial real estate	$	9,901	$	—	$	828	$	—
Residential mortgages		5,343		—		4,259		—
Commercial and industrial		3,197		—		—		—
Home equity		7,485		—		3,189		—
Total impaired loans	$	25,926	$	—	$	8,276	$	—


	Six Months Ended				Six Months Ended
	June 30, 2017				June 30, 2016
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Received		Investment		Received
Commercial real estate	$	9,906	$	—	$	833	$	—
Residential mortgages		5,422		—		4,347		—
Commercial		3,217		—		—		—
Home equity		7,555		—		3,249		—
Total impaired loans	$	26,100	$	—	$	8,429	$	—

Troubled debt restructured 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 or a combination of these concessions.

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The following table summarizes information in regards to TDRs by loan portfolio class as of June 30, 2017 and December 31, 2016 (in thousands):


	Accrual		Number of	Nonaccrual		Number of
June 30, 2017	Status		Loans	Status		Loans	Total
Commercial real estate	$	—	—	$	338	1	$	338
Residential mortgages		515	2		3,346	5		3,861
Home equity		103	2		6,321	8		6,424
	$	618	4	$	10,005	14	$	10,623


	Accrual		Number of	Nonaccrual		Number of
December 31, 2016	Status		Loans	Status		Loans	Total
Commercial real estate	$	—	—	$	338	1	$	338
Residential mortgages		521	2		3,477	5		3,998
Home equity		103	2		3,441	7		3,544
	$	624	4	$	7,256	13	$	7,880

For the three and six months ended June 30, 2017 there was one new TDR that occurred. For the three and six months ended June 30, 2016, there were five new TDRs that occurred.


				Post-
		Pre-Modification		Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
2017	Loans	Investments		Investments
Residential mortgages	1	$	2,984	$	2,984
	1	$	2,984	$	2,984

				Post-
		Pre-Modification		Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
2016	Loans	Investments		Investments
Residential mortgages	1	$	525	$	525
Home equity	4		1,569		1,569
	5	$	2,094	$	2,094

During the three and six months ended June 30, 2017, the Company had no loans meeting the definition of a TDR that were placed on default status.

The Company may obtain physical possession of real estate collateralizing loans via foreclosure or an in-substance repossession into other real estate owned. During the three and six months ended June 30, 2017, the Company had no foreclosed residential real estate properties. In addition, as of June 30, 2017, the Company had loans with a carrying value of $3.3 million collateralized by 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 Company’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 that involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments. As of June 30, 2017, the Company had $3.5 million of letters of credit outstanding. 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 June 30, 2017 for guarantees under standby letters of credit issued is not material.

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Note 7. Borrowed Funds

Borrowings may consist of long-term and short-term debt fixed rate advances from the FHLBNY as well as short term borrowings through lines of credit with other financial institutions. Information concerning borrowings at June 30, 2017 and December 31, 2016, is as follows (in thousands):


	2017
					Original
June 30, 2017	Amount		Rate		Term (years)	Maturity
Fixed Rate Amortizing Note		2,129	1.50	%	5	June 2019
Fixed Rate Amortizing Note		3,319	1.51	%	5	July 2019
Fixed Rate Amortizing Note		3,216	1.51	%	5	August 2019
Fixed Rate Amortizing Note		3,119	2.02	%	7	August 2021
Fixed Rate Amortizing Note		4,926	1.48	%	5	October 2019
	$	16,709	1.60	%


	2016
					Original
December 31, 2016	Amount		Rate		Term (years)	Maturity
Fixed Rate Medium Note	$	5,000	0.98	%	1	April 2017
Fixed Rate Amortizing Note		2,630	1.50	%	5	June 2019
Fixed Rate Amortizing Note		4,070	1.51	%	5	July 2019
Fixed Rate Amortizing Note		3,916	1.51	%	5	August 2019
Fixed Rate Amortizing Note		3,469	2.02	%	7	August 2021
Fixed Rate Amortizing Note		5,923	1.48	%	5	October 2019
	$	25,008	1.47	%

The Company has a $5.0 million line of credit with the Atlantic Community Bankers Bank. In addition, 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 outstanding borrowings on any of the lines of credit at June 30, 2017 and December 31, 2016.

Note 8. 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 is 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 June 30, 2017, the applicable minimum ratios, the applicable minimum required based on the phase-in provisions and the minimum required to be considered well capitalized:

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							To Be Well
			Minimum Required		Minimum Capital		Capitalized Under
			For Capital		With Phase-in		Prompt Corrective
	June 30, 2017		Adequacy Purposes		Buffer Schedule		Action Regulations

Risk-Based Capital:
Common Equity Tier 1 Capital	11.19	%	4.50	%	5.750	%	6.50	%
Tier 1 Capital Ratio	11.19	%	6.00	%	7.250	%	8.00	%
Total Capital Ratio	12.34	%	8.00	%	9.250	%	10.00	%
Leverage Ratio	9.07	%	4.00	%	N/A		5.00	%

Under a policy of the Federal Reserve applicable to holding companies with less than $1 billion in assets, the Company is not subject to capital requirements on a consolidated basis.

Note 9. Fair Value Measurements

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.

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2017 and December 31, 2016, respectively, are as follows (in thousands):


			(Level 1)		(Level 2)		(Level 3)
			Quoted Prices in
			Active Markets		Significant Other
	June 30,		for Identical		Observable		Significant
Description	2017		Assets		Inputs		Unobservable Inputs
Securities available for sale:
U.S. Treasury obligations	$	6,271	$	—	$	6,271	$	—
Government sponsored enterprise obligations		43,395		—		43,395		—
Total securities available for sale	$	49,666	$	—	$	49,666	$	—


			(Level 1)		(Level 2)		(Level 3)
			Quoted Prices in
			Active Markets		Significant Other
	December 31,		for Identical		Observable		Significant
Description	2016		Assets		Inputs		Unobservable Inputs
Securities available for sale:
U.S. Treasury obligations	$	6,268	$	—	$	6,268	$	—
Government sponsored enterprise obligations		55,321		—		55,321		—
Total securities available for sale	$	61,589	$	—	$	61,589	$	—

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For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2017 and December 31, 2016, respectively, follows (in thousands):


			(Level 1)		(Level 2)		(Level 3)
			Quoted Prices in
	June 30,		Active Markets for		Significant Other		Significant
Description	2017		Identical Assets		Observable Inputs		Unobservable Inputs
Impaired loans	$	491	$	—	$	—	$	491

Other real estate owned	$	456	$	—	$	—	$	456


			(Level 1)		(Level 2)		(Level 3)
			Quoted Prices in
	December 31,		Active Markets for		Significant Other		Significant
Description	2016		Identical Assets		Observable Inputs		Unobservable Inputs
Impaired loans	$	—	$	—	$	—	$	—

Other real estate owned	$	614	$	—	$	—	$	614

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):


	Fair Value		Valuation	Unobservable	Range
June 30, 2017	Estimate		Techniques	Input	(Weighted Average)
Impaired loans	$	491	Appraisal of Collateral (1)	Appraisal Adjustments (2)	17.5%
				Liquidation Expenses (2)	5.1%

Other real estate owned	$	456	Appraisal of Collateral (1)	Appraisal Adjustments (2)	11.5%
				Liquidation Expenses (2)	10.1%

	Fair Value		Valuation	Unobservable	Range
December 31, 2016	Estimate		Techniques	Input	(Weighted Average)
Other real estate owned	$	614	Appraisal of Collateral (1)	Appraisal Adjustments (2)	11.5% - 48.40% (21.8)%
				Liquidation Expenses (2)	8.9% - 10.3% (9.3)%

(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.

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.

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.

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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 June 30, 2017 and December 31, 2016 (in thousands):


					(Level 1)		(Level 2)		(Level 3)
					Quoted Prices in				Significant
	June 30, 2017				Active Markets for		Significant Other		Unobservable
	Carrying amount		Estimated Fair Value		Identical Assets		Observable Inputs		Inputs
Financial assets:
Cash and cash equivalents	$	117,450	$	117,450	$	117,450	$	—	$	—
Interest bearing time deposits		1,000		1,000		—		1,000		—
Securities available for sale		49,666		49,666		—		49,666		—
Securities held to maturity		7,076		7,076		—		7,076		—
Restricted investment in bank stock		1,665		1,665		—		1,665		—
Net loans		667,321		666,292		—		—		666,292
Accrued interest receivable		2,294		2,294		—		2,294		—
Financial liabilities:
Deposits		766,556		774,147		425,223		348,924		—
Borrowed funds		16,709		16,675		—		16,675		—
Accrued interest payable		597		597		—		597		—


					(Level 1)		(Level 2)		(Level 3)
					Quoted Prices in				Significant
	December 31, 2016				Active Markets for		Significant Other		Unobservable
	Carrying amount		Estimated Fair Value		Identical Assets		Observable Inputs		Inputs
Financial assets:
Cash and cash equivalents	$	76,976	$	76,976	$	76,976	$	—	$	—
Interest bearing time deposits		1,000		1,000		—		1,000		—
Securities available for sale		61,589		61,589		—		61,589		—
Securities held to maturity		7,343		7,343		—		7,343		—
Restricted investment in bank stock		1,983		1,983		—		1,983		—
Net loans		651,698		659,084		—		—		659,084
Accrued interest receivable		2,366		2,366		—		2,366		—
Financial liabilities:
Deposits		717,988		722,711		425,246		297,465		—
Borrowed funds		25,008		24,933		—		24,933		—
Accrued interest payable		516		516		—		516		—

Cash and Cash Equivalents and Interest Bearing Time Deposits

The carrying amounts reported in the balance sheet for cash and cash equivalents 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 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

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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 date of statement of financial condition 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 collateral. 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

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.

Borrowed Funds

The fair value of borrowed funds is estimated using quoted market prices, if available, or by discounting future cash flows using current interest rates for similar financial instruments.

Limitation

The preceding fair value estimates were made at June 30, 2017 and December 31, 2016 based on pertinent market data and relevant information on the financial instrument. These estimates do not include any premium or discount that could result from an offer to sell at one time the Company’s entire holdings of a particular financial instrument or category thereof. Since no market exists for a substantial portion of the Company’s financial instruments, fair value estimates were necessarily based on judgments regarding future expected loss experience, current economic conditions, risk assessment of various financial instruments, and other factors. Given the innately subjective nature of these estimates, the uncertainties surrounding them and the matter of significant judgment that must be applied, these fair value estimates cannot be calculated with precision. Modifications in such assumptions could meaningfully alter these estimates.

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Since these fair value approximations were made solely for on and off balance sheet financial instruments at June 30, 2017 and December 31, 2016, 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 10. Accumulated Other Comprehensive Income

There were no reclassifications out of accumulated other comprehensive income for the three and six months ended June 30, 2017 and 2016.

Note 11. 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 consolidated financial statements issued in the near future.

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

In May 2014, the FASB issued Accounting Standards Update (“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, 2017, 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, 2018) 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 implementation of ASU 2014-09 should not have a material impact on the Company’s consolidated financial position or consolidated results of operations. However, the Company does believe that the new standard will result in new disclosure requirements. The Company is currently in the process of reviewing contracts to assess the impact of the new guidance on our service offerings that are in the scope of the guidance, included in non-interest income such as, service charges and payments processing fees. The Company is continuing to evaluate the effect of the new guidance on revenue sources other than financial instruments on its consolidated financial statements.

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

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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 the Company on January 1, 2018 and is not expected to have a material impact on the Company’s consolidated financial statements.

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, and early adoption is permitted. The Company is presently evaluating the potential impact of the adoption of this accounting pronouncement to its consolidated financial statements.

ASU 2016-13, Financial Instruments – Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. For public business entities that are U.S. Securities and Exchange Commission filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements and 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, 2016 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, 2016, 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 “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 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 in this document. These factors include, but are not limited to, the items set forth under Item 1A – Risk Factors in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, as well as 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 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

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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 consolidated 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 portfolio 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 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.

The Company uses currently enacted tax rates to value deferred tax assets and liabilities. The Trump Administration and the U.S. Congress are in the process of evaluating possible tax changes which may include a reduction in U.S. corporate income tax rates. If corporate tax rates were reduced, Management expects the Company would record an initial charge against earnings to lower the carrying amount of the net deferred tax asset, and then would record a lower tax provision going forward on an ongoing basis.

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Results of Operations

Three and Six Months Ended June 30, 2017 compared to Three and Six Months Ended June 30, 2016

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 second quarter of 2017 was $1.3 million compared to $1.0 million for second quarter of 2016, an increase of $258 thousand, or 25%. This increase was primarily due to increases in interest income from loans of $216 thousand and Federal Funds and other interest earning deposits of $181 thousand. These increases were partially offset by increases in interest expense on deposit products of $224 thousand. Total operating expenses and provision for loan losses decreased by $114 thousand and $150 thousand, respectively, in the second quarter of 2017 compared to the second quarter of 2016. Tax expense was higher than the previous year by $178 thousand due to higher income before taxes.

Net income for the six months ended June 30, 2017 was approximately $2.4 million or $0.35 per diluted share, compared to $2.3 million or $0.37 per diluted share, for the six months ended June 30, 2016, an increase of 1.2%. An increase in total operating expenses of $396 thousand was offset by a decrease in provision for loan losses of $450 thousand, while net interest income remained constant between the two periods.

Net Interest Income

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them. For the three month period ended June 30, 2017, net interest income increased by $166 thousand or 2.7% for the same period last year. Interest income increased by $389 thousand for the three months ended June 30, 2017 as compared to the corresponding period last year. This increase in interest income was primarily due to growth in the commercial loan portfolio and cash balances. Yield on total loans slightly decreased to 4.54% during the three months ended June 30, 2017 from 4.62% in the three months ended June 30, 2016. Total interest expense increased by $224 thousand in the second quarter of 2017 to $2.0 million compared to $1.7 million in the prior year. The increase in interest expense was due to higher average deposit balances coupled with higher interest rates. Interest on borrowed funds decreased by $43 thousand due to declining balances of borrowed funds. During the second quarter of 2017 average time deposits increased to $349.0 million from $313.4 million in the comparable quarter of 2016. Average other interest bearing deposits increased to $294.0 million in the current quarter from $260.9 million in the second quarter of 2016. Average borrowed funds decreased to $18.9 million in the current quarter from $34.5 million in the same quarter last year.

During the six months ended June 30, 2017, net interest income was constant at $12.3 million compared to the six months ended June 30, 2016. Decreases in interest income from loans and investments of $151 thousand and $26 thousand, respectively, were offset by an increase in interest income from Federal Funds and other interest earning deposits of $280 thousand. At the same time, total interest expense increased by $121 thousand for the six months ended June 30, 2017 from the six months ended June 30, 2016. The Company’s average rate paid on interest bearing liabilities decreased slightly to 1.15% for the six months ended June 30, 2017, from 1.16% for the six months ended June 30, 2016.

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The following tables set forth average balance sheets, averages yields and costs, and certain other information for the periods indicated. All averages are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield.


		For the Three Months Ended June 30,
	2017						2016
	Average				Average		Average				Average
	Balance		Interest		Yield/Cost		Balance		Interest		Yield/Cost
Interest-Earning Assets:
Loans	$	679,298		7,684	4.54	%	$	649,909		7,467	4.62	%
Securities (1)		63,949		206	1.30			64,585		206	1.28
Federal Funds Sold		1,219		2	0.66			1,112		5	1.81
Interest-earning cash accounts		126,919		288	0.91			88,634		104	0.47
Total interest-earning Assets		871,385		8,180	3.77	%		804,240		7,782	3.89	%
Non-interest earning Assets		22,763						20,585
Allowance for Loan Losses		(8,200)						(8,125)
Total Assets	$	885,948					$	816,700
Interest-Bearing Liabilities:
Demand Deposits	$	35,316	$	19	0.22	%	$	36,627	$	20	0.22	%
Savings Deposits		115,031		267	0.93			96,489		220	0.92
Money Market Deposits		143,582		156	0.44			127,767		133	0.42
Time Deposits		349,008		1,435	1.65			313,352		1,238	1.59
Borrowed Funds		18,927		73	1.53			34,538		115	1.34
Total Interest Bearing Liabilities		661,864		1,950	1.18	%		608,773		1,726	1.14	%
Non-Interest Bearing Liabilities:
Demand Deposits		142,115						130,124
Other Liabilities		2,503						2,780
Total Non-Interest Bearing Liabilities		144,618						132,904
Stockholders’ Equity		79,466						75,023
Total Liabilities and Stockholders' Equity	$	885,948					$	816,700
Net Interest Income
(Tax Equivalent Basis)			$	6,230					$	6,056
Tax Equivalent Basis adjustment				(17)						(8)
Net Interest Income			$	6,213					$	6,048
Net Interest Rate Spread					2.59	%					2.75	%
Net Interest Margin					2.87	%					3.03	%
Ratio of Interest-Earning Assets to
Interest-Bearing Liabilities		1.32						1.32

(1)

Yield is calculated on a tax effective basis.

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	For the Six Months Ended June 30,
	2017						2016
	Average				Average		Average				Average
	Balance		Interest		Yield/Cost		Balance		Interest		Yield/Cost
Interest-Earning Assets:
Loans	$	674,400		15,069	4.51	%	$	649,664		15,220	4.71	%
Securities (1)		67,324		421	1.26			67,170		432	1.29
Federal Funds Sold		1,214		9	1.49			1,146		8	1.40
Interest-earning cash accounts		111,985		471	0.85			85,217		193	0.46
Total interest-earning Assets		854,923		15,970	3.77	%		803,197		15,853	3.97	%
Non-interest earning Assets		22,214						20,146
Allowance for Loan Losses		(8,242)						(8,118)
Total Assets	$	868,895					$	815,225
Interest-Bearing Liabilities:
Demand Deposits	$	32,157	$	34	0.21	%	$	35,036	$	38	0.22	%
Savings Deposits		115,812		534	0.93			92,645		421	0.91
Money Market Deposits		148,203		312	0.42			129,204		265	0.41
Time Deposits		329,962		2,643	1.62			328,124		2,622	1.61
Borrowed Funds		21,451		160	1.50			29,997		216	1.45
Total Interest Bearing Liabilities		647,585		3,683	1.15	%		615,006		3,562	1.16	%
Non-Interest Bearing Liabilities:
Demand Deposits		139,682						122,962
Other Liabilities		2,950						2,814
Total Non-Interest Bearing Liabilities		142,632						125,776
Stockholders’ Equity		78,678						74,443
Total Liabilities and Stockholders' Equity	$	868,895					$	815,225
Net Interest Income
(Tax Equivalent Basis)			$	12,287					$	12,291
Tax Equivalent Basis adjustment				(32)						(17)
Net Interest Income			$	12,255					$	12,274
Net Interest Rate Spread					2.62	%					2.81	%
Net Interest Margin					2.90	%					3.08	%
Ratio of Interest-Earning Assets to
Interest-Bearing Liabilities		1.32						1.31

(1)

Yield is calculated on a tax effective basis.

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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 Company recognized no provision for loan losses for the three and six months ended June 30, 2017 compared to provision of $150 and $450 thousand the three and six months ended June 30, 2016. The allowance for loan losses to total loans was 1.18% as of the end of the second quarter of 2017

Non-interest Income

Our non-interest income is comprised primarily of service fees received from deposit accounts and gains (losses) on the sales of securities. For the three and six months ended June 30, 2017, non-interest income increased by $7 thousand and $40 thousand, respectively, compared to the three and six months ended June 30, 2016.

Non-interest Expense

Non-interest expense was $4.3 million during the second quarter of 2017 compared to $4.4 million in the second quarter of 2016, a decrease of approximately $114 thousand, reflecting non-recurring charges of $190 thousand in the second quarter of 2016. During the six months ended June 30, 2017, net-interest expense was $8.8 million, $396 thousand greater than the same period last year. The increase in salaries and employee benefits costs is associated with health insurance premium increases and a new 401(k) plan with a safe harbor match. The increase in professional fees is mainly attributable to non-recurring consulting fees for the completion of loan system enhancements.

Income Tax Expense

The income tax provision increased $178 thousand to $730 thousand for the three months ended June 30, 2017 from $552 thousand for the quarter ended June 30, 2016. For the six months ended June 30, 2017, income tax expense was $1.3 million, basically unchanged from the six months ended June 30, 2016. The effective tax rate for the three and six months ended June 30, 2017 was 36.17% and 36.09%, respectively, compared to 34.88% and 35.53% for the corresponding periods in 2016.

FINANCIAL CONDITION

Total consolidated assets increased by $43.4 million, or 5.28%, from $822.4 million at December 31, 2016 to $865.9 million at June 30, 2017. Loans receivable, or “total loans,” increased from $660.6 million at December 31, 2016 to $676.0 million at June 30, 2017, an increase of approximately $15.5 million, or 2.34%. Total cash and cash equivalents increased from $77.0 million at December 31, 2016 to $117.5 million at June 30, 2017, an increase of $40.5 million. The change in cash is mainly due to the increase in deposit account balances, pending redeployment into interest earning assets. Total deposits grew by $48.6 million to $766.6 million at June 30, 2017, from $718.0 million at December 31, 2016, attributable to successful deposit campaigns. Borrowed funds decreased to $16.7 million at June 30, 2017 from $25.0 million at December 31, 2016.

Loans

Our loan portfolio is the primary component of our assets. Net loans, which exclude net deferred fees and costs and the allowance for loan losses, increased by 2.4% to reach $667.3 million at June 30, 2017 from $651.7 million at December 31 2016. During the first six months of 2017, we originated approximately $90 million in new commercial credits. However, during the second quarter, we experienced an accelerated level of loan payoffs, moderating the net loan portfolio growth. Historically, we offered residential mortgage loans. However in light of the increasing regulatory and compliance burdens associated with these loans, they have become a less significant part of our business strategy. As a result, we expect our portfolio of residential mortgage loans to continue to decrease in future periods. Our market area is concentrated in Bergen County, New Jersey, with commercial loans made to borrowers located primarily in New Jersey and New York. We believe that we will continue to have opportunities for commercial loan growth due in part, to our experienced staff and relationship focused strategy, and this commercial loan growth should help mitigate the run-off in the residential portfolio.

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Our loan portfolio consists of commercial real estate, commercial & industrial, residential, consumer and home equity loans. Commercial & industrial loans are made for the purpose of providing working capital primarily for construction, financing the purchase of an income producing property, 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 investment property. We have a concentration of commercial loans collateralized by real estate.

We have not made any sub-prime loans. We believe that our strategy of customer service, competitive rate structures, and selective marketing have enabled us to effectively compete as a relationship driven community bank.

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.

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.

Impaired loans are identified by evaluating factors, including delinquency status, size of loan, type of collateral and the financial condition of the borrower. 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, troubled debt restructured 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. 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 warrant returning the loan to accruing status.

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 June 30, 2017 the Bank had non-accrual loans of $17.3 million, compared to non-accrual loans totaling $18.8 million at year end 2016. The decrease in non-accrual loans reflects payoffs of two credits with outstanding balances totaling $1.3 million associated with a former Director and a sale of one credit totaling $302 thousand. If the nonaccrual loans had been current in accordance with their original terms and had been outstanding throughout the three and six months ended June 30, 2017, the gross interest income that would have been recorded in such periods would have been approximately $118 thousand and $283 thousand, respectively.

Within its nonaccrual loans at June 30, 2017, the Bank had five residential mortgage loans, eight home equity loans and one commercial real estate loan that met the definition of a troubled debt restructuring (“TDR”) loan.

TDRs are loans where the contractual terms have been modified for borrowers experiencing financial difficulties. These modifications could include a reduction in the interest rate of the loan, payment extensions, forgiveness of principal, or a combination of these concessions. At June 30, 2017, nonaccrual TDR loans had an outstanding balance of $10.0 million and had no specific reserves associated with them. At June 30, 2017, the Bank had accruing loans which met the definition of a TDR totaling $618 thousand.

Investment Securities

Securities held as available for sale (“AFS”) were $49.7 million at June 30, 2017 compared to $61.6 million at December 31, 2016, due to maturities primarily during the second quarter of 2017 which are pending reinvestment in loans or other securities. Securities held to maturity at June 30, 2017 were relatively level from December 31, 2016.

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Deposits

Deposits remain our primary source of funds. Total deposits increased to $766.6 million at June 30, 2017 from $718 million at December 31, 2016, an increase of $48.6 million, or 6.8%. Time deposits increased by $48.6 million. Savings and interest bearing demand deposits increased by $896 thousand and $6.5 million respectively for the first six months of 2017. Noninterest bearing demand deposit accounts increased by $5.5 million while money market deposit accounts decreased by $12.9 million during the first six months of 2017. The Company has no foreign deposits, nor are there any material customer concentrations of deposits.

Borrowed Funds

Borrowings consist of long-term and short-term advances from the FHLBNY. These advances are secured under terms of a blanket collateral agreement by a pledge of qualifying securities and mortgage loans. At June 30, 2017 and December 31, 2016, the Bank had outstanding borrowings of $16.7 million and $25.0 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 access funds through established lines of credit and borrowings.

As of June 30, 2017, the Company had a $5 million line of credit with the Atlantic Community Bankers Bank. In addition, the Bank 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 Community 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 June 30, 2017. We are an approved member of the Federal Home Loan Bank of New York (“FHLBNY”). The FHLBNY relationship could provide additional sources of liquidity, if required. At June 30, 2017, the Bank had $16.7 million of borrowed funds from the FHLBNY.

Our total deposits equaled $766.6 million and $718.0 million, respectively, at June 30, 2017 and December 31, 2016. Cash and cash equivalents increased from $77.0 million on December 31, 2016 to $117.5 million at June 30, 2017.

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. (See Investment Securities)

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

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 June 30, 2017, the Company’s management including the Chief Executive Officer and President (our Principal Executive and Operating 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,

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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 June 30, 2017, 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 June 30, 2017 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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 or threatened proceedings against the Company or the Bank which, if determined adversely, would have a material effect on the business, financial position or results of operations of the Company or the Bank, nor are there any such proceedings known to be contemplated by governmental authorities.

Item 1A. Risk Factors

An investment in our common stock involves risks. Stockholders should carefully consider the risks described under Item 1A – Risk Factors in our Annual Report on Form 10-K filed with the Securities and Exchange Commission. As of the date of this Quarterly Report on Form 10-Q, there have been no changes in our risk factors.

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: August 11, 2017	By:	/s/ Nancy E. Graves
		Nancy E. Graves
		Chief Executive Officer and President
		(Principal Executive and Operating 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

Bancorp of New Jersey, Inc. - FORM 10-Q - August 11, 2017

Attached files

Bancorp of New Jersey, Inc. Reports