(LOGO HERE)
Bancorp of New Jersey, Inc.
2007
ANNUAL REPORT
(LOGO HERE ONLY STATE)
To Our Shareholders and Friends:
This, our second annual report which covers our first nineteen months of operation demonstrates the remarkable
results of Bancorp of New Jersey, Inc. and Bank of New Jersey.
• Our initial capital of $43.6 million (the highest raised in the history of the State of New Jersey), has now
increased to total capital of $47.7 million.
• At 2007 year-end, we had total assets of $260.2 million, an increase of 145%; deposits of $212.9 million,
an increase of 243%; and $183.4 million in loans, an increase of 127%, with no classified or non-
performing loans.
• We have posted a profit in every month since August, 2006, even after putting aside $1.9 million in loan
loss reserve. Our start-up costs were recaptured in September, 2007.
• We are proud to state that the Bank has no sub-prime mortgages, no mortgage backed or collateralized
mortgage obligations, and no investment securities whose underlying collateral is mortgages.
• We have met last year’s goal of opening the additional three offices which we had identified and all four
offices are making a positive impact on operations.
• Our primary and risk-based capital ratings are extremely strong, providing safety for our depositors and the
ability for us to continue to grow.
•
In January, 2007 we issued a 10% stock distribution, followed by a two-for-one stock split in December,
2007.
2008 promises to be a challenging year. Management intends to meet this challenge by following a conservative
lending and investment policy while continuing to make loans to qualified individuals and businesses, to include
residential mortgages in Bergen County.
Our goals in 2008 are to locate and open three more Bergen County branches while continuing to grow loans and
deposits.
Lastly, we attribute this notable performance to the recommendations received from our shareholders, directors and
the wonderful, responsive staff with whom we are blessed.
We wish you and your family a healthy, happy and successful 2008 - “It’s All About Relationships”.
Albert F. Buzzetti
President and Chief Executive Officer
ii
TABLE OF CONTENTS
Forward-Looking Statements ........................................................................................................................................ 1
Changes in Accountants ................................................................................................................................................ 1
Form 10-K ..................................................................................................................................................................... 1
Consolidated Financial Statements ................................................................................................................................ 2
Consolidated Balance Sheets ..................................................................................................................................... 2
Consolidated Statements of Income .......................................................................................................................... 3
Consolidated Statements of Stockholders’ Equity..................................................................................................... 4
Consolidated Statements of Cash Flows .................................................................................................................... 5
Notes to Consolidated Financial Statements ............................................................................................................. 6
Report of Independent Registered Public Accounting Firm .................................................................................... 28
Report of Independent Registered Public Accounting Firm .................................................................................... 29
Management’s Discussion and Analysis of Financial Condition and Results of Operation ....................................... 30
Our Business ................................................................................................................................................................ 47
Market Price of and Dividends on Common Equity and Related Stockholder Matters .............................................. 49
Directors and Executive Officers ................................................................................................................................ 50
iii
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements, in addition to historical information. Forward looking
statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “intend,”
“estimate,” “project,” and variations of such words and similar expressions, or future or conditional verbs such as
“will,” “would,” “should,” “could,” “may,” or similar expressions.
You should note that many factors, some of which are discussed elsewhere in this annual report and in the
documents we filed with the Securities and Exchange Commission from time to time, could affect the future
financial results of Bancorp of New Jersey, Inc. and its wholly-owned banking subsidiary, Bank of New Jersey, and
could cause those results to differ materially from those expressed in forward-looking statements. These factors
include, but are not limited, to the following:
Increased credit risk;
• Volatility in interest rates and shape of the yield curve;
•
• Operating, legal and regulatory risk;
• Economic, political and competitive forces affecting our business; and
• The risk that the analysis of these risks and forces 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. We caution
readers not to place undue reliance on any forward-looking statements. These statements speak only as of the date
made, and they 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. 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.
CHANGES IN ACCOUNTANTS
KPMG LLP audited the financial statements of the Bank of New Jersey, referred to as the “Bank,” for the year
ended December 31, 2006, but was never engaged as the principal accountant to audit the Company’s financial
statements. During 2007, the Company and the Bank effected a holding company reorganization, as a result of
which the assets, liabilities, and stockholders’ equity of the Bank immediately prior to the holding company
reorganization have been carried forward on the Company’s consolidated financial statements. Based upon the
foregoing, a report of KPMG LLP is included in this annual report. Beard Miller Company LLP was engaged as the
principal accountant to audit the Company’s financial statements beginning in 2007.
FORM 10-K
On written request, we will provide, without charge, a copy of our Annual Report on Form 10-K for the year
ended December 31, 2007, as filed with the Securities and Exchange Commission (including a list briefly
describing the exhibits thereto), to any record holder or beneficial owner of common stock on [April 10,
2008], the record date for our 2008 annual meeting of stockholders, or to any person who subsequently
becomes such a record holder or beneficial owner. Requests should be directed to the attention of the Secretary
of the Company at Bancorp of New Jersey, Inc., 1365 Palisade Avenue, Fort Lee, New Jersey 07024.
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
December 31, 2007 and 2006
(Dollars in thousands, except per share data)
Assets
2007
2006
Cash and due from banks
Interest bearing deposits in banks
Federal funds sold
Total cash and cash equivalents
$ 8,481
543
57,091
66,115
$ 284
1,569
6,986
8,839
Securities available for sale
Securities held to maturity (fair value approximates
$2,014 and $2,002 at December 31, 2007 and 2006,
respectively)
Restricted investment in bank stock, at cost
Loans
Deferred loan fees and costs, net
Allowance for loan losses
Net loans
Premises and equipment, net
Accrued interest receivable
Other assets
Total assets
Liabilities and Stockholders’ Equity
Deposits :
Noninterest-bearing demand deposits
Interest bearing deposits:
Savings, money market and time deposits
Time deposits of $100 or more
Total deposits
Accrued expenses and other liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity :
Common stock, no par value, authorized 20,000,000
shares; issued and outstanding 4,970,090 shares at
December 31, 2007; $10 par value, authorized
5,000,000 shares; issued and outstanding 4,799,692
at December 31, 2006
–
1,996
328
183,460
76
(1,912)
181,624
8,300
613
1,269
$ 260,245
9,599
1,993
100
80,638
47
(866)
79,819
4,612
439
646
$ 106,047
$ 23,292
$ 10,244
96,948
92,701
212,941
1,464
214,405
–
41,856
9,767
61,867
1,141
63,008
–
45,689
23,998
Additional Paid in Capital
Retained Earnings (Accumulated Deficit)
Accumulated other comprehensive income
Total stockholders’ equity
Total liabilities and stockholders’ equity
–
151
–
45,840
$ 260,245
19,667
(665)
39
43,039
$ 106,047
See accompanying notes to consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2007 and 2006
(Dollars in thousands, except per share data)
2007
2006
$ –
10,111
264
215
10,590
$ 624
1,983
260
818
3,685
Interest income:
Interest on escrow funds
Loans, including fees
Securities
Federal funds sold and other
Total interest income
Interest expense:
Savings and money markets
Time deposits
Short term borrowings
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non interest income
Fees and service charges on deposit accounts
Gains on sale of securities
Total non interest income
Non interest expense:
Salaries and employee benefits
Occupancy and equipment expense
Advertising and marketing expenses
Data processing
Legal fees
Other operating expenses
Total other expenses
Income(loss) before income taxes
Income tax expense
1,964
2,132
339
4,435
6,155
1,046
5,109
140
4
144
2,451
810
51
181
156
714
4,363
890
74
487
77
43
607
3,078
866
2,212
15
–
15
1,825
434
67
17
58
226
2,627
(400)
164
Net Income(Loss)
$ 816
$ (564)
Earnings(loss) per share:
Basic
Diluted
$ 0.17
$ 0.17
$ (0.12)
$ (0.12)
All share data has been adjusted to reflect the 10% stock distribution paid during January 2007 and the 2 for 1
stock split effective December 31, 2007.
See accompanying notes to consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years ended December 31, 2007 and 2006
(Dollars in Thousands)
Common
Stock
Common
Stock
subscribed
Subscription
receivable
Additional
Paid – In
Capital
Retained
Earnings
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
(loss)income
Total
Balance at December 31, 2005
$ –
$ 42,724
$ (42,724)
$ 900
$ (101)
$ –
$ 799
Issuance of common stock
21,811
(42,724)
42,724
20,873
Exercise of warrants (1,100 shares)
Recognition of stock option expense
Stock distribution (436,327 shares)
Comprehensive loss:
Net loss
Unrealized gains on securities available for
sale
Total comprehensive loss
5
–
2,182
–
–
–
–
–
–
–
Balance at December 31, 2006
23,998
–
Exchange of common stock –
holding company reorganization
19,667
–
Exercise of stock options (22,000 shares)
Exercise of warrants (104,936 shares)
Recognition of stock option expense
Issuance of common stock (43,478 shares)
Comprehensive income:
Net income
Unrealized losses on securities available for
sale
Total comprehensive income
200
1,141
183
500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
69
(2,182)
–
–
–
–
–
–
(564)
–
–
–
–
–
39
42,684
12
69
–
(564)
39
(525)
19,667
(665)
39
43,039
(19,667)
–
–
–
–
–
–
–
–
–
–
–
816
–
–
–
–
–
–
–
(39)
–
200
1,141
183
500
816
(39)
777
Balance at December 31, 2007
$45,689
$ –
$ –
$ –
$ 151
$ –
$45,840
See accompanying notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2007 and 2006
(In Thousands)
Cash flows from operating activities:
Net income(loss)
Adjustments to reconcile net income (loss) to net cash provided by
Operating activities:
Provision for loan losses
Deferred tax benefit
Depreciation and amortization
Recognition of stock option expense
Fees earned from mortgage referrals
Gain on sale of securities
Changes in operating assets and liabilities:
(Increase)decrease in accrued interest receivable
Increase in other assets
Increase in accounts payable and accrued liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of investment securities held to maturity
Purchases of securities available for sale
Proceeds from called securities available for sale
Proceeds from sales of securities available for sale
Purchase of restricted investment in bank stock
Net increase in loans
Purchases of premises and equipment
Net cash used in investing activities
Cash flows from financing activities:
Net increase in deposits
Proceeds from issuance of common stock
Proceeds from exercise of stock options
Warrants exercised
Net cash provided by financing activities
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
2007
2006
$ 816
$ (564)
1,046
(607)
193
183
(12)
(4)
(174)
(8)
323
1,756
–
–
–
9,565
(228)
(102,851)
(3,881)
(97,395)
151,074
500
200
1,141
152,915
57,276
8,839
866
(147)
55
69
–
–
159
(646)
1,053
845
(1,993)
(11,460)
2,000
–
(100)
(80,638)
(4,390)
(96,581)
61,867
42,684
12
104,563
8,827
12
Cash and cash equivalents at end of year
$ 66,115
$ 8,839
Supplemental information:
Cash paid during the year for:
Interest
Taxes
$3,558
$ 578
$ 568
$ –
See accompanying notes to consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
The accompanying consolidated financial statements include the accounts of Bancorp of New Jersey, Inc.
(the “Company”), and its direct wholly-owned subsidiary, Bank of New Jersey (the “Bank”). All significant
inter-company accounts and transactions have been eliminated in consolidation.
The Company was incorporated under the laws of the Sate of New Jersey to serve as a holding company for
the Bank and to acquire all the capital stock of the Bank.
These financial statements include the effect of the holding company reorganization which took place on July
31, 2007 pursuant to a plan of acquisition that was approved by the boards of directors of the Company and
the Bank and adopted by the stockholders of the Bank at a special meeting held July 19, 2007. The holding
company reorganization is accounted for as a reorganization under common control and the assets, liabilities,
and stockholders’ equity of the Bank immediately prior to the holding company reorganization have been
carried forward on the Company’s consolidated financial statements at the amounts carried on the Bank’s
financial statements at the effective date of the holding company reorganization. The consolidated
capitalization, assets, liabilities, results of operations and other financial data of the Company immediately
following the reorganization were substantially the same as those of the Bank immediately prior to the
holding company reorganization. Accordingly, these consolidated financial statements of the Company
include the Bank’s historical recorded values.
The Company’s class of common stock has no par value and the Bank’s class of common stock had a par
value of $10 per share. As a result of the holding company reorganization, amounts previously recognized as
additional paid in capital on the Bank’s financial statements have been reclassified into the Company’s
consolidated financial statements.
Certain amounts in the prior period’s financial statements have been reclassified to conform to the December
31, 2007 presentation. These reclassifications did not have an impact on income.
Nature of Operations
The Company’s primary business is ownership and supervision of the Bank. The Bank commenced
operations as of May 10, 2006. The Company, through the Bank, conducts a traditional commercial banking
business, accepting deposits from the general public, including individuals, businesses, non-profit
organizations, and governmental units. The Bank makes commercial loans, consumer loans, and both
residential and commercial real estate loans. In addition, the Bank provides other customer services and
makes investments in securities, as permitted by law.
The Bank is subject to Federal and New Jersey statutes applicable to banks chartered under the New Jersey
banking laws. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC).
Accordingly, the Bank is subject to regulation, supervision, and examination by the New Jersey State
Department of Banking and Insurance and the FDIC. The Company is subject to regulation, supervision, and
examination by the Federal Reserve Bank of New York.
Use of Estimates
Material estimates that are particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses and the valuation of the deferred tax asset. While management
uses available information to recognize estimated losses on loans, future additions may be necessary based on
changes in economic conditions. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank’s allowance for loan losses on loans. These agencies may
require the Bank to recognize additions to the allowance based on their judgements of information available
to them at the time of their examination.
6
The financial statements have been prepared in conformity with U.S. generally accepted accounting
principles. In preparing the financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and
expenses for the period indicated. Actual results could differ significantly from those estimates.
Significant Group of Concentration of Credit Risk
Bancorp of New Jersey, Inc.’s activities are, primarily, with customers located within Bergen County, New
Jersey. The Company does not have any significant concentration to any one industry or customers within its
primary service area. Note 3 discusses the types of lending the Company engages in. Although the
Company actively manages the diversification of the loan portfolio, a substantial portion of the debtors’
ability to honor their contracts is dependent on the strength of the local economy.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, interest bearing deposits in banks, and federal
funds sold, which are generally sold for one-day periods.
Interest-bearing deposits in banks
Interest bearing deposits from banks are carried at cost.
Regulators
The Bank is subject to Federal and New Jersey Statutes aplicable to banks chartered under the New Jersey
banking laws. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC).
Accordingly, the Bank is subject to regulation, supervision, and examination by the New Jersey State
Department of Banking and Insurance and the FDIC. The Company is subject to regulation, supervision and
examination by the Federal Reserve Bank of New York.
Securities
Investment securities purchased with the intent and ability to hold until maturity are classified as securities
held-to-maturity (“HTM”) and are carried at cost, adjusted for the amortization of premiums and accretion of
discounts using a method that approximates the level-yield method over the terms of the securities.
Investment securities are carried at the principal amount outstanding because the Bank has the ability and the
intent to hold these securities to maturity. All other securities, including equity securities, are classified as
available-for-sale (“AFS”). These securities are reported at fair value with changes in the carrying value
included in accumulated other comprehensive income(loss) which is a separate component of stockholders’
equity. Gains or losses on sales of securities available for sale are based upon the specific identification
method. The Bank has not acquired or held securities for the purpose of engaging in trading activities.
Purchase premiums and discounts are recognized in interest income using the interest method over the terms
of the securities. Declines in the fair value of held to maturity and available for sale securities below their
cost that are deemed to be other than temporary are reflected in earnings as realized losses. In determining
whether other-than-temporary impairment exists, management considers many factors, including (1) the
length of time and the extent to which the fair value has been less than the cost, (2) the financial condition
and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in
the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
Premises and Equipment
Premises and equipment are stated at historical cost, less accumulated depreciation and amortization.
Depreciation of fixed assets is accumulated on a straight-line basis over the estimated useful lives of the
related assets. Leasehold improvements are amortized on a straight-line basis over the shorter of their
estimated useful lives or the term of the related lease. Maintenance and repairs are charged to expense in the
year incurred.
7
Loans and Allowance for Loan Losses
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff
are stated at the amount of unpaid principal, net of deferred loan origination fees and costs and an allowance
for loan losses.
The allowance for loan losses is maintained at a level believed adequate by management to absorb potential
losses in the loan portfolio. Management’s determination of the adequacy of the allowance is based on an
evaluation of the portfolio, past loan loss experience, current economic conditions, volume, growth, and
composition of the loan portfolio, and other relevant factors. The allowance is increased by provisions for
loan losses charged against income. Decreases in the allowance result from management’s determination that
the allowance for loan losses exceeds their estimates of potential loan loss. This evaluation is inherently
subjective as it requires estimates that are susceptible to significant revision as more information becomes
available.
A loan is considered impaired when, based on current information and events, it is probable the Company
will be unable to collect the scheduled payments of principal and interest when due according to the
contractual terms of the loan agreement. The Bank accounts for its impaired loans in accordance with SFAS
No. 114, “Accounting by Creditors for Impairment of a Loan,” as amended by SFAS No. 118, “Accounting
by Creditors for Impairment of a Loan — Income Recognition and Disclosure,” which requires that a creditor
measure impairment based on the present value of expected future cash flows discounted at the loan’s
effective interest rate, except that as a practical expedient, a creditor may measure impairment based on a
loan’s observable market price, or the fair value of the collateral if the loan is collateral-dependent.
Regardless of the measurement method, a creditor must measure impairment based on the fair value of the
collateral when the creditor determines that foreclosure is probable.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly,
the Company does not separately identify individual consumer and residential loans for impairment
disclosures, unless such loans are the subject of a restructuring agreement. As of December 31, 2007, there
have been no loans subject to impairment or a restructuring agreement.
Interest on loans is accrued and credited to income based upon the principal amount outstanding. Accrual of
interest is discontinued on a loan when management believes that the borrower’s financial condition is such
that collection of interest is doubtful and generally when a loan becomes 90 days past due as to principal or
interest. When interest accruals are discontinued, interest credited to income in the current year is reversed
and interest accrued in the prior year is charged to the allowance for loan losses.
Losses on loans are charged to the allowance for loan losses. Additions to this allowance are made by
recoveries of loans previously charged off and by a provision charged to expense. The determination of the
balance of the allowance for loan losses is based on an analysis of the loan portfolio, economic conditions
and other factors warranting recognition. Management believes that the allowance for loan losses is
maintained at a sufficient level to provide for losses inherent in the loan portfolio. While management uses
available information to recognize losses on loans, future additions may be necessary based on changes in
economic conditions, particularly in Bergen County, New Jersey. In addition, various regulatory agencies, as
an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such
agencies may require the Bank to recognize additions to the allowance based on their judgments about
information available to them at the time of their examination.
Loan origination fees and certain direct origination costs are deferred and recognized over the life of the loan
as an adjustment to yield using the level yield of method.
Stock-Based Compensation
In December, 2004, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 123
(revised 2004), “Share-Based Payment,” (“SFAS No. 123(R)”). SFAS No. 123(R) addresses the accounting
for share-based payment transactions in which an enterprise receives employee service in exchange for (a)
equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity
8
instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123(R) requires an
entity to recognize the grant-date fair value of stock options and other equity-based compensation issued to
employees within the income statement using a fair-value-based method, eliminating the intrinsic value
method of accounting previously permissible under APB No. 25, “Accounting for Stock Issued to
Employees”, and related interpretations. The Company accounts for stock options under the recognition and
measurement principles of SFAS No. 123(R).
As a result of adopting SFAS No.123(R), the Company recorded compensation expense of $183,000 and
$69,000 during 2007 and 2006, respectively. At December 31, 2007, the Company had unrecognized
compensation expense amounting to approximately $1,430,000 related to un-vested options. The
unrecognized expense will be recognized over the remaining vesting terms of over 9 years.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method,
deferred tax assets and liabilities are recognized for the estimated 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 in effect for the
year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
Earnings Per Share
Basic earnings per share excludes dilution and represents the effect of earnings upon the weighted average
number of shares outstanding for the period. Diluted earnings per share reflects the effect of earnings upon
weighted average shares including the potential dilution that could occur if securities or contracts to issue
common stock were converted or exercised, utilizing the treasury stock method. All per share data has been
restated to reflect changes due to stock distributions and stock splits.
Comprehensive Income
Comprehensive income consists of net income or loss for the current period and income, expenses, or gains
and losses not included in the income statement and which are reported directly as a separate component of
equity. The Company includes the required disclosures in the statement of stockholders’ equity.
Advertising
The Company expenses advertising costs as incurred.
Transfer of Financial Assets
Transfers of financial assets, including loan and loan participation sales, are accounted for as sales, when
control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered
when (1) the assets have been isolated from the Bank, (2) the transferee obtains the right (freeof conditions
that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the
Bank does not maintain effective control over the transferred assets through an agreement to repurchase them
before their maturity.
Restricted Investment in Bank Stock
Restricted stock, is comprised of stock in the Federal Home Loan Bank of New York and Atlantic Central
Bankers’ Bank. Federal law requires a member institution of the Federal Home Loan Bank to hold stock
according to a predetermined formula. All restricted stock is recorded at cost.
9
NOTE 2.
Securities
A summary of securities available for sale at December 31, 2006 is as follows (in thousands):
December 31, 2006
Government Sponsored
Enterprise obligations
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$ 9,560
$ 39
$ –
$ 9,599
A summary of securities held to maturity at December 31, 2007 and December 31, 2006 is as follows (in
thousands):
December 31, 2007
U.S. Treasury Obligations
December 31, 2006
Obligations of U.S. Treasury
Amortized
Cost
$ 1,996
Gross
Unrealized
Gains
$ 18
Gross
Unrealized
Losses
$ –
Amortized
Cost
$ 1,993
Gross
Unrealized
Gains
$ 9
Gross
Unrealized
Losses
$ –
Fair
Value
$ 2,014
Market
Value
$ 2,002
Securities held to maturity at December 31, 2007 mature within one year.
Securities with an amortized cost of $1.9 million, and a fair value of $2.0 million, were pledged to secure
public funds on deposit at December 31, 2007. Securities with an amortized cost of $1.9 million, and a fair
value of $2.0 million, were pledged to secure public funds on deposit at December 31, 2006.
NOTE 3.
Loans and Allowance for Loan Losses
Loans at December 31, 2007 and 2006, respectively, are summarized as follows (in thousands):
Real estate
Commercial
Credit lines
Consumer
December 31,
2007
$123,335
27,056
28,133
4,936
2006
$ 50,787
14,678
13,519
1,654
$183,460
$ 80,638
The Bank grants commercial, mortgage and installment loans to those New Jersey residents and businesses
within its local trading area. Its borrowers’ abilities to repay their obligations are dependent upon various
factors, including the borrowers’ income and net worth, cash flows generated by the underlying collateral,
value of the underlying collateral and priority of the Bank’s lien on the property. Such factors are dependent
10
upon various economic conditions and individual circumstances beyond the Bank’s control; the Bank is
therefore subject to risk of loss. The Bank believes its lending policies and procedures adequately minimize
the potential exposure to such risks and that adequate provisions for loan losses are provided for all known
and inherent risks.
The activity in the allowance for loan losses is as follows (in thousands):
Years ended December 31,
2006
2007
Balance at beginning of year
$ 866
$ –
Provision charged to expense
Loans charged off
Recoveries
1,046
–
–
866
–
–
Balance at end of year
$ 1,912
$ 866
There were no impaired loans at December 31, 2007 and 2006, respectively. As of December 31, 2007 and
2006, respectively, the Company also had no non-accrual loans and no loans past due ninety days or more
and still accruing.
NOTE 4.
Premises and Equipment
At December 31, premises and equipment consists of the following (in thousands):
Land
Building
Furniture and equipment
Leasehold improvements
2007
2006
$ 3,350
4,409
375
414
8,548
$ 3,350
1,036
184
97
4,667
Less accumulated depreciation and
amortization
Total premises and equipment, net
248
55
$ 8,300
$ 4,612
Depreciation expense amounted to $193 thousand and $55 thousand for the years ended December 31, 2007
and 2006, respectively.
11
NOTE 5.
Deposits
At December 31, 2007 and 2006, respectively, a summary of the maturity of time deposits (which includes
certificates of deposit and individual retirement account (IRA) certificates) is as follows (in thousands):
Three months or less
Over three months through twelve months
Over 1 year through 2 years
Over 2 years through 3 years
Over 3 years through 4 years
Over 4 years through 5 years
Over 5 years
2007
$ 20,408
112,475
921
141
12
47
–
$134,004
NOTE 6.
Short Term Borrowings
Although we were a net seller of federal funds at December 31, 2007, we have a $12 million overnight line of credit
facility available with First Tennessee Bank and a $10 million overnight line of credit with Atlantic Central
Bankers’ Bank for the purchase of federal funds in the event that temporary liquidity needs arise. Additionally, we
were approved as a member of the Federal Home Loan Bank of New York (FHLBNY) in November, 2007. The
FHLBNY relationship could provide additional sources of liquidity, if required. We believe that our current sources
of funds provide adequate liquidity for our current cash flow needs.
NOTE 7.
Income Taxes
Income tax expense(benefit) from operations for the years ended December 31 is as follows (in thousands):
Federal:
Current
Deferred
State:
Current
Deferred
2007
2006
$ 519
(349)
162
(258)
$ 564
(564)
164
–
Income tax expense
$ 74
$ 164
12
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities as of December 31 are as follows (in thousands):
Deferred tax assets:
Start up expenses
Allowance for loan losses
Accrued expenses
Other
2007
2006
$ 468
744
50
39
$ 503
346
54
2
Total gross deferred tax assets
1,301
905
Deferred tax liabilities:
Deferred loan costs
Prepaid expenses
Unrealized gains on AFS securities
Other
Total gross deferred tax liabilities
LESS:
Valuation Allowance
(63)
(36)
–
(31)
(130)
(32)
(26)
(16)
(1)
(75)
–
(282)
Net deferred tax asset
$ 1,171
$ 548
The realizability of deferred tax assets is dependent upon a variety of factors, including the generation of future
taxable income, the existence of taxes paid and recoverable, the reversal of deferred tax liabilities and tax planning
strategies. A valuation allowance of $282,000 was established during the year ended December 31, 2006 due to the
uncertainty of whether the Company would be able to generate sufficient taxable income to utilize the net deferred
tax asset. During 2007, the Company sustained continued profitability, continued to pay taxes, and recognized
deferred tax benefits. Based upon these and other factors, management believes it is more likely than not that the
Company will realize the benefits of these remaining deferred tax assets. The net deferred tax asset is included in
other assets on the consolidated balance sheet.
Income tax (benefit)expense differed from the amounts computed by applying the U.S. federal income tax rate of
34% to income taxes as a result of the following (in thousands):
Computed “expected” tax expense(benefit)
Increase(decrease) in taxes resulting from:
State taxes, net of federal income tax (benefit)expense
Non-deductible penalties
Stock-based compensation
Meals and entertainment
Change in valuation allowance
2007
2006
$ 303
$ (93)
(63)
5
28
3
(202)
$ 74
108
–
24
2
123
$ 164
The Company adopted the provisions of FASB Interpretation 48 (“FIN 48”), Accounting for Uncertainty in Income
Taxes, on January 1, 2007. Previously, the Bank had accounted for tax contingencies in accordance with Statement
of Financial Accounting Standards 5, Accounting for Contingencies. As required by FIN 48, which clarifies SFAS
109, Accounting for Income Taxes, the Company recognizes the financial statement benefit of a tax position only
13
after determining that the relevant tax authority would more likely than not sustain the position following an audit.
For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is
the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the
relevant tax authority. At the adoption date, the Bank applied FIN 48 to all tax positions for which the statute of
limitations remained open. As a result of the adoption of FIN 48, there was no material effect on the Company’s
consolidated financial position or results of operations and no adjustment to retained earnings.
The Company is subject to income taxes in the U.S. and various state and local jurisdictions. Tax regulations are
subject to interpretation of the related tax laws and regulations and require significant judgment to apply. Corporate
tax returns for the years 2005 through 2007 remain open to examination by taxing authorities.
NOTE 8.
Leases
The Bank leases banking facilities under operating leases which expire at various dates through December
31, 2025. These leases do contain certain options to renew the leases. Rental expense amounted to $430,000
and $237,000, respectively, for the years ended December 31, 2007 and December 31, 2006.
The following is a schedule of future minimum lease payments (exclusive of payments for maintenance,
insurance, taxes and any other costs associated with offices) for operating leases with initial or remaining
terms in excess of one year from December 31, 2007 (in thousands):
Year ending December 31:
2008
2009
2010
2011
2012
Thereafter
$416
421
283
198
202
3,245
$4,765
NOTE 9.
Related-party Transactions
The Bank has made, and expects to continue to make, loans in the future to our directors and executive
officers and their family members, and to firms, corporations, and other entities in which they and their
family members maintain interests. All such loans require the prior approval of our board of directors. None
of such loans at December 31, 2007, are nonaccrual, past due, restructured or potential problems, and all of
such loans were made in the ordinary course of business, on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable loans with persons not related to the
Company or the Bank and did not involve more than the normal risk of collectibility or present other
unfavorable features.
The following table represents a summary of related-party loans during 2007 (in thousands)
Outstanding loans at beginning of the year
New Loans
Repayments
Outstanding loans at end of the year
$ 10,329
9,941
(6,421)
$ 13,849
14
Two of our directors have acted as the Bank’s counsel on several loan closings. During 2007, and 2006 the
cost of such work has been reimbursed by the respective loan customers and totals $149,000 and $62,000,
respectively. Additionally, one of these directors has acted as legal counsel to the Bank on several matters.
The total amount paid for legal fees, for non-loan related matters was approximately $10,000 in 2007 and
was less than $10,000 in 2006.
The Company’s or the Bank’s commercial insurance policy, as well as other policies, has been placed with
various insurance carriers by an insurance agency of which one of our directors is the President. Gross
insurance premiums paid to carriers through this agency was approximately $73,000 and $37,000 in 2007
and 2006, respectively.
One of our directors provided appraisal services on several loan closings. Although certain of these
payments are reimbursed by our customer, the total amount paid for appraisal services during 2007 was
approximately $13,000.
Our disinterested directors have reviewed all transactions and relationships with directors and the businesses
in which they maintain interests, have determined that each is on arm’s-length terms, and have approved each
such transaction and relationship.
15
NOTE 10.
Earnings Per Share
All weighted average, actual shares and per share information have been adjusted retroactively for the effects of the
2007 10% stock distribution and the 2007 2 for 1 stock split. The Company’s calculation of earnings per share in
accordance with SFAS No. 128 is as follows:
(In thousands, except per share data)
For the Year Ended
December 31,
2007
2006
Net income (loss) applicable to common
stock
Weighted average number of common
shares outstanding – basic
$816
$ (564)
4,856
4,799
Basic earnings(loss) per share
$0.17
$ (0.12)
Net income (loss) applicable to common
stock
$816
–
Weighted average number of common shares
outstanding - diluted
Weighted average number of common
shares outstanding
Effect of dilutive warrants
Weighted average number of common
shares outstanding
4,856
24
4,880
Diluted earnings(loss) per share
$0.17
–
Stock options for 658,300 shares of common stock were not considered in computing diluted earnings per common
share for 2007 because they were anti-dilutive. Diluted earnings per share have not been presented for the year
ended December 31, 2006, as all warrants and options during the period were anti-dilutive, due to the net loss
incurred.
NOTE 11.
Stockholders’ Equity and Dividend Restrictions
Under its initial stock offering which closed in 2005, the Bank sold 4,798,594 shares of common stock at
$9.09 per share, as adjusted for the subsequent 10% stock distribution and the 2 for 1 stock split. The stock
offering resulted in net proceeds of $42,684,000. For every five shares of common stock purchased in the
offering, one warrant to purchase one additional share of the Bank’s common stock was issued, exercisable at
any time through May 10, 2009. 959,720 warrants were issued to purchase common stock at $10.91 per
share, as adjusted for the 10% stock distributionand the 2 for 1 stock split. During 2007 and 2006, there were
16
104,936 warrants exercised for total proceeds of $1,141,000 and $12,000, respectively. As part of the
holding company reorganization on July 31, 2007, all outstanding warrants were exchanged to purchase
Bancorp of New Jersey, Inc. common stock. At December 31, 2007 there were 853,683 warrants
outstanding.
During 2007, the Company sold 43,478 shares of common stock at $11.50 per share, as adjusted for the 10%
stock distribution and the 2 for 1 stock split, to one of its directors for total proceeds of $500,000.
The Company declared a 2 for 1 stock split during the fourth quarter of 2007. This split was payable on
December 31, 2007.
The Bank declared a 10% stock distribution and paid that distribution during January 2007 by issuing
436,336 shares.
Under applicable New Jersey law, the Company will not be permitted to pay dividends on its capital stock if,
following the payment of the dividend, it would be unable to pay its debts as they become due in the usual
course of business, or its total assets would be less than its total liabilities. Further, it is the policy of the
Federal Reserve Bank that bank holding companies should pay dividends only out of current earnings and
only if future retained earnings would be consistent with the holding company’s capital, asset quality and
financial condition. Because it will have no significant independent sources of income, the ability of the
Company to pay dividends will be dependent on its ability to receive dividends from the Bank.
Under the New Jersey Banking Act of 1948, as amended, the Bank may declare and pay dividends only if,
after payment of the dividend, the capital stock of the Bank will be unimpaired and either the Bank will have
a surplus of not less than 50% of its capital stock or the payment of the dividend will not reduce the Bank’s
surplus. The FDIC prohibits payment of cash dividends if, as a result, the Bank would be undercapitalized.
Further, during the first three years of operation, cash dividends shall only be paid from net operating
income, and only after an appropriate allowance for loan losses is established and overall capital is adequate.
NOTE 12.
Benefit Plans
2006 Stock Option Plan
During 2006, the Bank’s stockholders approved the 2006 Stock Option Plan. At the time of the holding
company reorganization, the 2006 Stock Option Plan was assumed by the Company. The plan allows
directors and employees of the Company to purchase up to 239,984 shares of the Company’s common stock,
in each case as adjusted following our ten percent (10%) stock distribution in January 2007 and the 2 for 1
stock split effective December 31, 2007. The option price per share is the market value of the Bank’s stock
on the date of grant. The option price and number of shares underlying options outstanding on the date of
our ten percent (10%) stock distribution in January 2007 and the December, 2007 2 for 1 stock split have
been equitably adjusted to account for such stock distributions. At December 31, 2007, incentive stock
options to purchase 220,300 shares have been issued to employees of the Bank.
During 2006, the Bank awarded Incentive Stock Options (ISO) which vested over a 2 year period and ISO
options which vested over a 3 year period. The per share weighted-average fair values of stock options
granted during 2006, which vested over a 2 year period and a 3 year period, were $1.26 and $2.17,
respectively, on the date of grant using the Black Scholes option-pricing model, as adjusted for the 2007
stock distribution and the 2007 stock split. The options which vested over a 2 year period used the following
assumptions in determining the grant date fair value of the 2006 option grants: expected dividend yields of
0.00%, risk-free interest rates of 4.77%, expected volatility of 16.00%; and average expected lives of 2 years.
The options which vested over a 3 year period used the following assumptions used in determining the grant
date fair value of the 2006 option grants: expected dividend yields of 0.00%, risk-free interest rates of
4.77%, expected volatility of 22.00%; and average expected lives of 3.5 years.
17
During 2007, the Company awarded Incentive Stock Options (ISO) which vest over a 5 year period. Ther
per share weighted average fair values of ISO stock options granted during 2007 were $3.07 on the date of
the grant using the Black Scholes option-pricing model, as adjusted for the 2007 stock distribution and the
2007 stock split. These options used the following assumptions in determining the grant date fair value of
the 2007 option grants: expected dividend yield of 0.00%, risk-free interest rate of 3.28%, expected volatility
of 21.69%, and average expected lives of 5.15 years.
A summary of stock option activity under the 2006 Stock Option Plan during 2007 and 2006 is presented
below:
Number of
Shares
Weighted Average
Exercise price
per share
Average
Intrinsic
Value (1)
Outstanding at December 31, 2005
Granted
Forfeited
Exercised
–
124,300
–
–
$9.09
Outstanding at December 31, 2006
124,300
$9.09
Granted
Forfeited
Exercised
96,000
–
(22,000)
$11.50
$9.09
Outstanding at December 31, 2007
198,300
$10.26
Exercisable at December 31, 2007
78,100
$9.09
Weighted-average fair value of options
granted during the year
$3.07
$246,543
$188,221
(1) The aggregate instirinsic value of a stock option in the table above 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 December
31, 2007. This amount changes based on the changes in the market value in the Company’s stock.
Information pertaining to options outstanding under the 2006 Stock Option Plan at December 31, 2007 is as
follows:
Range of Exercise Prices
$9.09
$11.50
Weighted Average
Number
Outstanding
Remaining
Contractual life (years)
Weighted
Average
Exercise Price
102,300
96,000
198,300
8.83
9.92
$9.09
$11.50
Under the 2006 Stock Option Plan, there were a total of 120,200 unvested options at December 31, 2007, and
approximately $337,000 remained to be recognized in expense over three years. The total intrinsic value for
options that were exercised during 2007 was approximately $53,000.
18
2007 Director Plan
During 2007, the Bank’s stockholders approved the 2007 Non-Qualified Stock Option Plan for Directors. At
the time of the holding company reorganization, the 2007 Non-Qualified Stock Option Plan was assumed by
the Company. This plan provides for 480,000 options to purchase shares of the Company’s common stock to
be issued to non-employee directors of the Company. At December 31, 2007, non-qualified options to
purchase 460,000 shares of the Company’s stock have been issued to non-employee directors of the
Company.
During 2007, the Company awarded Non-Qualified Stock Options (NQO) to its Non-Employee Board
members which vest over a 34 month period and NQO options which vest over a 5 year period. The per
share weighted average fair values of NQO stock options granted during 2007, which vested over a 34 month
period and a 5 year period, were $2.26 and $3.03, respectively, on the date of the grant using the Black
Scholes option-pricing model, as adjusted for the 2007 stock distribution and the 2007 stock split. The
options which vest over a 34 month period used the following assumptions in determining the grant date fair
value of the 2007 option grants: expected dividend yield of 0.00%, risk-free interest rate of 4.05%, expected
volatility of 14.33%, and average expected lives of 4.01 years. The options which vest over a 5 year period
used the following assumptions in determining the grant date fair value of the 2007 option grants: expected
dividend yield of 0.00%, risk-free interest rate of 3.28%, expected volatility of 21.69%, and average expected
lives of 5.03 years.
A summary of the stock option activity during 2007 is as follows:
Outstanding at December 31, 2006
Granted
Forfeited
Exercised
Weighted
Average
Exercise
price per
share
Average
Intrinsic
Value (1)
Weighted Average
Remaining
Contractual life
(years)
$11.50
$ –
9.81
Number
of
Shares
–
460,000
–
–
Outstanding at December 31, 2007
460,000
$11.50
Exercisable at December 31, 2007
–
Weighted-average fair value of options
granted during the year
$ 2.53
(1) The aggregate instirinsic value of a stock option in the table above 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 December
31, 2007. This amount changes based on the changes in the market value in the Company’s stock.
Under the 2007 Directors Stock Option Plan, there were a total of 460,000 unvested options at December 31,
2007, and approximately $1,093,000 remained to be recognized in expense over four years. During 2007, no
Director Options were vested or exercised.
19
NOTE 12.
Benefit Plans (continued)
Weighted Average Assuptions for options granted
The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-
pricing model with the following weighted average assumptions:
Dividend yield
Expected life
Expected volatility
Risk-free interest rate
2007
2006
0.00%
0.00%
4.50 years
2.44 years
17.72%
17.75%
3.70%
4.77%
The dividend yield assumpton is based on the Company’s expectation of dividend payouts. The expected life
is based upon historical and expected exercise experience. The expected volatility is based on historical
volatiltiy of a peer group over a similar period. The risk-free interest rates for periods within the contractual
life of the awards is based upon the U.S. Treasury yield curve in effect at the time of the grant.
Defined Contribution Plan
The Company currently offers a 401(k) profit sharing plan covering all full-time employees, wherein
employees can invest up to 15% of their pretax earnings, up to the legal limit. The Company matches a
percentage of employee contributions at the board’s discretion. The Company made a matching contribution
of approximately $31,000 during 2007 and did not make any matching contributions during 2006.
NOTE 13.
Regulatory Capital Requirements
The Company and the Bank are subject to various capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory – and possible
additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the
Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulations to ensure capital adequacy require the Company and the
Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as
defined in the regulations) to risk-wieghted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). As of December 31, 2007, management believes that the Company and the Bank meet all
capital adequacy requirements to which they are subject.
20
Further, the most recent FDIC notification categorized the Bank as a well-capitalized institution under the
prompt corrective action regulations. There have been no conditions or events since that notification that
management believes have changed the Bank’s capital classification.
The following is a summary of the Bank’s actual capital amounts and ratios as of December 31, 2007 and
2006, respectively, compared to the FDIC minimum capital adequacy requirements and the FDIC
requirements for classification as a well-capitalized institution (dollars in thousands):
FDIC requirements
Minimum capital
adequacy
For classification
as well capitalized
Ratio
Amount
Ratio
Amount
Ratio
Bank actual
Amount
December 31, 2007:
Leverage (Tier 1)
Capital
Risk-based capital:
Tier 1
Total
December 31, 2006:
Leverage (Tier 1)
Capital
Risk-based capital:
Tier 1
Total
$45,840
22.27%
$ 8,235
4.00%
$10,293
5.00%
$45,840
$47,752
25.06%
26.11%
$ 7,315
$14,631
4.00%
8.00%
$10,973
$18,289
6.00%
10.00%
$43,000
55.01%
$3,126
4.00%
$3,908
5.00%
$43,000
$43,866
52.77%
53.83%
$3,260
$6,519
4.00%
8.00%
$4,889
$8,149
6.00%
10.00%
The Bank’s capital amounts (in thousands) and ratios as presented in the table above are similar to those of
the Company.
In addition to the above, as part of the Bank’s application for deposit insurance with the FDIC and as part of
the bank charter approval by the New Jersey Department of Banking, the Bank is required to maintain not
less than 8% Tier I Capital to total assets, as defined, through the first three years of operation.
NOTE 14.
Financial Instruments with Off-Balance Sheet Risk
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business in
order to meet the financing needs of its customers. These financial instruments consist of commitments to
extend credit and letters of credit and involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the accompanying consolidated balance sheets.
The Bank uses the same credit policies and collateral requirements in making commitments and conditional
obligations as it does for on-balance-sheet loans. Commitments to extend credit are agreements to lend to
customers as long as there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since
the commitments may expire without being drawn upon, therefore, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management’s credit evaluation of the borrower. Outstanding available loan
21
commitments, primarily for commercial real estate, construction, and land development loans at December
31, 2007 totaled $48.6 million compared to $24.5 million at December 31, 2006.
Most of the Bank’s lending activity is with customers located in Bergen County, New Jersey. At December
31, 2007 and 2006, the Bank had outstanding letters of credit to customers totaling $1,103,000 and $806,000,
respectively,whereby the Bank guarantees performance to a third party. These letters of credit generally have
fixed expiration dates of one year or less. The fair value of these letters of credits is estimated using the fees
currently charged to enter into similar agreements, taking into account the remaining terms of the agreements.
At December 31, 2007 and 2006, such amounts were deemed not material.
NOTE 15.
Financial Information of Parent Company
The parent company, Bancorp of New Jersey, Inc, was incorporated during November, 2006. The holding
company reorganization with Bank of New Jersey was consummated on July 31, 2007. Accordingly, the
financial information of the parent company, Bancorp of New Jersey, Inc, is only available as of and for the
five month period ended December 31, 2007. The following information on the parent only financial
statements as of December 31, 2007 and for the five months then ended should be read in conjunction with
the notes to the consolidated financial statements.
Balance Sheet
(in thousands)
Assets:
Investment in subsidiary, net
Total assets
Stockholders’ equity:
December 31, 2007
$ 45,840
$ 45,840
$ 45,840
Statement of Income
For the five month period ended December 31, 2007
(in thousands)
Dividends from bank subsidiary
Expenses
Income before equity in undistributed
earnings of subsidiary bank
Equity in undistributed
earnings of subsidiary bank
Net income
$ 0
0
0
816
$ 816
22
Statement of Cash Flow
For the five months ended December 31, 2007
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of the
subsidiary bank
Decrease in other assets, net
Net cash provided by operating activities
Cash flows from investing activities:
Capital contributed to subsidiary bank
Net cash used in financing activities
Cash flows from financing activities:
Proceeds from exercise of warrants
Proceeds from issuance of common stock
Net cash provided by financing
activities
Net change in cash for the period
Net cash at beginning of year
Net cash at end of year
NOTE 16.
Fair Value of Financial Instruments
$ 816
(816)
0
0
(1,585)
(1,585)
1,085
500
1,585
–
–
$ –
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments," requires that the Company disclose the estimated fair value of its financial instruments whether
or not recognized in the consolidated balance sheet. Fair value estimates and assumptions are set forth below
for the Company’s financial instruments at December 31, 2007 and 2006 (in thousands):
2007
2006
Carrying
amount
Estimated
Fair Value
Carrying
amount
Estimated
Fair Value
Financial assets:
Cash and cash equivalents
Securities available for sale
Securities held to maturity
Restricted investment in bank stock
Net loans
Accrued interest receivable
$ 66,115
$ 66,115
–
–
1,996
328
181,624
613
2,014
328
181,068
613
$ 8,839
9,599
1,993
100
79,819
439
$ 8,839
9,599
2,002
100
79,643
439
Financial liabilities:
Deposits
Accrued interest payable
212,941
917
212,933
917
61,867
40
61,858
40
23
The following methods and assumptions were used to estimate the fair value of each class of financial
instruments:
Cash and Cash Equivalents
The carrying amount approximates fair value.
Securities
Fair values for securities equal quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable securities.
Net loans
Net loans represent loans net of unamortized costs and deferred fees. Fair values are estimated for
portfolios of loans with similar financial characteristics. Loans are segregated by type, such as
residential and commercial real estate, commercial and other consumer. The fair value of loans is
estimated by discounting contractual cash flows using estimated market discount rates which reflect the
credit and interest rate risk inherent in the loans.
Restricted Investment in Bank Stock
The carrying amount of this restricted stock approximates fair value based on the stock’s redemption
provisions which are at par value.
Deposits
The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, is equal
to the amount payable on demand as of year end. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows. The discount rate is estimated using the rates currently
offered for deposits of similar remaining maturities.
Commitments to Extend Credit and Letters of Credit
The fair value of commitments to extend credit and letters of credit is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining terms of the agreements. At
December 31, 2007 and 2006, such amounts were not material.
Limitation
The preceding fair value estimates were made at December 31, 2007 and 2006 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.
24
Since these fair value approximations were made solely for on- and off-balance-sheet financial
instruments at December 31, 2007 and 2006, 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 17.
Quarterly Financial Data (unaudited)
The following represents summarized unaudited quarterly financial data of the Company.
Three Months Ended
(in thousands, except per share data)
2007
Interest income
Interest expense
Net interest income
Provision for loan losses
Other expense, net
Provision(benefit) for federal and state
income taxes
Net income
December 31 September 30 June 30 March 31
$ 3,328
1,649
1,679
140
1,290
$ 2,886
1,242
1,644
278
1,066
$ 2,391 $ 1,965
641
903
1,324
1,488
389
239
880
963
111
$ 138
(144)
$ 444
80
27
$ 206 $ 28
Earnings per share:
Basic
Diluted
2006
Interest income
Interest expense
Net interest income
Provision for loan losses
Other expense, net
Provision for income taxes
Net loss
Loss per share:
Basic
Diluted
$ 0.03
$ 0.03
$ 0.09
$ 0.09
$ 0.04 $ 0.01
$ 0.04 $ 0.01
$ 1,520
396
1,124
302
819
164
$ (161)
$ 1,086
149
937
367
667
0
$ (97)
$ 612 $ N/A
N/A
61
N/A
551
N/A
197
N/A
660
0
N/A
$ (306) $ N/A
$ (0.03)
$ (0.03)
$ (0.02)
$ (0.02)
$ (0.07) $ N/A
$ (0.07) $ N/A
25
Note 18. Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
Standards (SFAS) No. 157, “Fair Value Measurements” which is effective for fiscal years beginning after
November 15, 2007 and for interim periods within those years. This statement defines fair value, establishes a
framework for measuring fair value and expands the related disclosure requirements. We are currently evaluating
the potential impact, if any, of the adoption of SFAS No. 157 on our consolidated financial statements.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115.” SFAS No. 159
permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS
No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007 but
earlier adoption is permitted provided the entity also elects to apply the provisions of SFAS No. 157 during the
same time period. The Company did not elect early adoption of SFAS No. 159. We are currently evaluating the
potential impact, if any, of the adoption of SFAS No. 159 on our consolidated financial statements.
Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (FIN 48). The Interpretation provides clarification on accounting for uncertainty in
income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for
Income Taxes”. The Interpretation prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As a result of
the Company’s evaluation of the implementation of FIN 48, no significant income tax uncertainties were identified.
In May 2007, the FASB issued FASB Staff Position (“FSP”) FIN 48-1 “Definition of Settlement in FASB
Interpretation No. 48” (FSP FIN 48-1). FSP FIN 48-1 provides guidance on how to determine whether a tax
position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. FSP FIN 48-1 is
effective retroactively to January 1, 2007. This interpretation did not have an impact on our consolidated financial
position or results of operations.
In March 2007, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 06-11, “Accounting for Income
Tax Benefits of Dividends on Share-Based Payment Awards.” EITF 06-11 requires companies to recognize the
income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to
employees for non-vested equity-classified employee share-based payment awards as an increase to additional paid-
in capital. EITF 06-11 is effective for fiscal years beginning after September 15, 2007. The Company does not
expect EITF 06-11 will have a material impact on its financial position, results of operations or cash flows.
FASB statement No. 141 (R) “Business Combinations” was issued in December of 2007. This Statement establishes
principles and requirements for how the acquirer of a business recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The
Statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination
and determines what information to disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. The guidance will become effective as of the beginning of a
company’s fiscal year beginning after December 15, 2008. This new pronouncement will impact the Company’s
accounting for business combinations completed beginning January 1, 2009.
FASB statement No. 160 “Non-controlling Interests in Consolidated Financial Statements—an amendment of ARB
No. 51” was issued in December of 2007. This Statement establishes accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance will become
effective as of the beginning of a company’s fiscal year beginning after December 15, 2008. Although it is not
expected to have a material impact, the Company is currently evaluating the potential impact the new
pronouncement will have on its consolidated financial statements.
Staff Accounting Bulletin No. 110 (SAB 110) amends and replaces Question 6 of Section D.2 of Topic 14, “Share-
Based Payment,” of the Staff Accounting Bulletin series. Question 6 of Section D.2 of Topic 14 expresses the views
of the staff regarding the use of the “simplified” method in developing an estimate of expected term of “plain
26
vanilla” share options and allows usage of the “simplified” method for share option grants prior to December 31,
2007. SAB 110 allows public companies which do not have historically sufficient experience to provide a
reasonable estimate to continue use of the “simplified” method for estimating the expected term of “plain vanilla”
share option grants after December 31, 2007. SAB 110 is effective January 1, 2008. The Company does not expect
SAB 110 to have a material impact on its consolidated financial statements.
Staff Accounting Bulletin No. 109 (SAB 109), "Written Loan Commitments Recorded at Fair Value Through
Earnings" expresses the views of the staff regarding written loan commitments that are accounted for at fair value
through earnings under generally accepted accounting principles. To make the staff's views consistent with current
authoritative accounting guidance, the SAB revises and rescinds portions of SAB No. 105, "Application of
Accounting Principles to Loan Commitments." Specifically, the SAB revises the Securities and Exchange
Commission staff's views on incorporating expected net future cash flows related to loan servicing activities in the
fair value measurement of a written loan commitment. The SAB retains the staff's views on incorporating expected
net future cash flows related to internally-developed intangible assets in the fair value measurement of a written
loan commitment. The staff expects registrants to apply the views in Question 1 of SAB 109 on a prospective basis
to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The
Company does not expect SAB 109 to have a material impact on its financial statements.
27
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Bancorp of New Jersey, Inc.
We have audited the consolidated balance sheet of Bancorp of New Jersey, Inc. and subsidiary (the “Company”) as
of December 31, 2007 and the related consolidated statements of income, stockholders’ equity, and cash flows for
the year then ended. The Company’s management is responsible for these consolidated financial statements. Our
responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Bancorp of New Jersey, Inc. and subsidiary as of December 31, 2007 and the consolidated
results of their operations and their cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Beard Miller Company LLP
Malvern, Pennsylvania
March 31, 2008
28
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of
Bancorp of New Jersey, Inc.
We have audited the accompanying statement of financial condition of Bancorp of New Jersey, Inc. (formerly Bank
of New Jersey) (the “Company”) as of December 31, 2006 and the related statements of operations, stockholders’
equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2006 and the results of its operations and its cash flows for the year
then ended, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
Short Hills, New Jersey
March 2, 2007
29
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The following discussion and analysis of financial condition and results of operations should be read in conjunction
with the Company’s consolidated financial statements and the notes thereto included herein. When necessary,
reclassifications have been made to prior years’ data throughout the following discussion and analysis for purposes
of comparability.
In addition to historical information, this discussion and analysis contains forward-looking statements. The
forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual
results to differ materially from those projected in the forward-looking statements. Important factors that might
cause such a difference include, but are not limited to, those discussed in this section, and also include economic
conditions, both in the Company’s trade area and nationally, changes in interest rates and monetary policy, the
continued viability of the Company’s customers and a variety of other matters, most, if not at all of which, are
beyond the Company’s control. Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management’s analysis only as of the date of the report. The Company undertakes no
obligation to publicly revise or update these forward-looking statements to reflect events and circumstances that
arise after such date, except as may be required by applicable law or regulation.
OVERVIEW AND STRATEGY
Our Bank charter was approved in April 2006 and the Bank opened for business on May 10, 2006. On July 31,
2007, the Company became the bank holding company of the Bank pursuant to a plan of acquisition that was
approved by the boards of directors of the Company and the Bank and adopted by the shareholders of the Bank at a
special meeting held July 19, 2007. We currently operate a 4 branch network. Our main office is located at 1365
Palisade Avenue, Fort Lee, NJ 07024 and three additional offices located at 204 Main Street, Fort Lee, NJ 07024,
401 Hackensack Avenue, Hackensack, NJ 07601, and 458 West Street, Fort Lee, NJ 07024. All current branches
are located in Bergen County, NJ.
We conduct a traditional commercial banking business, accepting deposits from the general public, including
individuals, businesses, non-profit organizations, and governmental units. We make commercial loans, consumer
loans, and both residential and commercial real estate loans. In addition, we provide other customer services and
make investments in securities, as permitted by law. We have sought to offer an alternative, community-oriented
style of banking in an area, which is presently dominated by larger, statewide and national institutions. Our focus is
on establishing and retaining customer relationships by offering a broad range of traditional financial services and
products, competitively-priced and delivered in a responsive manner to small businesses, professionals and
individuals in the local market. As a locally owned and operated community bank, we believe we can provide
superior customer service that is highly personalized, efficient and responsive to local needs. To better serve our
customers and expand our market reach, we provide for the delivery of certain financial products and services to
local customers and a broader market through the use of mail, telephone and internet banking. We endeavor to
deliver these products and services with the care and professionalism expected of a community bank and with a
special dedication to personalized customer service.
Our specific objectives are:
• To provide local businesses, professionals, and individuals with banking services responsive to and determined
by the local market;
• Direct access to Bank management by members of the community, whether during or after business hours;
• To attract deposits and loans by competitive pricing; and
• To provide a reasonable return to shareholders on capital invested.
30
Critical Accounting Policies and Judgments
Our financial statements are prepared based on the application of certain accounting policies, the most significant of
which are described in Note 1 “Summary of Significant Accounting Policies” in the Notes to the Financial
Statements. Certain of these policies require numerous estimates and strategic or economic assumptions that may
prove inaccurate or subject to variation and may significantly affect our reported results and financial position for
the period or in future periods. The use of estimates, assumptions, and judgments are necessary when financial
assets and liabilities are required to be recorded at, or adjusted to reflect, fair value. Assets carried at fair value
inherently result in more financial statement volatility. Fair values and information used to record valuation
adjustments for certain assets and liabilities are based on either quoted market prices or are provided by other
independent third-party sources, when available. When such information is not available, management estimates
valuation adjustments. Changes in underlying factors, assumptions, or estimates in any of these areas could have a
material impact on our future financial condition and results of operations.
Allowance for Loan Losses
The allowance for loan losses, sometimes referred to as the “ALLL,” is established through periodic charges to
income. Loan losses are charged against the ALLL when management believes that the future collection of
principal is unlikely. Subsequent recoveries, if any, are credited to the ALLL. If the ALLL is considered
inadequate to absorb future loan losses on existing loans, based on, but not limited to, increases in the size of the
loan portfolio, increases in charge-offs or changes in the risk characteristics of the loan portfolio, then the provision
for loan losses is increased.
At December 31, 2007, we consider the ALLL of $1,912 thousand adequate to cover potential losses inherent in the
loan portfolio that may become uncollectible. Our evaluation considers such factors as changes in the composition
and volume of the loan portfolio, the impact of changing economic conditions on the credit worthiness of our
borrowers, and the overall quality of the loan portfolio. For further discussion, see “Provision for Loan Losses”,
“Loan Portfolio”, “Loan Quality”, and “Allowance for Loan Losses” sections below in this discussion and analysis,
as well as Note 1-Summary of Significant Accounting Policies and Note 3-Loans and Allowance for Loan Losses in
the Notes to Financial Statements included in Part II, Item 8 of this annual report.
Deferred Tax Assets and Valuation Allowance
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply in the period in which the deferred
tax asset or liability is expected to be settled or realized. The effect on deferred taxes of a change in tax rates is
recognized in income in the period in which the change occurs. Deferred tax assets are reduced, through a valuation
allowance, if necessary, by the amount of such benefits that are not expected to be realized based on current
available evidence. During 2006, we recorded a valuation allowance against the state deferred tax asset and a
portion of the Federal deferred tax asset. During 2007, as a result of our sustained profitability, we reversed the
valuation allowance as we had sufficient evidence that we would, more likely than not, realize our asset.
Impairment of Assets
Loans are considered impaired when, based on current information and events, it is probable that the Bank will be
unable to collect all amounts due according to contractual terms of the loan agreement. The collection of all
amounts due according to contractual terms means both the contractual interest and principal payments of a loan
will be collected as scheduled in the loan agreement. Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan’s effective interest rate, or, as a practical expedient, at the loan’s
observable market price, or the fair value of the underlying collateral. The fair value of collateral, reduced by costs
to sell on a discounted basis, is used if a loan is collateral dependent. Conforming one-to-four family residential
mortgage loans, home equity and second mortgages, and consumer loans are pooled together as homogeneous loans
31
and, accordingly, are not covered by Statement of Financial Accounting Standards (SFAS) No.114 “Accounting by
Creditors for Impairment of a Loan.” At this time, we do not have any impaired loans.
Investments Securities Impairment
Periodically, we may need to assess whether there have been any events or economic circumstances to indicate that
a security on which there is an unrealized loss is impaired on an other-than-temporary basis. In any such instance,
we would consider many factors including the severity and duration of the impairment, our intent and ability to hold
the security for a period of time sufficient for a recovery in value, recent events specific to the issuer or industry,
and for debt securities, external credit ratings and recent downgrades. Securities on which there is an unrealized
loss that is deemed to be other-than-temporary are written down to fair value with the write-down recorded as a
realized loss in securities gains (losses). At this time, we do not have any impaired securities.
RESULTS OF OPERATIONS - 2007 versus 2006
The Company’s results of operations depend primarily on its net interest income, which is the difference between
the interest earned on its interest-earning assets and the interest paid on funds borrowed to support those assets,
primarily deposits. Net interest margin is the difference between the weighted average rate received on interest-
earning assets and the weighted average rate paid on interest-bearing liabilities, as well as the average level of
interest-earning assets as compared with that of interest-bearing liabilities. Net income is also affected by the
amount of non-interest income and other operating expenses.
NET INCOME
For the year ended December 31, 2007, net income increased by $1,380,000, to $816,000 from a net loss of $564
thousand for the year ended December 31, 2006. The increase in net income for the year ended December 31, 2007
compared to 2006 was directly attributable to the interest income earned as result of a full twelve months of
operations which included an increase in total loans of over $100 million and an increase in Federal Funds Sold of
over $50 million. The increased net income also resulted from a $282 thousand adjustment to reverse the valuation
allowance previously recorded on our net deferred tax asset.
On a per share basis, basic earnings per share for the year ended December 31, 2007 were $0.17 as compared to
basic loss per share of $0.12 for the year ended December 31, 2006. All share data has been restated to reflect all
stock dividends and stock splits through the December 31, 2007 stock split.
Analysis of Net Interest Income
Net interest income represents the difference between income on interest-earning assets and expense on interest-
bearing liabilities. Net interest income depends upon the volume of interest-earning assets and interest bearing
liabilities and the interest rate paid on them. For the year ended December 31, 2007, net interest income increased
by $3.1 million or 100.0%, to $6,155,000 from $3,078,000 for the year ended December 31, 2006. This increase in
net interest income is primarily the result of a 127.5% increase in total loans during the period. Total loans reached
$183.5 million at December 31, 2007 from $80.6 million at December 31, 2006.
Average Balance Sheets
We commenced banking operations on May 10, 2006. The following table sets forth certain
information relating to our average assets and liabilities for the year ended December 31, 2007 and for the
period from May 10, 2006 through December 31, 2006, and reflects the average yield on assets and
average cost of liabilities for the period indicated. Such yields are derived by dividing income or expense,
on a tax-equivalent basis, by the average balance of assets or liabilities, respectively, for the periods shown.
Securities available for sale are reflected in the following table at amortized cost. Non-accrual loans are
included in the average loan balance. Amounts have been computed on a fully tax-equivalent basis,
assuming a blended tax rate of 42% in 2007 and 2006, respectively.
32
For the year ended December 31, 2007
May 10, 2006 through December 31, 2006
(Dollars in
thousands)
Average
Balance
Interest
Average
Yield/Cost
Average
Balance
Interest
Average
Yield/Cost
ASSETS :
Interest-Earning Assets:
Loans
Securities
Federal Funds Sold
Interest-earning cash accounts
Total Interest-earning Assets
Non-interest earning Assets
Allowance for Loan Losses
TOTAL ASSETS
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Interest-Bearing Liabilities :
Demand Deposits
Savings Deposits
Money Market Deposits
Time Deposits
Short Term Borrowings
Total Interest-Bearing Liabilities
Non-Interest Bearing Liabilities:
Demand Deposits
Other Liabilities
Total Non-Interest Bearing Liabilities
Stockholders’ Equity
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
Net Interest Income
(Tax Equivalent Basis)
Tax Equivalent Basis adjustment
Net Interest Income
Net Interest Rate Spread
Net Interest Margin
Ratio of Interest-Earning Assets to
Interest-Bearing Liabilities
$ 10,111
264
199
16
10,590
7.24%
5.03
4.89
1.54
7.06%
$ 194
13
1,757
2,132
339
4,435
2.61%
0.51
4.53
5.18
5.27
4.60%
$139,546
5,249
4,072
1,038
149,905
12,297
(1,863)
$160,339
$ 7,447
2,569
38,781
41,114
6,432
96,343
18,920
1,031
19,951
44,045
$160,339
$ 1,983
260
818
0
3,061
6.77%
4.99
5.64
0.00
6.26%
$ 60
5
422
77
0
564
2.30%
0.81
3.89
3.44
0.00
3.46%
$ 43,971
7,915
21,752
-
73,638
5,011
(486)
$78,163
$ 3,910
930
16,216
3,360
0
24,416
10,384
164
10,548
43,199
$78,163
$ 6,155
0
$ 6,155
2.46%
4.10%
$2,497
0
$2,497
2.80%
3.39%
1.56
3.02
33
Rate/Volume Analysis
The following table presents, by category, the major factors that contributed to the changes in net interest income on
a tax equivalent basis for the year ended December 31, 2007. (The analysis for the year ended December 31, 2006
is not presented as the Bank was a development stage organization during 2005 and did not record any income from
bank related operations.)
Year Ended
December 31,
2007 versus
2006
Increase (Decrease)
due to change in
Average
Volume Rate
Net
Interest Income :
Loans
Securities
Fed Funds Sold
Interest earning cash accounts
Total Interest Income
$ 7,472
2
(589)
16
6,901
$ 656
2
(30)
0
628
$ 8,128
4
(619)
16
7,529
Interest Expense :
Demand Deposits
Savings Deposits
Money Market Deposits
Time Deposits
Short Term Borrowings
111
15
1,088
1,339
339
23
(7)
248
715
0
134
8
1,336
2,054
339
Total Interest Expense
2,892
979
3,871
Net change in Interest Income
$ 4,009
$ (351)
$ 3,658
PROVISION FOR LOAN LOSSES
For the year ended December 31, 2007, the Company’s provision for loan losses was $1,046,000, an increase of
$180,000 from the provision of $866,000 for the year ended December 31, 2006. The increased provision is
primarily the result of the growth of the loan portfolio, which experienced an increase of 127.5% from $80.6 million
at December 31, 2006 to $183.5 million at December 31, 2007.
OTHER INCOME
Other income, which was primarily attributable to service fees received from deposit accounts, for the year ended
December 31, 2007, was $144,000, an increase of $129,000 above the $15,000 received during the year ended
December 31, 2006. The increase in other income reflects the combination of an increase in the number of
accounts, an increase average deposit levels, and the level of activity in the deposit accounts.
OTHER EXPENSES
Other expenses for the year ended December 31, 2007 amounted to $4,363,000, an increase of $1,736,000 or 66.1%
over the $2,627,000 for the year ended December 31, 2006. This increase is related, primarily, to opening and
34
staffing of three new branches, data processing costs associated with the Company’s growth during 2007, as well as
the effect of a full twelve months of operation during 2007.
INCOME TAX EXPENSE
The income tax provision, which includes both federal and state taxes, for the years ended December 31, 2007 and
2006 was $74,000 and $164,000, respectively. The decrease in income tax expense is a result of an adjustment to
reverse the valuation allowance previously recorded on our net deferred tax asset.
FINANCIAL CONDITION
Total consolidated assets increased $154.2 million, or 145.4%, from $106.0 million at December 31, 2006 to $260.2
million at December 31, 2007. Total loans increased from $80.6 million at December 31, 2006 to $183.5 million at
December 31, 2007, an increase of 127.5%. Total deposits increased from $61.9 million on December 31, 2006 to
$212.9 million at December 31, 2007, an increase of $151 million, or 244.2%.
LOANS
Our loan portfolio is the primary component of our assets. Total loans increased by 127.5% since year end to reach
$183.5 million at December 31, 2007. At December 31, 2006, our total loans, excluding net deferred fees and costs
and the allowance for loan losses, were approximately $80.6 million, all of which were originated during 2006.
This growth in the loan portfolio continues to be primarily attributable to recommendations and referrals from
members of our board of directors, our shareholders, our executive officers, and selective marketing by our
management and staff. We believe that we will continue to have opportunities for loan growth within the Bergen
County market of northern New Jersey, due in part, to consolidation of banking institutions within our market. We
believe that it is not cost-efficient for large institutions, many of which are headquartered out of state, to provide the
level of personal service to small business borrowers that these customers seek and that we intend to provide.
Our loan portfolio consists of commercial loans, real estate loans, and consumer loans. Commercial loans are made
for the purpose of providing working capital, financing the purchase of equipment or inventory, as well as for other
business purposes. Real estate loans consist of loans secured by commercial or residential real property and loans
for the construction of commercial or residential property. Consumer loans are made for the purpose of financing
the purchase of consumer goods, home improvements, and other personal needs, and are generally secured by the
personal property being owned or being purchased.
Our loans are primarily to businesses and individuals located in Bergen County, New Jersey. We have not made
loans to borrowers outside of the United States. We have not made any sub-prime loans. Commercial lending
activities are focused primarily on lending to small business borrowers. We believe that our strategy of customer
service, competitive rate structures, and selective marketing have enabled us to gain market entry to local loans.
Furthermore, we believe that bank mergers and lending restrictions at larger financial institutions with which we
compete have also contributed to the success of our efforts to attract borrowers.
The following table sets forth the classification of the Company’s loans by major category as of December 31, 2007
and 2006, respectively (in thousands):
Real Estate
Commercial
Credit Lines
Consumer
Total Loans
December 31,
2007
2006
$123,335
27,056
28,133
4,936
$183,460
35
$ 50,787
14,678
13,519
1,654
$ 80,638
The following table sets forth the maturity of fixed and adjustable rate loans as of December 31, 2007 (in
thousands):
Loans with Fixed Rate
Commercial
Real Estate
Credit Lines
Consumer
Loans with Adjustable Rate
Commercial
Real Estate
Credit Lines
Consumer
Within
One
Year
2,354
2,135
428
1,207
14,325
32,984
106
353
1 to 5
Years
After 5
Years
Total
4,698
185
–
1,290
3,296
208
–
–
2,383
44,310
–
2,044
–
43,513
27,599
42
$ 9,435
46,630
428
4,541
$ 17,621
76,705
27,705
395
LOAN QUALITY
As mentioned above, our principal assets are our loans. Inherent in the lending function is the risk of the borrower’s
inability to repay a loan under its existing terms. Risk elements include non-accrual loans, past due and restructured
loans, potential problem loans, loan concentrations, and other real estate owned.
Non-performing assets include loans that are not accruing interest (non-accrual loans) as a result of principal or
interest being in default for a period of 90 days or more and accruing loans that are 90 days past due. When a loan
is classified as non-accrual, interest accruals discontinue and all past due interest, including interest applicable to
prior years, is reversed and charged against current income. Until the loan becomes current, any payments received
from the borrower are applied to outstanding principal until such time as management determines that the financial
condition of the borrower and other factors merit recognition of such payments of interest.
We attempt to minimize overall credit risk through loan diversification and our loan approval procedures. Due
diligence begins at the time we begin to discuss the origination of a loan with a borrower. Documentation,
including a borrower’s credit history, materials establishing the value and liquidity of potential collateral, the
purpose of the loan, the source and timing of the repayment of the loan, and other factors are analyzed before a loan
is submitted for approval. Loans made are also subject to periodic audit and review.
At December 31, 2007 and 2006, respectively, we had no non-performing assets and no information about possible
credit problems of borrowers which would cause us to have serious doubts as to the ultimate ability to collect their
loans. While we do attempt to minimize credit risk, these conditions are partially attributable to our limited
operating history.
As of December 31, 2007 and 2006, respectively, there were no concentrations of loans exceeding 10% of the
Bank’s total loans and the Bank had no foreign loans. The Bank’s loans are primarily to businesses and individuals
located in Bergen County, New Jersey.
The Bank maintains an external independent loan review auditor. The loan review auditor performs examinations
of a sample of commercial loans after the Bank has extended credit. The loan review auditor also monitors the
integrity of our credit risk rating system. This review process is intended to identify adverse developments in
individual credits, regardless of payment history. The loan review auditor reports directly to the audit committee of
36
our Board of Directors and provides the audit committee with reports on asset quality. The loan review audit
reports may be presented to our Board of Directors by the audit committee for review, as appropriate.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents a critical accounting policy. The allowance is a reserve established
through charges to earnings in the form of a provision for loan losses. We maintain an allowance for loan losses
which we believe is adequate to provide for probable losses inherent in the loan portfolio. While we apply the
methodology discussed below in connection with the establishment of our allowance for loan losses, it is subject to
critical judgments on the part of management. Loan losses are charged directly to the allowance when they occur
and any recovery is credited to the allowance. Risks within the loan portfolio are analyzed on a continuous basis by
our officers, by external independent loan review function, and by our audit committee. A risk system, consisting
of multiple grading categories, is utilized as an analytical tool to assess risk and appropriate reserves. In addition to
the risk system, management further evaluates risk characteristics of the loan portfolio under current and anticipated
economic conditions and considers such factors as the financial condition of the borrower, past and expected loss
experience, and other factors which management feels deserve recognition in establishing an appropriate reserve.
These estimates are reviewed at least quarterly, and, as adjustments become necessary, they are realized in the
periods in which they become known. Additions to the allowance are made by provisions charged to the expense
and the allowance is reduced by net-chargeoffs, which are loans judged to be uncollectible, less any recoveries on
loans previously charged off. Although management attempts to maintain the allowance at an adequate level, future
additions to the allowance may be required due to the growth of our loan portfolio, changes in asset quality, changes
in market conditions and other factors. Additionally, various regulatory agencies, primarily the FDIC, periodically
review our allowance for loan losses. These agencies may require additional provisions based upon their judgment
about information available to them at the time of their examination. Although management uses what it believes to
be the best information available, the level of the allowance for loan losses remains an estimate which is subject to
significant judgment and short term change.
We commenced banking operations in May, 2006, and our allowance for loan losses totaled $1,912,000 and
$866,000, respectively, at December 31, 2007 and 2006. This growth of the allowance is primarily due to the
growth and composition of the loan portfolio.
The following is an analysis summary of the allowance for loan losses for the periods indicated:
Balance, January 1
$ 866
$ –
2007
2006
Charge-offs
Commercial
Real Estate
Credit Lines
Consumer
Total Charge-offs
Recoveries
Commercial
Real Estate
Credit Lines
Consumer
Total Recoveries
Net charge-offs
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Provision charged to expense
Balance, December 31
1,046
$ 1,912
866
$ 866
37
Ratio of net charge-offs to average loans
Outstanding
N/A
N/A
38
The following table sets forth, for each of the Company’s major lending areas, the amount and percentage of the
Company’s allowance for loan losses attributable to such category, and the percentage of total loans represented by
such category, as of the periods indicated :
Allocation of the Allowance for Loan Losses by Category
As of December 31,
(dollars in thousands)
2007
2006
Balance applicable to:
Real Estate
Commercial
Credit Lines
Consumer
Amount
% of ALL
$1,373
241
152
5
71.76%
12.60%
7.95%
0.26%
Sub-total
Unallocated Reserves
1,771
141
92.63%
7.37%
% of
Total
Loans
67.23%
14.75%
15.34%
2.68%
100.00%
% of
Total
Loans
62.98%
18.20%
16.77%
2.05%
100.00%
Amount
% of ALL
$ 479
197
69
25
55.31%
22.75%
7.97%
2.89%
770
96
88.92%
11.09%
TOTAL
$1,912
100.00%
100.00%
$ 866
100.00%
100.00%
The allowance for loan losses represents our determination of the amount necessary to bring the ALLL to a level
that we consider adequate to reflect the risk of probable losses inherent in our loan portfolio as of the balance sheet
date. We evaluate the adequacy of the ALLL by performing periodic, systematic reviews of the loan portfolio.
While allocations are made to specific loans and pools of loans, the total allowance is available for any loan losses.
Although the ALLL is our best estimate of the inherent loan losses as of the balance sheet date, the process of
determining the adequacy of the ALLL is judgmental and subject to changes in external conditions. Accordingly,
there can be no assurance that existing levels of the ALLL will ultimately prove adequate to cover actual loan
losses. However, we have determined, and believe, that the ALLL is at a level sufficient to cover the inherent loan
losses in our loan portfolio as of the balance sheet date.
INVESTMENT SECURITIES
In addition to our loan portfolio, we maintain an investment portfolio which is available to fund increased loan
demand or deposit withdrawals and other liquidity needs, and which provides an additional source of interest
income. The portfolio is composed of U.S. Treasury Securities and obligations of U.S. Government Agencies.
Securities are classified as held-to-maturity, referred to as “HTM,” trading, or available for sale, referred to as
“AFS,” at the time of purchase. Securities are classified as held-to-maturity if management intends and we have the
ability to hold them to maturity. Such securities are stated at cost, adjusted for unamortized purchase premiums and
discounts. Securities which are bought and held principally for the purpose of selling them in the near term are
classified as trading securities, which are carried at market value. Realized gains and losses, as well as gains and
losses from marking trading securities to market value, are included in trading revenue. We had no trading
securities during 2007 or 2006, respectively. Securities not classified as held-to-maturity or trading securities are
classified as AFS and are stated at fair value. Unrealized gains and losses on AFS securities are excluded from
results of operations, and are reported as a component of accumulated other comprehensive income (loss), which is
included in stockholders’ equity. Securities classified as AFS include securities that may be sold in response to
changes in interest rates, changes in prepayment risks, the need to increase regulatory capital, or other similar
requirements.
At December 31, 2007, total securities aggregated $1,996,000 and were classified as held-to-maturity. At
December 31, 2007, the Company held no securities which it classified as available for sale securities or trading
securities.
39
The following table sets forth the carrying value of the Company’s security portfolio as of the dates indicated.
At December 31,
(in thousands)
2007
2006
Available for sale
U.S. Agency obligations
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$ –
$ –
$ 9,560
$ 9,599
Total available for sale
$ –
$ –
$ 9,560
$ 9,599
Held to Maturity
U.S. Treasury obligation
$ 1,996
$ 2,014
$ 1,993
$ 2,002
Total held to maturity
$ 1,996
$ 2,014
$ 1,993
$ 2,002
Total Investment Securities
$ 1,996
$ 2,014
$11,553
$11,601
The following table sets forth as of December 31, 2007 and December 31, 2006, the maturity distribution of the
Company’s debt investment portfolio:
Maturity of Debt Investment Securities
December 31, 2007
(in thousands)
Securities Held to Maturity
Amortized
Cost
Fair
Value
Weighted
Average
Yield
Within 1 year
$ 1,996
$ 2,014
5.12%
1 to 5 years
Over 5 years
–
–
–
–
–
–
$ 1,996
$ 2,014
During 2007, the Company sold its entire AFS portfolio in order to fund loan growth and recognized a gain of
$4,000 from the transaction. We did not sell any securities during 2006.
DEPOSITS
Deposits are our primary source of funds. We experienced a growth of $151 million, or 244.2%, in deposits from
$61.9 million at December 31, 2006 to $212.9 million at December 31, 2007. This market penetration was
accomplished through the combined effect of a certificate of deposit promotion during December, 2007 and the
continued referrals of our board of directors, stockholders, management, and staff. The Company has no foreign
deposits, nor are there any material concentrations of deposits.
40
The following table sets forth the actual amount of various types of deposits for each of the periods indicated :
December 31,
(Dollars in Thousands)
2007
2006
Average
Yield/Rate
–
4.26%
0.51%
5.18%
Amount
$ 23,292
52,215
3,430
134,004
$212,941
Amount
$ 10,244
38,794
1,873
10,956
$ 61,867
Average
Yield/Rate
–
3.58%
0.81%
3.44%
Non-interest Bearing Demand
Interest Bearing Demand
Savings
Time Deposits
The Company does not actively solicit short-term deposits of $100,000 or more because of the liquidity risks posed
by such deposits. The following table summarizes the maturity of time deposits of denominations of $100,000 or
more as of December 31, 2007 and 2006, respectively.
Three months or less
Over three months through twelve months
Over one year through three years
Over three years
Total
2007
(in thousands)
$ 18,816
72,859
1,026
0
$ 92,701
RETURN ON EQUITY AND ASSETS
The following table summarizes our return on assets, or net income divided by average total assets, return on equity,
or net income divided by average equity, divided payout ratio, or dividends declared per share divided by net
income per share, and equity to assets ratio, or average equity divided by average total assets.
Selected Financial Ratios:
Return on Average Assets (ROA)
Return on Average Equity (ROE)
Equity to Total Assets at Year-End
Dividend Payout Ratio
At or for the year ended
December 31,
2007
0.51%
1.85%
17.61%
N/A
2006
(0.72%)
(1.31%)
40.58%
N/A
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 general interest rates, economic conditions, and competition. In
addition, if warranted, we would be able to borrow funds.
Our total deposits equaled $212,941,000 and $61,867,000, respectively, at December 31, 2007 and 2006. The
growth in funds provided by deposit inflows during this period coupled with the amount of capital raised has been
sufficient to provide for our loan demand.
41
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 still maintaining liquidity. Through our
investment portfolio, we also attempt to manage our maturity gap by seeking maturities of investments which
coincide as closely as possible with maturities of deposits. Securities available for sale would also be available to
provide liquidity for anticipated loan demand and liquidity need, however there were no securities available for sale
at December 31, 2007.
Although we were a net seller of federal funds at December 31, 2007, we have a $12 million overnight line of credit
facility available with First Tennessee Bank and a $10 million overnight line of credit with Atlantic Central Bankers
Bank for the purchase of federal funds in the event that temporary liquidity needs arise. Additionally, we were
approved as a member of the Federal Home Loan Bank of New York, or “FHLBNY,” during November, 2007. The
FHLBNY relationship could provide additional sources of liquidity, if required. We believe that our current sources
of funds provide adequate liquidity for our current cash flow needs.
INTEREST RATE SENSITIVITY ANALYSIS
We manage our assets and liabilities with the objectives of evaluating the interest-rate risk included in certain
balance sheet accounts; determining the level of risk appropriate given our business focus, operating environment,
capital and liquidity requirements; establishing prudent asset concentration guidelines; and managing risk consistent
with guidelines approved by our board of directors. We seek to reduce the vulnerability of our operations to
changes in interest rates and to manage the ratio of interest-rate sensitive assets to interest-rate sensitive liabilities
within specified maturities or re-pricing dates. Our actions in this regard are taken under the guidance of the
asset/liability committee of our board of directors, or “ALCO.” ALCO generally reviews our liquidity, cash flow
needs, maturities of investments, deposits and borrowings, and current market conditions and interest rates.
One of the monitoring tools used by ALCO is an analysis of the extent to which assets and liabilities are interest rate
sensitive and measures our interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive
within a specific time period if it will mature or re-price within that time period. A gap is considered positive when
the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is
considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate
sensitive assets. Accordingly, during a period of rising rates, a negative gap may result in the yield on assets
increasing at a slower rate than the increase in the cost of interest-bearing liabilities, resulting in a decrease in net
interest income. Conversely, during a period of falling interest rates, an institution with a negative gap would
experience a re-pricing of its assets at a slower rate than its interest-bearing liabilities which, consequently, may
result in its net interest income growing.
The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at
the periods indicated which we anticipated, based upon certain assumptions, will re-price or mature in each of the
future time periods presented. Except as noted, the amount of assets and liabilities which re-price or mature during
a particular period were determined in accordance with the earlier of the term to re-pricing or the contractual terms
of the asset or liability. Because we have no interest bearing liabilities with a maturity greater than five years, we
believe that a static gap for the over five year time period reflects an accurate assessment of interest rate risk. Our
loan maturity assumptions are based upon actual maturities within the loan portfolio. Equity securities have been
included in “Other Assets” as they are not interest rate sensitive. At December 31, 2007, we were within the target
gap range established by ALCO.
42
Cumulative Rate Sensitive Balance Sheet
December 31, 2007
(in thousands)
0 - 3
Months
0 – 6
Months
0 – 1
Year
0 – 5
Years
5 + Years
All Others
TOTAL
Securities, excluding
equity securities
Loans :
Commercial
Real Estate
Credit Lines
Consumer
Federal Funds Sold
Other Assets
$–
$1,996
$1,996
$1,996
$–
$–
$1,996
19,639
33,045
25,826
1,228
57,091
–
19,727
33,045
28,133
1,228
57,091
–
19,975
34,130
28,133
1,603
57,091
–
24,673
78,285
28,133
2,893
57,091
–
2,383
5,322
–
489
–
–
–
39,728
–
1,554
–
17,698
27,056
123,335
28,133
4,936
57,091
17,705
TOTAL ASSETS
$136,829
$141,220
$142,928
$193,071
$8,194
$58,980
$260,245
Transaction /
Demand Accounts
Money Market
Savings
Time Deposits
Other Liabilities
Equity
TOTAL LIABILITIES
AND EQUITY
Dollar Gap
Gap / Total Assets
Target Gap Range
RSA / RSL
(Rate Sensitive Assets to
Rate Sensitive Liabilities)
$5,788
46,427
3,430
20,408
–
–
$5,788
46,427
3,430
49,042
–
–
$5,788
46,427
3,430
132,883
–
–
$5,788
46,427
3,430
134,004
–
–
$76,053
$104,687
$188,528
$189,649
$60,776
23.35%
+/- 35.00
179.91%
$36,533
14.04%
+/- 30.00
134.90%
$(45,600)
(17.52%)
+/- 25.00
75.81%
$ 3,415
1.31%
+/- 25.00
101.80%
$–
–
–
–
–
–
$–
$–
$–
–
–
–
24,756
45,840
$5,788
46,427
3,430
134,004
24,756
45,840
$70,596
$260,245
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily
from interest rate risk inherent in our lending and deposit taking activities. Thus, we actively monitor and manage
our interest rate risk exposure.
Our profitability is affected by fluctuations in interest rates. A sudden and substantial increase in interest rates may
adversely impact our earnings to the extent that the interest rates borne by assets and liabilities do not change at the
same speed, to the same extent, or on the same basis. We monitor the impact of changing interest rates on our net
interest income using several tools. One measure of our exposure to differential changes in interest rates between
assets and liabilities is shown in our “Cumulative Rate Sensitive Balance Sheet” under the “Interest Rate Sensitivity
Analysis” caption in this discussion and analysis. As we mature, we will also perform a periodic “shock analysis”
to evaluate the effect of interest rates upon our operations and our financial condition.
Our primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on
our net interest income and capital, while structuring our asset-liability structure to obtain the maximum yield-cost
spread on that structure. We rely primarily on our asset-liability structure to control interest rate risk.
43
We continually evaluate interest rate risk management opportunities. During 2007 we believed that available
hedging instruments were not cost-effective, and therefore, focused our efforts on increasing our yield-cost spread
through retail growth opportunities.
The following table discloses our financial instruments that are sensitive to change in interest rates, categorized by
expected maturity at December 31, 2007. Market risk sensitive instruments are generally defined as on- and off-
balance sheet financial instruments.
Expected Maturity/Principal Repayment
December 31, 2007
(Dollars in thousands)
Avg.
Int.
Rate
2008
2009
2010
2011
2012
There-
After
Total
Fair
Value
7.24%
$ 53,726
1,141
1,829
4,316
4,992
117,456
$183,460
$182,905
N/A
–
5.03%
$ 1,996
4.89%
$57,091
1.54%
$ 543
2.61%
$ 5,788
0.51%
$ 3,430
4.53%
$46,427
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5.18%
$132,883
922
141
12
46
–
–
–
–
–
–
–
–
–
$ 1,996
$ 2,014
$57,091
$57,091
$ 543
$ 543
$ 5,788
$ 5,788
$ 3,430
$ 3,430
$46,427
$46,427
$134,004
$133,996
Interest Rate Sensitive
Assets:
Loans……….
Securities available for sale,
net of equity securities…..
Investment
Securities…………
Fed Funds
Sold……………….
Interest-earning
Cash……………….
Interest Rate Sensitive
Liabilities :
Demand Deposits…….
Savings Deposits…….
Money Market
Deposits…….
Time Deposits…….
Although certain assets and liabilities may have similar maturities or periods of re-pricing, they may react in
different degrees to changes in market interest rates. The maturity of certain types of assets and liabilities may
fluctuate in advance of changes in market rates, while maturity of other types of assets and liabilities may lag behind
changes in market rates. In the event of a change in interest rates, prepayment and early withdrawal levels could
deviate significantly from the maturities assumed in calculating this table.
CAPITAL
A significant measure of the strength of a financial institution is its capital base. Our federal regulators have
classified and defined our capital into the following components: (1) Tier 1 Capital, which includes tangible
shareholders’ equity for common stock and qualifying preferred stock, and (2) Tier 2 Capital, which includes a
portion of the allowance for possible loan losses, certain qualifying long-term debt, and preferred stock which does
not qualify for Tier 1 Capital. Minimum capital levels are regulated by risk-based capital adequacy guidelines,
which require certain capital as a percent of our assets and certain off-balance sheet items, adjusted for predefined
credit risk factors, referred to as “risk-adjusted assets.”
44
We are required to maintain, at a minimum, Tier 1 Capital as a percentage of risk-adjusted assets of 4.0% and
combined Tier 1 and Tier 2 Capital, or “Total Capital,” as a percentage of risk-adjusted assets of 8.0%.
In addition to the risk-based guidelines, our regulators require that an institution which meets the regulator’s highest
performance and operation standards maintain a minimum leverage ratio (Tier 1 Capital as a percentage of tangible
assets) of 3.0%. For those institutions with higher levels of risk or that are experiencing or anticipating significant
growth, the minimum leverage ratio will be evaluated through the ongoing regulatory examination process. Due to
our limited operating history and the growth of the Bank during 2007, we are currently required to maintain a
leverage ratio of 4%.
The following table summarizes the Bank’s risk-based capital and leverage ratios at December 31, 2007, as well as
the applicable minimum ratios:
Risk-Based Capital :
Tier 1 Capital Ratio
Total Capital Ratio
Leverage Ratio
December 31,
2007
----------------
25.06%
26.11%
22.27%
Minimum
Regulatory
Requirements
-----------------
4.0%
8.0%
4.0%
The capital levels detailed above represent the continued effect of our successful stock subscription, in combination
with the profitability experienced during 2007, our first full fiscal year of operations. As we employ our capital and
continue to grow our operations, we expect that our capital levels will decrease, but that we will remain a “well-
capitalized” institution.
CONTRACTUAL OBLIGATIONS
As of December 31, 2007, the Company had the following contractual obligations as provided in the table below (in
thousands):
Contractual Obligations
Minimum annual rental under
Non-cancelable operating leases
Remaining contractual maturities
of time deposits...................
Total Contractual Obligations
Less than 1
year
Payment due by Period
1 to 3
years
4 to 5
years
After 5
years
Total
Amounts
Committed
416
704
132,883
$133,299
1,063
1,767
400
58
458
3,245
$ 4,765
3,245
$134,004
$138,769
Additionally, the Bank had certain commitments to extend credit to customers. A summary of commitments to
extend credit at December 31, 2007 is provided as follows (in thousands):
Commercial real estate, construction, and
Land development secured by land……………… $35,541
Home Equity Loans………………………………..
13,041
Standby letters of credit and other.………………… 1,103
$49,685
IMPACT OF INFLATION AND CHANGING PRICES
45
The consolidated financial statements of the Company and notes thereto, included in Part II, Item 8 of this annual
report, have been prepared in accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical dollars without considering the change
in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the
increased cost of our operations. Unlike most industrial companies, nearly all of the assets and liabilities of the
Bank are monetary. As a result, interest rates have a greater impact on our performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
RECENTLY ISSUED ACCOUNTING STANDARDS
Refer to Note 18 of the Notes to Consolidated Financial Statements for discussion of recently issued accounting
standards.
46
OUR BUSINESS
General
The Company is a one-bank holding company incorporated under the laws of the State of New Jersey in November,
2006 to serve as a holding company for Bank of New Jersey. The Company was organized at the direction of the
Board of Directors of the Bank for the purpose of acquiring all of the capital stock of the Bank. On July 31, 2007,
the Company became the bank holding company of the Bank pursuant to a plan of acquisition that was approved by
the boards of directors of the Company and the Bank and adopted by the stockholders of the Bank at a special
meeting held July 19, 2007.
Pursuant to the plan of acquisition, the holding company reorganization was affected through a contribution of all of
the outstanding shares of Bank’s class of common stock to the Company in a one-to-one exchange for shares of the
Company’s class of common stock. Upon consummation of the reorganization, the Bank became the wholly-owned
subsidiary of the Company and all of the former shareholders of the Bank became shareholders of the Company.
The Company did not engage in any operations, other than organizational activities, or issue any shares of its class
of common stock prior to consummation of the holding company reorganization. The only significant activities of
the Company are the ownership and supervision of the Bank.
The Bank is a commercial bank formed under the laws of the State of New Jersey on May 10, 2006. The Bank
operates from its main office at 1365 Palisade Avenue, Fort Lee, New Jersey, 07024, and its three branch offices
located at 204 Main Street, Fort Lee, New Jersey, 07024, 401 Hackensack Avenue, Hackensack, New Jersey,
07601, and 458 West Street, Fort Lee, New Jersey. All branch locations are in Bergen County, New Jersey.
The Company is subject to the supervision and regulation of the Board of Governors of the Federal Reserve System,
referred to as the “FRB.” The Bank is supervised and regulated by the Federal Deposit Insurance Corporation,
“FDIC,” and the New Jersey Department of Banking and Insurance, referred to as the “Department.” The Bank’s
deposits are insured by the FDIC up to applicable limits. The operation of the Company and the Bank are subject to
the supervision and regulation of the FRB, FDIC, and the Department. The principal executive offices of the Bank
are located at 1365 Palisade Avenue, Fort Lee, NJ, 07024 and the telephone number is (201) 944-8600.
Business of the Company
The Company’s primary business is ownership and supervision of the Bank. The Company, through the Bank,
conducts a traditional commercial banking business, accepting deposits from the general public, including
individuals, businesses, non-profit organizations, and governmental units. The Bank makes commercial loans,
consumer loans, and both residential and commercial real estate loans. In addition, the Bank provides other
customer services and makes investments in securities, as permitted by law. The Bank has sought to offer an
alternative, community-oriented style of banking in an area, which is presently dominated by larger, statewide and
national institutions. Our goal is to establish and retain customer relationships by offering a broad range of
traditional financial services and products, competitively-priced and delivered in a responsive manner to small
businesses, professionals, and individuals in the local market. As a locally owned and operated community bank,
the Bank seeks to provide superior customer service that is highly personalized, efficient, and responsive to local
needs. To better serve our customers and expand our market reach, we provide for the delivery of certain of our
financial products and services to local customers and to a broader market through the use of mail, telephone, and
internet banking. The Bank strives to deliver these products and services with the care and professionalism
expected of a community bank and with a special dedication to personalized customer service.
The specific objectives of the Bank are:
• To provide local businesses, professionals, and individuals with banking services responsive to and determined
by the local market;
• Direct access to Bank management by members of the community, whether during or after business hours;
• To attract deposits and loans by competitive pricing; and
• To provide a reasonable return to shareholders on capital invested.
47
Market Area
The principal market for deposit gathering and lending activities lies within Bergen County in New Jersey. The
market is dominated by offices of large statewide and interstate banking institutions. Our service and timely
response to customer needs is expected to fill a niche that has risen due to a loss of local institutions. Additionally,
the market area has a relatively large affluent base for our services and a diversified mix of commercial businesses
and residential neighborhoods. In order to meet the demands of this market, the Company operates its main office
in Fort Lee, New Jersey and three branch offices, two in Fort Lee and one in Hackensack, all in Bergen County,
New Jersey.
Extended Hours
The Bank provides convenient full-service banking from 7:00 am to 7:00 pm weekdays and 9:00 am to 1:00 pm on
Saturday.
Competition
The banking business is highly competitive, and the profitability of the Company depends upon the Bank’s ability to
compete in its market area. The Bank faces considerable competition in its market area for deposits and loans from
other depository institutions. The Bank faces competition in attracting and retaining deposit and loan customers,
and with respect to the terms and conditions it offers on its deposit and loan products. Many of its competitors have
greater financial resources, broader geographic markets, and greater name recognition, and are able to provide more
services and finance wide-ranging advertising campaigns.
The Bank competes with local, regional, and national commercial banks, savings banks, and savings and loan
associations. The Bank also competes with money market mutual funds, mortgage bankers, insurance companies,
stock brokerage firms, regulated small loan companies, credit unions, and issuers of commercial paper and other
securities.
Concentration
The Company is not dependent for deposits or exposed by loan concentrations to a single customer or a small group
of customers the loss of any one or more of which would have a material adverse effect upon the financial condition
of the Company.
Employees
At December 31, 2007, the Company employed thirty full-time equivalent employees. None of these employees is
covered by a collective bargaining agreement. The Company believes its relations with employees to be good.
Supervision and Regulation
The Company and the Bank are each extensively regulated under both federal and state law. These laws restrict
permissible activities and investments and require compliance with various consumer protection provisions
applicable to lending, deposit, brokerage and fiduciary activities. They also impose capital adequacy requirements
and restrict the Company’s ability to repurchase stock or to receive dividends from the Bank. The Company and the
Bank are also subject to comprehensive examination and supervision by the Board of Governors of the Federal
Reserve System (“FRB”) and the FDIC. These regulatory agencies generally have broad discretion to impose
restrictions and limitations on the operations of the Company and the Bank. This supervisory framework could
materially impact the conduct and profitability of the Company’s activities.
Various legislation and regulations, ranging from consumer protection legislation to additional legislation proposing
to substantially change the financial institutions regulatory system, are considered by the U.S. Congress, the New
Jersey State Legislature and federal and state authorities from time to time. Future legislation and regulation may
change our regulatory and operating environment in substantial and unpredictable ways. We cannot predict whether
any legislation or regulation will be enacted that would have a material effect upon our business.
48
MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
Our common stock is not listed for quotation on any exchange or market system and there is no established public
trading market for our common stock. However, there have been a limited number of trades of our common stock
since our initial offering and capitalization. The following table sets forth the high and low prices at which trades of
our common stock have occurred during the indicated periods. The prices are adjusted to reflect our ten percent
(10%) stock distribution in January 2007 and the 2 for 1 stock split which was effective December 31, 2007.
Year Ended December 31, 2007
Fourth quarter
Third quarter
Second quarter
First quarter
Year Ended December 31, 2006
Fourth quarter
Third quarter
Second quarter
First quarter
High
$11.50
11.50
11.50
11.50
$ 9.09
9.09
9.09
N/A
Low
$11.50
11.50
11.50
9.09
$ 9.09
9.09
9.09
N/A
Holders
As of March 15, 2008, there were 1,183 shareholders of record of our common stock.
Dividends
We have not paid any cash dividends since our inception. The decision to pay, as well as the timing and amount of
any dividends to be paid by the Company will be determined by our Board of Directors, giving consideration to our
earnings, capital needs, financial condition, and other relevant factors.
Under applicable New Jersey law, the Company will not permitted to pay dividends on its capital stock if, following
the payment of the dividend, it would be unable to pay its debts as they become due in the usual course of business,
or its total assets would be less than its total liabilities. Further, it is the policy of the FRB that bank holding
companies should pay dividends only out of current earnings and only if future retained earnings would be
consistent with the holding company’s capital, asset quality and financial condition. Because it will have no
significant independent sources of income, the ability of the Company to pay dividends will be dependent on its
ability to receive dividends from the Bank.
Under the New Jersey Banking Act of 1948, as amended, the Bank may declare and pay dividends only if, after
payment of the dividend, the capital stock of the Bank will be unimpaired and either the Bank will have a surplus of
not less than 50% of its capital stock or the payment of the dividend will not reduce the Bank’s surplus. The FDIC
prohibits payment of cash dividends if, as a result, the Bank would be undercapitalized. Further, during the first
three years of operation, cash dividends shall only be paid from net operating income, and only after an appropriate
allowance for loan losses is established and overall capital is adequate.
49
BANCORP OF NEW JERSEY, INC.
Directors and Executive Officers
Board of Directors
Albert F. Buzzetti
Chairman of the Board
President and CEO,
Bank of New Jersey
John K. Daily
Executive Vice President
C.A. Shea & Co.
Josephine Mauro
Realtor and Owner,
Mauro Realty Company
Michael Bello
President,
Michael Bello Insurance Agency
Armand Leone, Jr., MD, JD
Partner,
Britcher, Leone and Roth
Joel P. Paritz, CPA
President,
Paritz & Company, P.A.
Jay Blau
President
Imperial Sales & Sourcing, Inc.
Anthony M. Lo Conte
President and CEO,
Anthony L and S, LLC
Christopher M. Shaari, MD
Physician
Albert L. Buzzetti, Esq.
Managing Partner,
A. Buzzetti and Associates, LLC
Carmelo Luppino
Real Estate Developer
Anthony Siniscalchi, CPA
Partner,
A. Uzzo & Co., CPAs, P.C.
Gerald A. Calabrese, Jr.
President
Century 21 Calabrese Realty
Rosario Luppino
Real Estate Developer
Mark Sokolich, Esq.
Managing Partner,
Sokolich & Macri
Stephen Crevani
President, Aniero Concrete
Howard Mann
President, Carolace Industries
Diane M. Spinner
Executive Vice President and
Chief Administrative Officer,
Bank of New Jersey
Executive Officers
Albert F. Buzzetti
President and
Chief Executive Officer
Michael Lesler
Executive Vice President and
Chief Financial Officer
Leo J. Faresich
Executive Vice President and
Chief Lending Officer
Diane M. Spinner
Executive Vice President and
Chief Administrative Officer
Officers
BANK OF NEW JERSEY
Albert F. Buzzetti
President and
Chief Executive Officer
Michael Lesler
Executive Vice President and
Chief Financial Officer
Stephanie A. Caggiano
Senior Vice President
Consumer Lending
Leo J. Faresich
Executive Vice President and
Chief Lending Officer
Diane M. Spinner
Executive Vice President and
Chief Administrative Officer
Ronald M. Urtiaga
Senior Vice President
Commercial Lending
Anna Maria Alberga
Vice President
Branch Manager – Main Street
Mary E. Wescott
Vice President
Branch Manager – Hackensack
Rosemarie Yaverian
Vice President
Branch Manager – Palisade Ave.
Connie Caltabellatta
Corporate Secretary
Anthony Petrosino
Assistant Vice President
West Street
Independent Auditors
Beard Miller Company, LLP
1200 Atwater Drive STE 225
Malvern, PA 19355
General Counsel
Albert L. Buzzetti & Associates
467 Sylvan Avenue
Englewood Cliffs, NJ 07632
Regulatory Counsel
Dennis R. Casale, Esq.
Pepper Hamilton LLP
STE 400 – 301 Carnegie Center
Princeton, NJ 08543-5276
Registrar and Transfer Agent
American Stock Transfer
and Trust Co.
59 Maiden Lane
New York, NY 10038
Bank of New Jersey
Branch Offices
1365 Palisade Avenue
(MAIN OFFICE)
Fort Lee, N.J. 07024
(201) 944-8600
204 Main Street
Fort Lee, N.J. 02024
(201) 944-7200
458 West Street
Fort Lee, N.J. 07024
(201) 944-7222
401 Hackensack Avenue
Hackensack, N.J. 07601
(201) 968-0008
(LOGO HERE)
Bancorp of New Jersey, Inc.