TABLE OF CONTENTS
PAGE
Forward-Looking Statements .................................................................................................... 3
Consolidated Balance Sheets..................................................................................................... 4
Consolidated Statements of Income .......................................................................................... 5
Consolidated Statements of Comprehensive Income ................................................................ 6
Consolidated Statements of Stockholders’ Equity..................................................................... 7
Consolidated Statements of Cash Flows.................................................................................... 8
Notes to Consolidated Financial Statements ............................................................................. 9
Report of Independent Registered Public Account Firm.....................................................38-39
Management’s Discussion and Analysis of Financial Condition and Results of Operations .. 40
Business................................................................................................................................... 61
Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities ............................................................................... 72
Directors and Executive Officers ............................................................................................ 74
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements, in addition to historical information. Forward looking
statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “intend,”
“estimate,” “project,” and variations of such words and similar expressions, or future or conditional verbs
such as “will,” “would,” “should,” “could,” “may,” or similar expressions. The U.S. Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, provide a safe harbor in regard to the inclusion of
forward-looking statements in this document and documents incorporated by reference.
You should note that many factors, some of which are discussed elsewhere in this document and in the
documents that are incorporated by reference, could affect the future financial results of Bancorp of New
Jersey, Inc. and its subsidiaries and could cause those results to differ materially from those expressed in
the forward-looking statements contained or incorporated by reference in this document. These factors
include, but are not limited, to the following:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Current economic conditions affecting the financial industry;
Changes in interest rates and shape of the yield curve;
Credit risk associated with our lending activities;
Risks relating to our market area, significant real estate collateral and the real estate market;
(cid:120) Operating, legal and regulatory risk;
Fiscal and monetary policy;
Economic, political and competitive forces affecting the Company’s business; and
That management’s analysis of these risks and factors could be incorrect, and/or that the strategies
developed to address them could be unsuccessful.
Bancorp of New Jersey, Inc., referred to as “we” or the “Company,” cautions that these forward-looking
statements are subject to numerous assumptions, risks and uncertainties, all of which change over time, and
we assume no duty to update forward-looking statements, except as may be required by applicable law or
regulation, and except as required by applicable law or regulation, we do not undertake, and specifically
disclaim any obligation, to publicly release any revisions to any forward-looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances after the date of such statements. We
caution readers not to place undue reliance on any forward-looking statements. These statements speak
only as of the date made, and we advise readers that various factors, including those described above, could
affect our financial performance and could cause actual results or circumstances for future periods to differ
materially from those anticipated or projected.
2
3
CONSOLIDATED BALANCE SHEETS
December 31, 2013 and 2012
(Dollars in thousands, except share data)
Assets
Cash and due from banks
Interest bearing deposits
Federal funds sold
Total cash and cash equivalents
Interest bearing time deposits
Securities available for sale
Securities held to maturity (fair value approximates $18,016 and $5,482
at December 31, 2013 and 2012, 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 real estate owned
Other assets
Total assets
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing demand deposits
Interest-bearing deposits
Demand, 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 5,340,266 at December 31, 2013
and 5,206,932 at December 31, 2012
Retained earnings
Accumulated other comprehensive (loss) income
Total stockholders' equity
Total liabilities and stockholders' equity
2013
2012
$
2,115
35,168
458
37,741
$
765
29,852
461
31,078
1,000
68,048
18,011
792
472,465
(339)
(5,775)
466,351
250
88,480
5,482
669
435,729
(180)
(5,072)
430,477
10,427
1,456
964
6,001
610,791
$
10,224
1,732
-
2,982
571,374
$
$
69,620
$
65,910
219,145
264,555
553,320
1,521
554,841
-
196,369
253,456
515,735
1,919
517,654
-
50,475
7,132
(1,657)
55,950
610,791
$
49,689
3,747
284
53,720
571,374
$
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2013 and 2012
(Dollars in thousands, except per share data)
Provision for loan losses
Net interest income after provision for loan losses
Non interest income
Fees and service charges on deposit accounts
Interest income:
Loans, including fees
Securities
Interest-earning deposits in banks
Federal funds sold
Total interest income
Interest expense:
Savings and money markets
Time deposits
Total interest expense
Net interest income
Fees earned from mortgage referrals
Gains on sale of securities
Total non interest income
Non interest expense
Salaries and employee benefits
Occupancy and equipment expense
FDIC and state assessments
Legal fees
Professional fees
Data processing
Other operating expenses
Total non interest expenses
Income before income taxes
Income tax expense
Net income
Earnings per share:
Basic
Diluted
2013
2012
$
23,635
$
21,566
1,083
70
9
24,797
796
5,303
6,099
18,698
810
17,888
178
6
195
379
5,495
2,415
360
177
330
747
1,034
10,558
7,709
3,055
1,782
66
8
23,422
521
5,554
6,075
17,347
1,198
16,149
170
2
243
415
4,971
2,029
327
242
313
695
1,040
9,617
6,947
2,747
$
4,654
$
4,200
$
0.88
$
0.87
$
0.81
$
0.81
See accompanying notes to consolidated financial statements
4
5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2013 and 2012
(Dollars in Thousands)
Net income
Other comprehensive income:
Net unrealized holding losses on securities available for sale arising during the period,
net of income tax benefit of ($1,251) and ($109), respectively
Reclassification adjustment for gain on sale of securities, net of income tax expense
of $63 and $86, respectively
Other comprehensive (loss) income
Comprehensive income
2013
2012
$
4,654
$
4,200
(2,073)
(187)
132
(1,941)
2,713
$
157
(30)
4,170
$
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years ended December 31, 2013 and 2012
(Dollars in Thousands)
Common
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Total
Balance at January 1, 2012
2,046
314
51,906
Stock based compensation
Dividends on common stock ($0.48 per share)
Net income
Total other comprehensive loss
Exercise of stock options (53,334 shares)
Stock based compensation
Dividends on common stock ($0.24 per share)
Net income
Total other comprehensive loss
49,546
143
-
-
-
-
-
-
614
172
Balance at December 31, 2012
49,689
3,747
(2,499)
4,200
(1,269)
4,654
-
-
-
-
-
(30)
284
-
-
-
-
-
-
-
(1,941)
143
(2,499)
4,200
(30)
53,720
614
172
(1,269)
4,654
(1,941)
Balance at December 31, 2013
$
50,475
$
7,132
$
(1,657)
$
55,950
See accompanying notes to consolidated financial statements
6
7
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2013 and 2012
(Dollars in Thousands)
Years ended December 31, 2013 and 2012
(In Thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
Operating activities:
Provision for loan losses
Amortization of securities premiums
Deferred tax benefit
Depreciation and amortization
Stock based compensation
Accretion of net loan origination fees
Gain on sale of securities
Changes in operating assets and liabilities:
Decrease (increase) in accrued interest receivable
(Increase) decrease in other assets
(Decrease) increase in other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of securities available for sale
Purchases of securities held to maturity
Proceeds from maturities of securities held to maturity
Proceeds from called or matured securities available for sale
Proceeds from sales of securities available for sale
Purchase of interest bearing time deposits
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
Increase in short term borrowings
Repayment of short term borrowing
Proceeds from the exercise of options
Dividends paid
Net cash provided by financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental information:
Cash paid during the year for:
Interest
Taxes
Supplemental disclosure of non-cash investing and financing
transactions:
Loans transferred to other real estate owned
2013
2012
$
4,654
$
4,200
810
88
(354)
520
172
231
(195)
276
(1,477)
(398)
4,327
(48,000)
(24,008)
11,479
18,031
47,379
(750)
(123)
(37,879)
(723)
(34,594)
37,585
-
-
614
(1,269)
36,930
6,663
31,078
37,741
$
1,198
-
(99)
490
143
114
(243)
(217)
191
146
5,923
(100,676)
(5,781)
5,086
51,294
17,737
-
(120)
(71,169)
(511)
(104,140)
99,572
19,000
(19,000)
-
(2,499)
97,073
(1,144)
32,222
31,078
$
$
$
6,142
3,680
$
$
6,005
2,747
$
964
$
-
See accompanying notes to consolidated financial statements.
8
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”) and the Bank’s wholly-owned subsidiary, BONJ-New York Corp. All significant inter-
company accounts and transactions have been eliminated in consolidation.
The Company was incorporated under the laws of the State of New Jersey to serve as a holding
company for the Bank and to acquire all the capital stock of the Bank.
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 were reclassified into
common stock in the Company’s consolidated financial statements.
Certain amounts in the prior period’s financial statements have been reclassified to conform to the
December 31, 2013 presentation. These reclassifications did not have an impact on income,
stockholders’ equity or cash flows as previously reported.
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.
Since opening in May, 2006, the Bank has established seven branch offices in addition to its main
office. The Bank expects to continue to seek additional strategically located branch locations within
Bergen County. Particular emphasis will be placed on presenting an alternative banking culture in
communities which are dominated by non-local competitors and where no community banking
approach exists or in locations which the Company perceives to be economically emerging.
During the second quarter of 2009, the Bank formed BONJ-New York Corporation. The New York
subsidiary is engaged in the business of acquiring, managing and administering portions of Bank of
New Jersey’s investment and loan portofolios.
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,
the valuation of the deferred tax asset, the
determination of other-than-temporary impairment on securities, and the potential impairment of
restricted stock. 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. 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.
The financial statements have been prepared in conformity with U.S. GAAP. 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.
Subsequent Events
The Company has evaluated subsequent events in preparing the December 31, 2013 Consolidated
Financial Statements. Management believes there were no events that occurred after December 31,
2013, but before the financial statements were available to be issued that would require disclosure.
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
9
or customers within its primary service area. Note 3 describes the types of lending in which the
Company engages.
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 in 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 Board of Governors of the Federal Reserve System.
Securities
Management determines the appropriate classification of debt securities at the time of purchase and
re-evaluates such designation as of each balance sheet date.
Investments in debt securities that the Bank has the positive intent and ability to hold to maturity are
classified as held to maturity securities and reported at amortized cost. Debt and equity securities
that are bought and held principally for the purpose of selling them in the near term are classified as
trading securities and reported at fair value, with unrealized holding gains and losses included in
earnings. Debt and equity securities not classified as trading securities, nor as held to maturity
securities are classified as available for sale securities and reported at fair value, with unrealized
holding gains and losses, net of deferred income taxes, reported in the accumulated other
comprehensive income component of stockholders’ equity. The Bank held no trading securities at
December 31, 2013 and 2012. Discounts and premiums are accreted/amortized to income by use of
the level-yield method. Gain or loss on sales of securities available for sale is based on the specific
identification method.
The fair value of securities available for sale (carried at fair value) and held to maturity (carried at
amortized cost) are determined by obtaining market prices on nationally recognized securities
exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in
the industry to value debt securities without relying exclusively on quoted market prices for the
specific securities but rather by relying on the securities’ relationship to other benchmark quoted
prices. For certain securities which are not traded in active markets or are subject to transfer
restrictions, valuations are adjusted to reflect illiquiditiy and/or non-transferability, and such
adjustments are generally based on available market evidence (Level 3). In the absence of such
evidence, management’s best estimate is used. Management’s best estimate consists of both internal
and external support on certain Level 3 investments. Internal cash flow models using a present value
formula that includes assumptions market participants would use along with indicative exit pricing
obtained from broker/dealers (where available) were used to support fair values of certain Level 3
investments.
The Bank adopted guidance for other-than-temporary impairments of debt securities and expanded
the financial statement discloures for other-than-temporary impairment losses on debt and equity
securities. The recent guidance replaced the “intent and ability” indication in current guidance by
specifying that (a) if a company does not have the intent to sell a debt security prior to recovery and,
(b) it is more likely than not that it will not have to sell the debt security prior to recovery, the
security would not be considered other-than-temporarily impaired unless there is a credit loss.
When an entity does not intend to sell the security, and it is more likely than not, the entity will not
have to sell the security before recovery of its cost basis, it will recognize the credit component of an
other-than-temporary impairment of a debt security in earnings and the remaining portion in other
comprehensive income. For held-to-maturity debt securities, the amount of an other-than-temporary
impairment recorded in other comprehensive income for the noncredit portion of a previous other-
10
than-temporary impairment should be amortized prospectively over the remaining life of the security
on the basis of the timing of future estimated cash flows of the security.
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. The estimated lives of our premises and
equipment range from 3 years for certain computer related equipment to 30 years for building costs
associated with newly constructed buildings. Maintenance and repairs are charged to expense in the
year incurred.
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 their outstanding unpaid principal balances, net of an allowance for loan
losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance.
Loan origination fees, net of certain direct origination costs, are deferred and recognized as an
adjustment of the yield (interest income) of the related loans. The Company is generally amortizing
these amounts over the contractual life of the loan. Premiums and discounts on purchased loans are
amortized as adjustments to interest income using the effective yield method.
The loans receivable portfolio is segmented into commercial and consumer loans. Commercial loans
consist of the following classes: commercial and industrial (“commercial”), commercial real estate,
and commercial construction. Consumer loans consist of the following classes: residential mortgage
loans, home equity loans and other consumer loans.
For all classes of loans receivable, the accrual of interest is discontinued when the contractual
payment of principal or interest has become 90 days past due or management has serious doubts
about further collectability of principal or interest, even though the loan is currently performing. A
loan may remain on accrual status if it is in the process of collection and is either guaranteed or well
secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current
year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan
losses. Interest received on nonaccrual loans, including impaired loans, generally is either applied
against principal or reported as interest income, according to management’s judgment as to the
collectability of principal. Generally, loans are restored to accrual status when the obligation is
brought current, has performed in accordance with the contractual terms for a reasonable period of
time (generally six months) and the ultimate collectability of the total contractual principal and
interest is no longer in doubt. The past due status of all classes of loans receivable is determined
based on contractual due dates for loan payments.
The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded
lending commitments. The allowance for loan losses represents management’s estimate of losses
inherent in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The
reserve for unfunded lending commitments represents management’s estimate of losses inherent in
its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheet.
The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-
offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan
losses, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal
balance of loans receivable are charged off to the allowance as soon as it is determined that the
repayment of all, or part, of the principal balance is highly unlikely. Non-residential consumer loans
are generally charged off no later than 180 days past due on a contractual basis, earlier in the event
of bankruptcy, or if there is an amount deemed uncollectible. Because all identified losses are
immediately charged off, no portion of the allowance for loan losses is restricted to any individual
loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.
The allowance for credit losses is maintained at a level considered adequate to provide for losses that
are probable and reasonable to estimate. Management performs a quarterly evaluation of the
adequacy of the allowance. The allowance is based on the Company’s past loan loss experience,
known and inherent risks in the loan portfolio and unfunded commitments, adverse situations that
may affect the borrower’s ability to repay, the estimated value of any underlying collateral,
composition of the loan portfolio, current economic conditions and other relevant factors. This
evaluation is inherently subjective as it requires material estimates that may be susceptible to
significant revision as more information becomes available.
11
The allowance for loan losses consists of specific, general and unallocated components. The specific
component relates to loans that are classified as impaired. For loans that are classified as impaired,
an allowance is established when the discounted cash flows (or collateral value or observable market
price) of the impaired loan is lower than the carrying value of that loan. The general component
covers pools of loans by loan class including commercial loans not considered impaired, as well as
smaller balance homogeneous loans, such as residential real estate, home equity and other consumer
loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each
of these categories of loans, adjusted for qualitative factors. These qualitative risk factors include:
1. Lending policies and procedures, including underwriting standards and collection, charge-off,
and recovery practices.
2. National, regional, and local economic and business conditions as well as the condition of
various market segments, including the value of underlying collateral for collateral dependent
loans.
3. Nature and volume of the portfolio and terms of loans.
4. Experience, ability, and depth of lending management and staff.
5. Volume and severity of past due, classified and nonaccrual loans as well as and other loan
modifications.
6. Quality of the Company’s loan review system, and the degree of oversight by the Company’s
board of directors.
7. Existence and effect of any concentrations of credit and changes in the level of such
concentrations.
8. Effect of external factors, such as competition and legal and regulatory requirements.
Each factor is assigned a value to reflect improving, stable or declining conditions based on
management’s best judgment using relevant information available at the time of the evaluation.
Adjustments to the factors are supported through documentation of changes in conditions in a
narrative accompanying the allowance for loan loss calculation.
An unallocated component is maintained to cover uncertainties that could affect management’s
estimate of probable losses. The unallocated component of the allowance reflects the margin of
imprecision inherent in the underlying assumptions used in the methodologies for estimating specific
and general losses in the portfolio.
A loan is considered impaired when, based on current information and events, it is probable that the
Company will be unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value and the probability of collecting
scheduled principal and interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower, including the length of
the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the
shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan
basis for commercial loans, commercial real estate loans and commercial construction loans by
either the present value of expected future cash flows discounted at the loan’s effective interest rate
or the fair value of the collateral if the loan is collateral dependent.
An allowance for loan losses is established for an impaired loan if its carrying value exceeds its
estimated fair value. The estimated fair values of substantially all of the Company’s impaired loans
are measured based on the estimated fair value of the loan’s collateral.
For commercial loans secured by real estate, estimated fair values are determined primarily through
third-party appraisals. When a real estate secured loan becomes impaired, a decision is made
regarding whether an updated certified appraisal of the real estate is necessary. This decision is
based on various considerations, including the age of the most recent appraisal, the loan-to-value
ratio based on the original appraisal and the condition of the property. Appraised values are
discounted to arrive at the estimated selling price of the collateral, which is considered to be the
estimated fair value. The discounts also include estimated costs to sell the property.
For commercial loans secured by non-real estate collateral, such as accounts receivable, inventory
and equipment, estimated fair values are determined based on the borrower’s financial statements,
inventory reports, accounts receivable aging or equipment appraisals or invoices. Indications of
value from these sources are generally discounted based on the age of the financial information or
the quality of the assets.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.
Accordingly, the Company does not separately identify individual residential mortgage loans, home
equity loans and other consumer loans for impairment disclosures, unless such loans are the subject
of a troubled debt restructuring agreement.
Loans whose terms are modified are classified as troubled debt restructurings (“TDRs”) if the
Company grants such borrowers concessions and it is deemed that those borrowers are experiencing
financial difficulty. Concessions granted under a troubled debt restructuring generally involve a
temporary reduction in interest rate or an extension of a loan’s stated maturity date. Loans classified
as TDRs are designated as impaired and evaluated for impairment until they are ultimately repaid in
full or foreclosed and sold. Nonaccrual troubled debt restructurings are restored to accrual status if
principal and interest payments, under the modified terms, are current for six consecutive months
after modification.
The Company’s methodology for the determination of the allowance for loan losses includes further
segregation of loan classes into risk rating categories. The borrower’s overall financial condition,
repayment sources, guarantors and value of collateral, if appropriate, are evaluated annually for
commercial loans or when credit deficiencies arise, such as delinquent loan payments, for
commercial and consumer loans. Credit quality risk ratings include regulatory classifications of
special mention, substandard, doubtful and loss. Loans criticized special mentions have potential
weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may
result in deterioration of the repayment prospects. Loans classified substandard have a well-defined
weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are
inadequately protected by the current sound net worth and paying capacity of the obligor or of the
collateral pledged, if any. Loans classified doubtful have all the weaknesses inherent in loans
classified substandard with the added characteristic that collection or liquidation in full, on the basis
of current conditions and facts, is highly improbable. Loans classified as a loss are considered
uncollectible and are charged to the allowance for loan losses. Loans not classified are rated pass.
In addition to the Company’s methodology, Federal regulatory agencies, as an integral part of their
examination process, periodically review the Company’s allowance for loan losses and may require
the Company to recognize additions to the allowance based on their judgments about information
available to them at the time of their examination, which may not be currently available to
management. Based on management’s comprehensive analysis of the loan portfolio, management
believes the current level of the allowance for loan losses was adequate.
Other Real Estate Owned
Other real estate owned consists of real estate acquired by foreclosure and is initially recorded at fair
value, less estimated selling costs. Subsequent to foreclosure, revenues are included in non-interest
income and expenses from operations and lower of cost or market changes in the valuation are
included in non-interest expenses.
Stock-Based Compensation
ASC Topic 718 Compensation-Stock Compensation 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 instruments or that may be settled by the issuance of such equity instruments. Guidance
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.
The Company accounts for stock options under these recognition and measurement principles.
The Company recorded stock-based compensation expense of $172,000 and $143,000 during 2013
and 2012, respectively. At December 31, 2013, the Company had no unrecognized compensation
expense related to stock options. At December 31, 2013, the Company had $867,000 of
unrecognized compensation expense related to unvested restricted stock granted in 2013.
12
13
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.
As required by ASC Topic 740, Income Taxes, the Company recognizes the financial statement
benefit of a tax position only 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% likelihood of being realized upon ultimate settlement with the relevant tax authority. The
Bank applied ASC Topic 740 to all tax positions for which the statute of limitations remained open.
There was no material effect on the Company’s consolidated financial position or results of
operations and no adjustment to retained earnings.
The Company recognizes interest and penalties on income taxes as a component of income tax.
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.
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 statements of
comprehensive income.
Advertising
The Company expenses advertising costs as incurred. Advertising expenses totaled $109 thousand
and $119 thousand for 2013 and 2012, respectively.
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
(free of 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, or the ability to unilaterally cause the
holder to return specific assets.
Restricted Investment in Bank Stock
Restricted investment in bank stocks which represent required investments in the common stock of
correspondent banks, is carried at cost and consists of the common stock of the Federal Home Loan
Bank (FHLB) of $692 thousand and $569 thousand and Atlantic Community Bankers Bank,
formerly Atlantic Central Bankers Bank (ACBB) of $100 thousand and $100 thousand, as of
December 31, 2013 and 2012, respectively. 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 as of December 31, 2013 and 2012.
Management believes no impairment charge is necessary related to the FHLB or ACBB restricted
stock as of December 31, 2013.
Restrictions on Cash and Amounts Due From Banks
The Bank is required to maintain average balances on hand or with the Federal Reserve Bank of
New York. At December 31, 2013 and 2012, these reserve balances amounted to $634 thousand and
$1.7 million, respectively, and are reflected in interest bearing deposits in banks.
NOTE 2.
Securities
A summary of securities held to maturity and securities available for sale at December 31, 2013 and
2012 is as follows (in thousands):
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
10,014
$
-
$
-
$
10,014
2013
Securities Held to Maturity:
Obligations of states and
political subdivisions
Government sponsored
enterprise obligations
U.S. Treasury obligations
Total securities held to maturity
Securities Available for Sale:
U.S. Treasury obligations
Government sponsored
enterprise obligations
Total securities available for sale
2012
Securities Held to Maturity:
Obligations of states and
political subdivisions
Securities Available for Sale:
U.S. Treasury obligations
Government sponsored
enterprise obligations
Total securities available for sale
3,998
3,999
18,011
6,733
64,000
70,733
17,985
70,051
88,036
Total securities
$
88,744
$
10
$
(2,690)
$
86,064
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
5,482
$
-
$
-
$
5,482
10
10
-
-
-
-
285
488
773
-
(5)
(5)
(414)
(2,271)
(2,685)
4,008
3,994
18,016
6,319
61,729
68,048
(93)
(236)
(329)
18,177
70,303
88,480
Total securities
$
93,518
$
773
$
(329)
$
93,962
Securities with an amortized cost of $8.4 million and a fair value of $8.1 million were pledged to
secure public funds on deposit at December 31, 2013. Securities with an amortized cost of $13.1
million and a fair value of $13.6 million, were pledged to secure public funds on deposit at
December 31, 2012.
For the year ended December 31, 2013, the Company sold sixteen securities from its available for
sale portfolio. It recognized a gain of approximately $541 thousand from the sale of seven
securities, a loss of approximately $346 thousand from the sale of eight securities and no gain or loss
from the sale of one security, resulting in net gains of approximately $195 thousand from the
transactions. The Company did not sell any securities from its held to maturity portfolio in 2013.
During 2012, the Company sold five securities from its available for sale portfolio. It recognized
gains of approximately $252 thousand from two of the securities sold and a loss of approximately $9
thousand from the sale of three of the securities, resulting in net gains of approximately $243
14
15
thousand from the transactions. The Company did not sell any securities from its held to maturity
portfolio in 2012.
The unrealized losses, categorized by the length of time of continuous loss position, and the fair
value of related securities available for sale at December 31, 2013 and 2012 are as follows (in
thousands):
2013
Securities Held to Maturity:
U.S. Treasury obligations
Securities Available for Sale:
U.S. Treasury obligation
Government Sponsored
Enterprise obligations
Total securities available for sale
Less than 12 Months
Unrealized
Losses
Fair
Value
More than 12 Months
Unrealized
Losses
Fair
Value
Total
Fair
Value
Unrealized
Losses
$
3,994
$
5
$
-
$
-
$
3,994
$
5
-
-
6,319
414
6,319
414
41,757
41,757
1,243
1,243
16,972
23,291
1,028
1,442
58,729
65,048
2,271
2,685
Total securities
$
45,751
$
1,248
$
23,291
$
1,442
$
69,042
$
2,690
2012
U.S. Treasury obligation
Government Sponsored
Enterprise obligations
Total securities available for sale
Less than 12 Months
Unrealized
Losses
$
Fair
Value
6,749
$
93
More than 12 Months
Unrealized
Losses
$
-
Fair
Value
$
-
Total
Fair
Value
$
6,749
Unrealized
Losses
$
93
NOTE 3.
Loans and Allowance for Loan Losses
Loans at December 31, 2013 and 2012, are summarized as follows (in thousands):
32,765
39,514
$
236
329
$
-
-
$
-
$
-
32,765
39,514
$
236
329
$
Unrealized losses at December 31, 2013 consisted of losses on twenty five investments in
government sponsored enterprise obligations, and three in U. S. Treasury Securities, all of which
were caused by interest rate increases. Nine of the investments with unrealized losses at December
31, 2013 were in a loss position for more than twelve months. The contractual terms of those
investments do not permit the issuer to settle the securities at a price less than the amortized cost
basis of the investments. Because the Company does not intend to sell the investments and it is not
more likely than not that the Company will be required to sell the investments before recovery of
their amortized cost basis, which may be maturity, the Company does not consider those investments
to be other-than-temporarily impaired at December 31, 2013.
16
17
The following table sets forth as of December 31, 2013, the maturity distribution of the Company’s
held to maturity and available for sale portfolios (in thousands):
2013
Securities Held to Maturity
Securities Available for Sale
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
1 year or less
$
10,014
$
10,014
$
-
$
-
After 1 year to 5 years
7,997
8,002
After 5 years to 10 years
After 10 years
-
-
-
-
29,000
41,733
-
28,573
39,475
-
$
18,011
$
18,016
$
70,733
$
68,048
Commercial real estate
Residential mortgages
Commercial
Home equity
Consumer
2013
2012
$ 298,548
$ 246,545
53,601
57,634
61,204
1,478
54,332
64,900
68,737
1,215
$ 472,465
$ 435,729
The Bank grants loans primarily to New Jersey residents and businesses within its local market 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
upon various economic conditions and individual circumstances beyond the Bank’s control; the
Bank is therefore subject to risk of loss. The Bank designs its lending policies and procedures to
manage the exposure to such risks and that the allowance for loan losses is maintained at a level
which is believed to be adequate to provide for losses known and inherent in our loan portfolio that
are both probable and reasonable to estimate.
The following table presents the activity in the allowance for loan losses and recorded investment in
loan receivables as of and for the year ended December 31, 2013 (in thousands):
Commercial
Real Estate
Residential
Mortgages Commercial Home Equity Consumer Unallocated
Total
Allowance for loan
losses:
Beginning Balance
Charge-offs
Recoveries
Provisions
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Loan receivables:
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
$
$
3,150
(89)
-
646
3,707
$
$
322
-
-
3
325
$
1,033
-
4
(68)
969
$
$
$
$
383
-
-
210
593
24
(22)
-
24
26
$
$
160
-
-
(5)
155
5,072
(111)
4
810
5,775
$
$
$
$
237
$
56
$
50
$
261
$
-
$
-
$
604
$
3,470
$
269
$
919
$
332
$
26
$
155
$
5,171
$
298,548
$
53,601
$
57,634
$
61,204
$
1,478
$
-
$
472,465
$
4,204
$
5,661
$
50
$
1,733
$
-
$
-
$
11,648
$
294,344
$
47,940
$
57,584
$
59,471
$
1,478
$
-
$
460,817
As of December 31, 2013 and 2012 the Bank had no accruing loans greater than 90 days delinquent.
The following table presents the activity in the allowance for loan losses and recorded investment in
loan receivables as of and for the year ended December 31, 2012 (in thousands):
Commercial
Real Estate
Residential
Mortgages Commercial Home Equity Consumer Unallocated
Total
The performance and credit quality of the loan portfolio is also monitored by analyzing the age of
the loans receivable as determined by the length of time a recorded payment is past due. The
following tables present the classes of the loan portfolio summarized by the past due status as of
December 31, 2013 and 2012 (in thousands):
2013
Commercial real estate
Residential mortgages
Commercial
Home equity
Consumer
Total
2012
Commercial real estate
Residential mortgages
Commercial
Home equity
Consumer
Total
-
-
-
160
119
-
-
10
-
-
-
35
184
-
-
-
30-59 Days
60-89 Days
Greater than
Total Past
Total Loans
Nonaccrual
Past Due
$
-
Past Due
$
-
90 Days
Due
Current
Receivables
Loans
$
1,700
$
1,700
$
296,848
$
298,548
$
1,700
2,608
50
673
-
2,608
50
833
35
50,993
57,584
60,371
1,443
53,601
57,634
61,204
1,478
2,608
50
673
-
$
160
$
35
$
5,031
$
5,226
$
467,239
$
472,465
$
5,031
30-59 Days
60-89 Days
Greater than
Total Past
Total Loans
Nonaccrual
Past Due
$
-
Past Due
$
-
90 Days
Due
Current
Receivables
Loans
$
1,704
$
1,704
$
244,841
$
246,545
$
1,704
2,509
325
1,408
-
2,693
444
1,408
10
51,639
64,456
67,329
1,205
54,332
64,900
68,737
1,215
2,509
325
1,408
-
$
129
$
184
$
5,946
$
6,259
$
429,470
$
435,729
$
5,946
The following tables present the classes of the loan portfolio summarized by the aggregate pass
rating and the classified ratings of special mention, substandard and doubtful within the Bank’s
internal risk rating system as of December 31, 2013 and 2012 (in thousands):
2013
Mortgages Commercial
Home Equity
Consumer
Total
Commercial
Real Estate
Residential
$
294,741
$
48,120
$
56,084
$
59,531
$
1,478
$
459,954
2,107
1,700
-
2,873
2,608
-
1,500
50
-
1,000
673
-
$
298,548
$
53,601
$
57,634
$
61,204
$
1,478
$
472,465
2012
Mortgages Commercial
Home Equity
Consumer
Total
Commercial
Real Estate
Residential
$
241,682
$
51,823
$
63,075
$
67,329
$
1,215
$
425,124
4,863
-
-
2,509
-
-
1,500
325
-
1,408
-
-
$
246,545
$
54,332
$
64,900
$
68,737
$
1,215
$
435,729
-
-
-
-
-
-
7,480
5,031
-
1,500
9,105
-
Pass
Special Mention
Substandard
Doubtful
Total
Pass
Special Mention
Substandard
Doubtful
Total
$
258
$
7
$
50
$
12
$
-
$
-
$
327
$
2,892
$
315
$
983
$
371
$
24
$
160
$
4,745
$
246,545
$
54,332
$
64,900
$
68,737
$
1,215
$
-
$
435,729
$
4,863
$
2,509
$
325
$
1,408
$
-
$
-
$
9,105
$
241,682
$
51,823
$
64,575
$
67,329
$
1,215
$
-
$
426,624
18
19
Allowance for loan
losses:
Beginning Balance
Charge-offs
Recoveries
Provisions
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
Loan receivables:
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
470
(168)
-
20
322
827
(340)
3
543
1,033
368
(101)
-
116
383
21
$
-
-
3
24
$
380
-
-
(220)
160
4,474
(609)
9
1,198
5,072
$
2,408
-
6
736
3,150
$
$
$
$
$
$
$
$
$
$
$
The following tables provide information about the Bank’s impaired loans as of and for the years
ended December 31, 2013 and 2012 (in thousands):
2013
Impaired loans with specific reserves:
Commercial real estate
Residential mortgages
Commercial
Home equity
Recorded
Investment
$
957
974
50
1,594
Unpaid
Principal
Balance
$
957
1,185
50
1,594
Total impaired loans with specific reserves
3,575
3,786
Impaired loans with no specific reserves:
Commercial real estate
Residential mortgages
Home equity
Total impaired loans with no specific reserves
3,247
4,687
139
8,073
3,247
4,687
240
8,174
Related
Allowance
$
237
56
50
261
604
-
-
-
-
Total impaired loans
$
11,648
$
11,960
$
604
2012
Impaired loans with specific reserves:
Commercial real estate
Residential mortgages
Commercial
Home equity
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
$
957
$
957
$
258
629
50
523
840
50
523
Total impaired loans with specific reserves
2,159
2,370
Impaired loans with no specific reserves:
Commercial real estate
Residential mortgages
Commercial
Home equity
Total impaired loans with no specific reserves
4,304
1,880
275
885
7,344
4,304
1,880
275
986
7,445
7
50
12
327
-
-
-
-
-
Year Ended
December 31, 2013
Average
Recorded
Investment
Interest
Income
Received
Year Ended
December 31, 2012
Average
Recorded
Investment
Interest
Income
Received
$
957
$
$
958
$
-
-
-
9
9
201
18
-
3
222
Impaired loans with specific reserves:
Commercial real estate
Residential mortgages
Commercial
Home equity
Total impaired loans with specific reserves
Impaired loans with no specific reserves:
Commercial real estate
Residential mortgages
Commercial
Home equity
975
50
1,383
3,365
2,963
4,107
165
711
7,946
-
-
-
42
42
51
164
-
3
218
Total impaired loans with no specific reserves
Total impaired loans
$
11,311
$
260
$
6,953
$
231
The following table presents TDR loans as of December 31, 2013 and 2012 (in thousands):
2013
Residential mortgages
Commercial real estate
Home equity
2012
Residential mortgages
Commercial real estate
Commercial
Home equity
$
3,256
$
7,766
Accrual
Number of
Nonaccrual
Number of
Status
Loans
Status
Loans
$
3,053
397
1,060
$
4,510
Status
$
-
3,557
-
-
$
2,514
742
-
$
2,285
746
275
730
2
1
2
5
2
2
-
-
-
Accrual
Number of
Nonaccrual
Number of
Loans
Status
Loans
Total
$
5,567
1,139
1,060
Total
$
2,285
4,303
275
730
$
3,557
$
4,036
$
7,593
764
50
523
2,295
1,792
1,722
275
869
4,658
-
4
1
5
3
1
1
1
6
Total impaired loans
$
9,503
$
9,815
$
327
20
21
The following table summarizes information in regards to troubled debt restructurings that occurred
during the years ended December 31, 2013 and 2012 (in thousands):
2013
Number of
Loans
Residential mortgages
Home equity
1
1
2
2012
Number of
Loans
Residential mortgages
Commercial real estate
Commercial loan
Home equity
1
2
1
1
5
Pre-Modification
Outstanding
Recorded
Investments
Post-
Modification
Outstanding
Recorded
Investments
$
$
$
$
179
60
239
179
60
239
Pre-Modification
Outstanding
Recorded
Investments
Post-
Modification
Outstanding
Recorded
Investments
$
$
1,656
3,906
275
730
6,567
1,656
3,906
275
730
6,567
$
$
The following table displays the nature of modifications during the years ended December 31, 2013
and 2012 (in thousands):
NOTE 5.
Deposits
2013
Pre-modification outstanding
recorded investment:
Residential mortgages
Home equity
2012
Pre-modification outstanding
recorded investment:
Residential mortgages
Commercial real estate
Commercial
Home equity
Rate
Modification
Term
Modification
Interest Only
Modification
Payment
Modification
Combination
Modification
Total
Modifications
$
$
179
60
239
$
$
-
-
-
-
$
-
$
-
$
$
-
-
-
$
$
-
-
-
$
$
179
60
239
Rate
Modification
Term
Modification
Interest Only
Modification
Payment
Modification
Combination
Modification
Total
Modifications
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
$
1,656
3,906
275
730
6,567
1,656
3,906
275
730
6,567
$
$
During the the year ended December 31, 2013, the Bank had one residential mortgage loan meeting
the definition of a TDR which had a payment default. This loan had an accumulated unpaid
principal balance of $250 thousand at December 31, 2013. This loan also had a total of $15
thousand of specific reserves.
22
23
During the the year ended December 31, 2012, the Bank had three residential mortgages meeting the
definition of a TDR which had payment defaults. These loans had an accumulated unpaid principal balance
of $2.5 million at December 31, 2012, and incurred charge-offs totaling $168 thousand during 2012,
reducing the net balance of the loans to $2.3 million. Two of these loans also had a total of $7 thousand of
specific reserves.
NOTE 4.
Premises and Equipment
At December 31, 2013 and 2012, premises and equipment consists of the following (in thousands):
Land
Building
Furniture and fixtures
Equipment
Less accumulated depreciation and
amortization
2013
2012
$
4,828
$
4,828
6,127
765
1,595
13,315
2,888
5,791
637
1,336
12,592
2,368
Total premises and equipment, net
$
10,427
$
10,224
Depreciation expense amounted to $520 thousand and $490 thousand for the years ended December
31, 2013 and 2012, respectively.
At December 31, 2013 and 2012, 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):
3 months or less
Over 3 months through 12 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
2013
2012
$
61,181
$
50,113
99,778
60,942
54,493
21,559
16,864
122,260
35,811
21,503
51,947
20,845
$
314,817
$
302,479
NOTE 6.
Short Term Borrowings
At December 31, 2013 and 2012, the Bank has no borrowed funds outstanding. The Bank has a $12
million overnight line of credit facility available with First Tennessee Bank and a $10 million
overnight line of credit with Atlantic Community Bankers Bank for the purchase of federal funds in
the event that temporary liquidity needs arise. Additionally, the Bank is a member of the Federal
Home Loan Bank of New York (FHLBNY). The FHLBNY relationship could provide additional
sources of liquidity, if required.
NOTE 7.
Income Taxes
Income tax expense from operations for the years ended December 31, 2013 and 2012 is as follows
(in thousands):
Current tax expense:
Federal
State
Deferred income tax benefit:
Federal
State
2013
2012
$
2,659
750
$
2,229
617
(252)
(102)
(42)
(57)
Income tax expense
$
3,055
$
2,747
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, 2013 and 2012 are as follows (in thousands):
Deferred tax assets:
Start up expenses
Allowance for loan losses
Accrued expenses
Stock compensation plans
Unrealized loss on AFS securities
Total gross deferred tax assets
Deferred tax liabilities:
Unrealized gain on AFS securities
Deferred loan costs
Prepaid expenses
Other
Total gross deferred tax liabilities
2013
2012
$
257
2,248
272
428
1,028
4,233
$
292
1,942
170
445
-
2,849
-
(81)
(78)
(55)
(214)
(160)
(82)
(61)
(69)
(372)
Net deferred tax asset
$
4,019
$
2,477
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. During 2013 and 2012, 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 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
$
2,621
$
2,362
2013
2012
Increase (decrease) in taxes resulting
from:
State taxes, net of federal income tax
expense
Tax exempt income
Stock-based compensation
Meals and entertainment
Other
428
(16)
20
7
(5)
370
(6)
18
6
(3)
$
3,055
$
2,747
The Company is subject to income taxes in the U.S. and various states. 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 2010 through 2012 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, 2026. These leases do contain certain options to renew the leases. Rental expense
amounted to $1.2 million and $979 thousand, respectively, for the years ended December 31, 2013
and December 31, 2012.
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, 2013 (in thousands):
Year ending December 31,
2014
2015
2016
2017
2018
Thereafter
1,133
1,012
928
648
406
2,016
$
6,143
NOTE 9.
Related-party Transactions
The Bank has made, and expects to continue to make, loans in the future to its 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 the
Bank’s board of directors. None of such loans at December 31, 2013 and 2012, respectively, were
nonaccrual, past due, or restructured, 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.
24
25
The following table represents a summary of related-party loan activity during the years ended December
31, 2013 and 2012 (in thousands):
2013
2012
incentive stock options to purchase 90,000 shares of common stock at a weighted average price of
$11.50 were not included in the computation of diluted earnings per share for the year ended
December 31, 2012, because they were anti-dilutive. Incentive stock options to purchase 97,900
shares of common stock at a weighted average price of $9.09 were included in the computation of
diluted earnings per share for the year ended December 31, 2012.
Outstanding loans at beginning of the year
Advances
Repayments
Outstanding loans at end of the year
$
31,701
6,947
(4,639)
34,009
$
37,568
5,359
(11,226)
31,701
$
$
Two of our directors have acted as the Bank’s counsel on several loan closings. During 2013 and
2012 the total cost of such work has been reimbursed by the respective loan customers and totals
$326 thousand and $307 thousand respectively. Additionally, these directors have acted as legal
counsel to the Bank on several matters. The total amount paid for legal fees, for non-loan related
matters was approximately $22 thousand and $42 thousand for the years ended December 31, 2013
and 2012, respectively.
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 $153
thousand and $126 thousand for the years ended December 31, 2013 and 2012, respectively.
The Bank rents office space from entitites related to some of the Company’s directors. The total
amount of rent expense to these entities was $312 thousand and $162 thousand for the years ended
December 31, 2013 and 2012, respectively.
Our audit committee or the disinterested directors have reviewed all transactions and relationships
with directors and the businesses in which they maintain interests and have approved each such
transaction and relationship.
NOTE 10.
Earnings Per Share
The Company’s calculation of earnings per share is as follows for the years ended December 31,
2013 and 2012 (in thousands except per share data):(cid:3)
Net income applicable to common stock
Weighted average number of common
shares outstanding - basic
Basic earnings per share
Net income applicable to common stock
Weighted average number of common
shares outstanding
Effect of dilutive options
Weighted average number of common
shares outstanding- diluted
Diluted earnings per share
2013
2012
$
4,654
$
4,200
5,289
0.88
$
5,207
0.81
$
$
4,654
$
4,200
5,289
79
5,207
8
5,368
0.87
$
5,215
0.81
$
Non-qualified options to purchase 331,334 shares of common stock at a weighted average price of
$11.50; and incentive stock options to purchase 90,000 shares of common stock at a weighted
average price of $11.50; incentive stock options to purchase 97,900 shares of common stock at a
weighted average price of $9.09; and 80,000 unvested shares of restricted stock were included in the
computation of diluted earnings per share for the year ended December 31, 2013. Non-qualified
options to purchase 414,668 shares of common stock at a weighted average price of $11.50; and
26
27
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. The stock offering resulted in net proceeds of approximately $42.7 million.
In 2013, the Company declared four quarterly cash dividends in the amount of $0.06 per share.
These cash dividends were paid to shareholders on March 31, 2013, June 28, 2013, September 30,
2013 and December 31, 2013, respectively, and the Company expects that comparable quarterly cash
dividends will continue to be paid in the future. The cash dividends were paid from the retained
earnings of the Company.
In 2012, the Company declared four quarterly cash dividends. Cash dividends of $0.06 per share
were paid to shareholders on March 31, 2012, June 29, 2012, September 28, 2012 and December 20,
2012.
In addition, the Company also declared a special cash dividend of $0.24 per share to shareholders of
record as of December 10, 2012 which was paid on December 20, 2012. This was a special dividend
and a non-recurring dividend.
The decision to pay, as well as the timing and amount of any future dividends to be paid by the
Company will be determined by the board of directors, giving consideration to the Company’s
earnings, capital needs, financial condition, and other relevant factors.
Under applicable New Jersey law, the Company is permitted to pay dividends on its capital stock if,
following the payment of the dividend, it is able to pay its debts as they become due in the usual
course of business, or its total assets are greater than its total liabilities. Further, it is the policy of the
FRB that bank holding companies should pay dividends only out of current earnings and only if
future retained earnings would be consistent with the holding company’s capital, asset quality and
financial condition.
Under the New Jersey Banking Act of 1948, as amended, the Bank may declare and pay dividends
only if, after payment of the dividend, the capital stock of the Bank will be unimpaired and either the
Bank will have a surplus of not less than 50% of its capital stock or the payment of the dividend will
not reduce the Bank’s surplus. The FDIC prohibits payment of cash dividends if, as a result, the
Bank would be undercapitalized. The Bank is in compliance with all regulatory requirements
related to cash dividends.
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. The option price per share is the market value of the Company’s stock
on the date of grant. At December 31, 2013 and 2012, incentive stock options to purchase 210,900
shares have been granted to employees of the Bank.
A summary of stock option activity under the 2006 Stock Option Plan during the year ended
December 31, 2013 is presented below:
Weighted
Average
Exercise Price
per Share
Aggregate
Intrinsic Value
(1)
Number of
Shares
Weighted
Average
Remaining
Contractual
Term
Outstanding at December 31, 2012
187,900
$
10.24
Granted
Forfeited
Exercised
-
-
-
-
-
-
Outstanding at December 31, 2013
187,900
$
10.24
$
591,070
Exercisable at December 31, 2013
187,900
$
10.24
$
591,070
3.44
3.44
(1) The aggregate intrinsic 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, 2013. This amount changes based on the changes in the market value
in the Company’s common stock.
Under the 2006 Stock Option Plan, there were no unvested options at December 31, 2013.
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. The option price
per share is the market value of the Company’s common stock on the date of grant. At December
31, 2013 and 2012, non-qualified options to purchase 331,334 and 414,668 shares of the Company’s
stock were issued to non-employee directors of the Company.
A summary of the stock option activity under the 2007 Non-Qualified Stock Option Plan for the year
ended 2013 is as follows:
Weighted
Average
Remaining
Contractual Life
(Years)
Weighted
Average
Exercise Price
per Share
$
11.50
Number of
Shares
414,668
Aggregate
Intrinsic Value
(1)
-
(30,000)
(53,334)
-
11.50
11.50
$
$
$
$
56,700
100,801
Outstanding at December 31, 2012
Granted
Forfeited
Exercised
Under the 2007 Directors Stock Option Plan, there were no unvested options at December 31, 2013.
2011 Equity Incentive Plan
During 2011, the shareholders of the Company approved the Bancorp of New Jersey, Inc. 2011
Equity Incentive Plan. This plan authorizes the issuance of up to 250,000 shares of the Company’s
common stock, subject to adjustment in certain circumstances described in the Plan, pursuant to
awards of incentive stock options or non-qualified stock options, stock appreciation rights, restricted
stock, restricted stock units or performance awards. Employees, directors, consultants, and other
service providers of the Company and its affiliates (primarily the Bank) are eligible to receive
awards under the Plan, provided, that only employees are eligible to receive incentive stock options.
During the year ended December 31, 2013, 90,000 shares of restricted stock were granted to the
executive officers and directors of the Company subject to forfeiture during a five year vesting term
and 10,000 of these shares were forfeited back to the Company. The awards have been recorded at
their fair market value of $13.00 per share at the date of the grant and are being amortized to expense
over the vesting period. For the twelve months ended December 31, 2013, $173,000 was recorded
as expense for these awards and approximately $867,000 remains to be expensed over the next 50
months. At December 31, 2013, no shares were vested.
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 $69 thousand and $66 thousand during 2013 and 2012,
respectively.
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
1 capital (as defined in the regulations) to risk-wieghted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). As of December 31, 2013 and 2012, management believes
that the Company and the Bank meet all capital adequacy requirements to which they are subject.
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.
Outstanding at December 31, 2013
331,334
$
11.50
$
626,221
Exercisable at December 31, 2013
331,334
$
11.50
$
626,221
3.81
3.81
The following is a summary of the Bank’s actual capital amounts and ratios as of December 31,
2013 and 2012, compared to the FDIC minimum capital adequacy requirements and the FDIC
requirements for classification as a well-capitalized institution (dollars in thousands):
(1) The aggregate intrinsic 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, 2013. This amount changes based on the changes in the market value
in the Company’s common stock.
28
29
FDIC requirements
Minimum Capital
For Classification
Bank actual
Adequacy
As Well Capitalized
Amount
Ratio
Amount
Ratio
Amount
Ratio
$57,607
9.45%
$24,376
4.00%
$30,470
5.00%
$57,607
$63,382
11.89%
13.08%
$19,386
$38,773
4.00%
8.00%
$29,079
$48,466
6.00%
10.00%
$53,436
9.63%
$22,189
4.00%
$27,737
5.00%
$53,436
$58,508
12.07%
13.21%
$17,716
$35,431
4.00%
8.00%
$26,573
$44,289
6.00%
10.00%
2013
Leverage (Tier 1) capital
Risk-based capital:
Tier 1
Total
2012
Leverage (Tier 1) capital
Risk-based capital:
Tier 1
Total
The Company’s capital amounts and ratios are similar to those of the Bank.
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, 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 commitments, primarily for commercial real estate,
construction, and land development loans at December 31, 2013 totaled $104.2 million compared to
$67.6 million at December 31, 2012.
Most of the Bank’s lending activity is with customers located in Bergen County, New Jersey. At
December 31, 2013 and 2012, the Bank had outstanding letters of credit to customers totaling $2.8
million and $2.4 million, 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, 2013 and 2012, 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. The
following information represents the parent only balance sheets as of December 31, 2013 and 2012,
respectively, the Statements of Income for the twelve months ended December 31, 2013 and
December 31, 2012, and the Statements of Cash Flows for the twelve months ended December 31,
2013 and December 31, 2012 and should be read in conjunction with the notes to the consolidated
financial statements.
Balance Sheet
(in thousands)
Assets:
Investment in subsidiary, net
Total assets
Liabilities and stockholders' equity:
Stockholders' equity
December 31,
2013
2012
$
55,950
$
55,950
$
53,720
$
53,720
$
55,950
$
55,950
$
53,720
$
53,720
Equity in undistributed earnings of
subsidiary bank
Net income
2013
2012
$
4,654
$
4,654
$
4,200
$
4,200
Statement of Income
Years ended December 31,
(in thousands)
Statement of Cash Flow
Years ended December 31,
(in thousands)
Cash flow 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
Net cash provided by operating activities:
Cash flows from investing activites:
Cash dividends received from subsidiary bank
Net cash used in financing activities
Cash flows from financing activities:
Cash dividends paid
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
2013
2012
$
4,654
$
4,200
(4,654)
-
1,269
1,269
(1,269)
(1,269)
-
-
(4,200)
-
2,499
2,499
(2,499)
(2,499)
-
-
$
-
$
-
NOTE 16.
Fair Value Measurement and Fair Value of Financial Instruments
U. S. GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets
for identical assets and liabilities (level 1 measurements) and the lowest priority to unobservable inputs
(level 3 measurements).
30
31
The three levels of the fair value hierarchy are as follows:
(cid:120)
(cid:120)
(cid:120)
Level 1 Inputs - Unadjusted quoted prices in active markets that are accessible at the measurement
date for identical, unrestricted assets or liabilities.
Level 2 Inputs - Quoted prices in markets that are not active, or inputs that are observable either
directly or indirectly, for substantially the full term of the asset or liability.
Level 3 Inputs - Prices or valuation techniques that require inputs that are both significant to the
fair value measurement and unobservable (i.e. supported with little or no market activity).
An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is
significant to the fair value measurement.
-
-
Description
Securities available for sale:
U.S. Treasury obligations
Government sponsored
enterprise obligations
Description
Securities available for sale:
U.S. Treasury obligations
Government sponsored
enterprise obligations
For financial assets measured at fair value on a recurring basis, the fair value measurements by level within
the fair value hierarchy used at December 31, 2013 and December 31, 2012, respectively, are as follows (in
thousands):
(Level 1)
(Level 2)
(Level 3)
Quoted Prices in
Active Markets
Significant Other
December 31,
for Identical
2013
Assets
Observable
Inputs
Significant
Unobservable Inputs
$
6,319
$
-
$
6,319
$
-
Total securities available for sale
$
68,048
$
-
$
68,048
$
61,729
61,729
(Level 1)
(Level 2)
(Level 3)
Quoted Prices in
Active Markets
Significant Other
December 31,
for Identical
2012
Assets
Observable
Inputs
Significant
Unobservable Inputs
$
18,177
$
-
$
18,177
$
-
Total securities available for sale
$
88,480
$
-
$
88,480
$
70,303
70,303
For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level
within the fair value hierarchy used at December 31, 2013 and December 31, 2012, repectively, are as
follows (in thousands):
(Level 1)
(Level 2)
(Level 3)
Quoted Prices in
December 31,
Active Markets for
Significant Other
Significant
Description
Impaired loans
2013
Identical Assets
Observable Inputs
Unobservable Inputs
$
2,971
$
-
$
-
$
2,971
(Level 1)
(Level 2)
(Level 3)
Quoted Prices in
December 31,
Active Markets for
Significant Other
Significant
Description
Impaired loans
2012
Identical Assets
Observable Inputs
Unobservable Inputs
$
1,982
$
-
$
-
$
1,982
-
-
-
-
32
33
The following table presents additional quantitative information about assets measured at fair value on a
nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value (in
thousands):
December 31, 2013
Fair Value
Estimate
Valuation Techniques
Unobservable Input
Range (Weighted Average)
Impaired loans
$ 2,971
Appraisal of Collateral (1)
Appriasal Adjustments (2)
0% - 28.1% (-15.8%)
Liquidation Expenses (2)
0% - 41.8% (-21.2%)
Financial assets:
December 31, 2012
Impaired loans
$ 1,982
Appraisal of Collateral (1)
Appriasal Adjustments (2)
0% - 36.0% (-23.6%)
Liquidation Expenses (2)
0% - 43.0% (-20.4%)
(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally
include various Level 3 inputs which are not identifiable.
(2) Appriasals may be adjusted for qualitative factors such as economic conditions and estimated liquidation expenses.
The range and weighted average of liquidation expenses and other appriasal adjustments are presented as a percent
of the appraisal.
Management uses its best judgment in estimating the fair value of the Company’s financial instruments;
however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all
financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the
Company could have realized in sales transaction on the dates indicated. The estimated fair value amounts
have been measured as of their respective period end and have not been re-evaluated or updated for
purposes of these financial statements subsequent to those respective dates. As such, the estimated fair
values of these financial instruments subsequent to the respective reporting dates may be different than the
amounts reported at each period end.
The following information should not be interpreted as an estimate of the fair value of the entire Company
since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities.
Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates,
comparisons between the Company’s disclosures and those of other companies may not be meaningful.
The following methods and assumptions were used to estimate the fair values of the Company’s finanical
instruments presented in the table below at December 31, 2013 and 2012:
Fair value estimates and assumptions are set forth below for the Company’s financial instruments at
December 31, 2013 and 2012 (in thousands):
(Level 1)
(Level 2)
(Level 3)
December 31, 2013
Identical Assets
Observable Inputs
Inputs
Carrying amount
Estimated Fair Value
Quoted Prices in
Significant
Active Markets for
Significant Other
Unobservable
Cash and cash equivalents
$ 37,741
$ 37,741
$ 37,741
$ -
$ -
Interest bearing time deposits
1,000
1,000
-
1,000
-
Securities available for sale
Securities held to maturity
68,048
68,048
-
68,048
18,011
18,016
-
18,016
Restricted investment in bank stock
792
792
-
792
-
Net loans
466,351
468,463
-
-
468,463
Accrued interest receivable
1,456
1,456
-
1,456
-
Financial liabilities:
Deposits
Accrued interest payable
635
635
-
635
553,320
544,483
229,666
314,817
-
-
December 31, 2012
Identical Assets
Observable Inputs
Inputs
Carrying amount
Estimated Fair Value
Quoted Prices in
Significant
Active Markets for
Significant Other
Unobservable
Financial assets:
Cash and cash equivalents
$ 31,078
$ 31,078
$ 31,078
$ -
$ -
Interest bearing time deposits
250
250
-
250
-
Securities available for sale
Securities held to maturity
88,480
88,480
-
88,480
5,482
5,482
-
5,482
Restricted investment in bank stock
669
669
-
669
-
Net loans
430,477
433,268
-
-
433,268
Accrued interest receivable
1,732
1,732
-
1,732
-
Financial liabilities:
Deposits
Accrued interest payable
678
678
-
678
515,735
514,744
207,826
306,918
-
-
Cash and Cash Equivalents and Interest Bearing Time Deposits
The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets’
fair values.
Securities
The fair value of securities available for sale (carried at fair value) and held to maturity (carried at
amortized cost) are determined by obtaining market prices on nationally recognized securities exchanges
(level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to
value debt securities without relying exclusively on quoted market prices for the specific securities but
rather by relying on the securities’ relationship to other benchmark quoted prices. For certain securities
which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to
reflect illiquiditiy and/or non-transferability, and such adjustments are generally based on available market
evidence (Level 3). In the absence of such evidence, management’s best estimate is used. Management’s
best estimate consists of both internal and external support on certain Level 3 investments. Internal cash
flow models using a present value formula that includes assumptions market participants would use along
with indicative exit pricing obtained from broker/dealers (where available) were used to support fair values
of certain Level 3 investments.
The carrying amount of restricted investment in bank stock approximates fair value, and considers the
Restricted Investment in Bank Stock
limited marketability of such securities.
34
35
Loans Receivable
The fair value of loans are estimated using discounted cash flow analyses, using market rates at the balance
sheet date that reflect the credit and the interest rate-risk inherent in the loans. Projected future cash flows
are calculated based upon contractual maturity or call dates, projected repayments and prepayments of
principal. Generally, for variable rate loans that re-price frequently and with no significant change in credit
risk, fair values approximate carrying values.
Impaired loans
Impaired loans are those for which the Company has measured impairment generally based on the fair
value of the loan’s collateral or discounted cash flows based upon the expected proceeds. Fair value is
generally based upon independent third-party appraisals of the properties. These assets are included as
Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.
Accrued Interest Receivable and Payable
The carrying amount of accrued interest receivable and accrued interest payable approximates fair value.
Other real estate owned
Other real estate owned assets are adjusted to fair value less estimated selling costs upon transfer of the
loans to other real estate owned. The fair value of other real estate owned is based upon independent third
party appraisal values of the collateral or management’s estimation of the value of the collateral. These
assets are included as Level 3 fair values.
Deposits
The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings
and money market accounts) are, by definition, equal to the amount payable on demand at the reporting
date (i.e., their carrying amounts). Fair values for fixed rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being offered in the market on
certificates to a schedule of aggregated expected monthly maturities of time deposits.
Limitation
The preceding fair value estimates were made at December 31, 2013 and 2012 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.
Since these fair value approximations were made solely for on and off balance sheet financial instruments
at December 31, 2013 and 2012, 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.
Accumulated Other Comprehensive Income
Reclassifications out of accumulated other comprehensive income for the year ended December 31, 2013
are as follows (in thousands):
Details About Accumulated Other
Comprehensive Income Components
Year ended December 31, 2013
Available for Sale Securities
Amount Reclassified from
Accumulated Other
Comprehensive Income
Affected Line Item in the
Statements of Income
Realized gain on sale of securities
$
195
Gains on sale of securities
(63)
Income tax expense
Total reclassifications
$
132
Net of tax
NOTE 18.
Recent Accounting Pronouncements
This section provides a summary description of recent accounting standards that have significant
implications (elected or required) within the consolidated financial statements, or that management expects
may have a significant impact on financial statements issued in the near future.
ASU 2013-02 (Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income)
In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220); Reporting of
Amounts Reclassified Out of Accumulated Other Comprehensive Income. The objective of this Update is to
improve the reporting of reclassifications out of accumulated other comprehensive income. The
amendments in this Update require an entity to report the effect of significant reclassifications out of
accumulated other comprehensive income on the respective line items in net income if the amount being
reclassified is required under U.S. generally accepted accounting principles (GAAP) to be reclassified in its
entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their
entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures
required under U.S. GAAP that provide additional detail about those amounts. For public entities, the
amendments are effective prospectively for reporting periods beginning after December 15, 2012. This
ASU did not have a significant impact on the Company’s consolidated financial statements.
ASU 2014-04; In January, 2014, the FASB issued ASU 2014-04, Reclassification of Residential Real
Estate Collateralized Consumer Mortgage Loans upon Foreclosure. This ASU clarifies that an in
substance repossession or foreclosure occurs, and a creditor is considered to have received physical
possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the
creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2)
the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan
through completion of a deed in lieu of foreclosure or through a similar legal agreement. The ASU also
requires additional related interim and annual disclosures. The guidance in this ASU is effective for annual
and interim periods beginning after December 15, 2014. The implementation of ASU 2014-01 should not
have a material impact on our financial position or results of operation.
36
37
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Bancorp of New Jersey, Inc.
We have audited the accompanying consolidated balance sheet of Bancorp of New Jersey, Inc. and
subsidiary (the “Company”) as of December 31, 2013 and the related consolidated statements of income,
comprehensive income, stockholders’ equity, and cash flows for the year then ended. The financial
statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated 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 at December 31,
2013, and the 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.
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Bancorp of New Jersey, Inc.
We have audited the accompanying consolidated balance sheet of Bancorp of New Jersey, Inc. and
subsidiary (the “Company”) as of December 31, 2012, and the related consolidated statements of income,
comprehensive income, stockholders’ equity, and cash flows for the year then ended. The consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the consolidated 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 consolidated financial statements are free of material misstatement.
An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 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,
2012, and the 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.
New York, New York
March 31, 2014
Wilkes-Barre, Pennsylvania
March 28, 2013
38
39
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
The following discussion and analysis of financial condition and results of operations should be read in
conjunction with the Company’s consolidated financial statements and the notes thereto included in Part II,
Item 8 of this report. When necessary, reclassifications have been made to prior years’ data throughout the
following discussion and analysis for purposes of comparability.
In addition to historical information, this discussion and analysis contains forward-looking statements. The
forward-looking statements contained herein are subject to numerous assumptions, risks and uncertainties,
all of which can change over time, and could cause actual results to differ materially from those projected
in the forward-looking statements. We assume no duty to update forward-looking statements, except as
may be required by applicable law or regulation. Important factors that might cause such a difference
include, but are not limited to, those discussed in this section, and also include economic conditions,
particularly those affecting the financial industry; changes in interest rates and shape of the yield curve;
credit risk associated with our lending activities; risks relating to our market area, significant real estate
collateral and the real estate market; operating, legal and regulatory risk; fiscal and monetary policy;
economic, political and competitive forces affecting the Company’s business; and that management’s
analysis of these risks and factors could be incorrect, and/or that the strategies developed to address them
could be unsuccessful, as well as a variety of other matters, most, if not all of which, are beyond the
Company’s control. Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management’s analysis only as of the date of the report. The Company
undertakes no obligation to publicly revise or update these forward-looking statements to reflect events and
circumstances that arise after such date, except as may be required by applicable law or regulation.
OVERVIEW AND STRATEGY
Our bank charter was approved in April 2006 and the Bank opened for business on May 10, 2006. On July
31, 2007, the Company became the bank holding company of the Bank. On June 3, 2008, the Company’s
common stock was listed on the American Stock Exchange, now NYSE MKT LLC. We currently operate
an eight branch network and have received FDIC and NJDOBI approval to open our ninth location. Our
main office is located at 1365 Palisade Avenue, Fort Lee, NJ 07024 and our current eight additional offices
are located at 204 Main Street, Fort Lee, NJ 07024, 401 Hackensack Avenue, Hackensack, NJ 07601, 458
West Street, Fort Lee, NJ 07024, 320 Haworth Avenue, Haworth, NJ 07641, 4 Park Street, Harrington
Park, NJ 07640, 104 Grand Avenue, Englewood, NJ 07631, 354 Palisade Avenue, Cliffside Park, NJ
07010, and 585 Chestnut Ridge Road, Woodcliff Lake, NJ 07677. Our ninth location will be located at 750
East Palisade Avenue, Englewood Cliffs, NJ 07632 and is expected to open during 2014.
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, that is dominated by larger, statewide and
national financial institutions. Our focus remains on establishing and retaining customer relationships by
offering a broad range of traditional financial services and products, competitively-priced and delivered in a
responsive manner to small businesses, professionals and individuals in the local market. As a locally
operated community bank, we believe we provide superior customer service that is highly personalized,
efficient and responsive to local needs. To better serve our customers and expand our market reach, we
provide for the delivery of certain financial products and services to local customers and a broader market
through the use of mail, telephone, internet, and electronic banking. We endeavor to deliver these products
and services with the care and professionalism expected of a community bank and with a special dedication
to personalized customer service.
Our specific objectives are:
(cid:120)
To provide local businesses, professionals, and individuals with banking services responsive to and
determined by the local market;
(cid:120) Direct access to Bank management by members of the community, whether during or after business
hours;
(cid:120)
To attract deposits and loans by competitive pricing; and
40
(cid:120)
To provide a reasonable return to shareholders on capital invested.
Critical Accounting Policies and Judgments
Our financial statements are prepared based on the application of certain accounting policies, the most
significant of which are described in Note 1 “Summary of Significant Accounting Policies” in the Notes to
Consolidated Financial Statements included in Item 8 of this report. Certain of these policies require
numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to
variation and may significantly affect our reported results and financial position for the period or future
periods. Financial assets and liabilities required to be recorded at, or adjusted to reflect, fair value require
the use of estimates, assumptions, and judgments. Assets carried at fair value inherently result in more
financial statement volatility. Fair values and information used to record valuation adjustments for certain
assets and liabilities are based on either quoted market prices or are provided by other independent third-
party sources, when available. When such information is not available, management estimates valuation
adjustments. Changes in underlying factors, assumptions, or estimates in any of these areas could have a
material impact on our financial condition and results of operations.
Allowance for Loan Losses
The allowance for loan losses (“ALLL”) represents our best estimate of losses known and inherent in our
loan portfolio that are both probable and reasonable to estimate. In determining the amount of the ALLL,
we consider the losses inherent in our loan portfolio and changes in the nature and volume of our loan
activities, along with general economic and real estate market conditions. We utilize a segmented approach
which identifies: (1) impaired loans for which specific reserves are established; (2) classified loans for
which the general valuation allowance for the respective loan type is deemed to be inadequate; and (3)
performing loans for which a general valuation allowance is established. We maintain a loan review system
which provides for a systematic review of the loan portfolios and the identification of impaired loans. The
review of residential real estate and home equity consumer loans, as well as other more complex loans, is
triggered by identified evaluation factors, including delinquency status, size of loan, type of collateral and
the financial condition of the borrower. Specific reserves are established for impaired loans based on a
review of such information and/or appraisals of the underlying collateral. General reserves are based upon a
combination of factors including, but not limited to, actual loan loss experience, composition of the loan
portfolio, current economic conditions and management’s judgment.
Although specific and general reserves are established in accordance with management’s best estimates,
actual losses are dependent upon future events, and as such, further provisions for loan losses may be
necessary in order to maintain the allowance for loan losses at an adequate level. For example, our
evaluation of the allowance includes consideration of current economic conditions, and a change in
economic conditions could reduce the ability of borrowers to make timely repayments of their loans. This
could result in increased delinquencies and increased non-performing loans, and thus a need to make
additional provisions for loan losses. Any provision reduces our net income. While the allowance is
increased by the provision for loan losses, it is decreased by charge-offs, net of recoveries. Loans deemed
to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are
credited to the allowance. A change in economic conditions could adversely affect the value of properties
collateralizing real estate loans, resulting in increased charges against the allowance and reduced
recoveries, and require additional provisions for loan losses. Furthermore, growth or a change in the
composition of our loan portfolio could require additional provisions for loan losses.
At December 31, 2013 and 2012, respectively, we consider the ALLL of $5.8 million and $5.1 million
adequate to absorb probable losses inherent in the loan portfolio. For further discussion, see “Provision for
Loan Losses”, “Loan Portfolio”, “Loan Quality”, and “Allowance for Loan Losses” sections below in this
discussion and analysis, as well as Note 1-Summary of Significant Accounting Policies and Note 3-Loans
and Allowance for Loan Losses in the Notes to Financial Statements included in Part II, Item 8 of this
annual report.
Deferred Tax Assets
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
41
deferred taxes of a change in tax rates is recognized in income in the period in which the change occurs.
Deferred tax assets are reduced, through a valuation allowance, if necessary, by the amount of such benefits
that are not expected to be realized based on current available evidence.
Impairment of Assets
Loans are considered impaired when, based on current information and events, it is probable that the Bank
will be unable to collect all amounts due according to contractual terms of the loan agreement. The
collection of all amounts due according to contractual terms means both the contractual interest and
principal payments of a loan will be collected as scheduled in the loan agreement. Impaired loans are
measured based on the present value of expected future cash flows discounted at the loan’s effective
interest rate, except that as a practical expedient, a creditor may measure impairment based on a loan’s
observable market price, or the fair value of the collateral if the loan is collateral-dependent. The fair value
of collateral, which is discounted from the appraised value to estimate the selling price and costs, is used if
a loan is collateral-dependent. At December 31, 2013 and 2012, the bank had eighteen and sixteen
impaired loans, respectively. All of these loans have been measured for impairment using various
measurement methods, including fair value of collateral.
Periodically, we may need to assess whether there have been any events or economic circumstances to
indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis.
In any such instance, we would consider many factors including the severity and duration of the
impairment, our intent to sell a debt security prior to recovery and/or whether it is more likely than not we
will have to sell the debt security prior to recovery. Securities on which there is an unrealized loss that is
deemed to be other-than-temporary are written down to fair value with the write-down recorded as a
realized loss in securities gains (losses). Unrealized losses at December 31, 2013 consisted of losses on
twenty five investments in government sponsored enterprise obligations, and three in U. S. Treasury
Securities, which were caused by interest rate increases. The contractual terms of those investments do not
permit the issuer to settle the securities at a price less than the amortized cost basis of the investments.
Because the Company does not intend to sell the investments and it is not more likely than not that the
Company will be required to sell the investments before recovery of their amortized cost basis, which may
be maturity, the Company does not consider those investments to be other-than-temporarily impaired at
December 31, 2013. Nine of the investments with unrealized losses at December 31, 2013 were in a loss
position for more than twelve months. At December 31, 2013 and 2012, respectively, we did not have any
other-than-temporarily impaired securities.
RESULTS OF OPERATIONS - 2013 versus 2012
Our results of operations depend primarily on our net interest income, which is the difference between the
interest earned on our interest-earning assets and the interest paid on interest-bearing liabilities, primarily
deposits, which support our assets. Net interest margin is net interest income expressed as a percentage of
average interest earning assets. Net income is also affected by the amount of non-interest income and non-
interest expense, the provision for loan losses and income tax expense.
NET INCOME
For the year ended December 31, 2013, net income increased by $454 thousand, to $4.7 million from $4.2
million for the year ended December 31, 2012. The increase in net income for the year ended December
31, 2013 compared to 2012 was driven by an increase in our net interest income. The increase in net
interest income is reflective of the growth in interest-earning assets as well as management’s focus on
disciplined pricing of the deposit portfolio. The increase in net interest income more than offset the
increases in non-interest expenses and income tax expense.
On a per share basis, basic and diluted earnings per share for the year ended December 31, 2013 were $0.88
and $0.87, respectively, as compared to basic and diluted earnings per share of $0.81 for the year ended
December 31, 2012.
Analysis of Net Interest Income
Net interest income represents the difference between income on interest-earning assets and expense on
interest-bearing liabilities. Net interest income depends upon the average volumes of interest-earning
assets and interest bearing liabilities and the yield earned or the interest paid on them. For the year ended
December 31, 2013, net interest income increased by $1.4 million, or 7.8%, to $18.7 million from $17.3
million for the year ended December 31, 2012. This increase in net interest income was primarily the result
of an increase in average loans of $59.6 million, or 14.9%, during 2013, as compared to 2012, as well as a
decrease in the cost of interest bearing liabilities, which decreased by 14 basis points for 2013.
Average Balance Sheets
The following table sets forth certain information relating to our average assets and liabilities for the years
ended December 31, 2013, 2012 and 2011, and reflect the average yield on assets and average cost of
liabilities for the periods indicated. Such yields are derived by dividing income or expense, on a tax-
equivalent basis, by the average balance of assets or liabilities, respectively, for the periods shown. The
taxable equivalent adjustment for 2013, 2012, and 2011 was $16, $6, and $3 thousand, respectively.
Securities available for sale are reflected in the following table at amortized cost. Nonaccrual loans are
included in the average loan balance. Amounts have been computed on a fully tax-equivalent basis,
assuming a blended tax rate of 40% in 2013, 2012 and 2011.
42
43
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I
Rate/Volume Analysis
The following table presents, by category, the major factors that contributed to the changes in net interest income on
a tax equivalent basis for the years ended December 31, 2013 and 2012, respectively (in thousands):
Total interest income
2,923
(1,548)
Interest income:
Loans
Securities
Federal funds sold
Interest bearing deposits in banks
Interest expense:
Demand deposits
Savings deposits
Money market deposits
Time deposits
Short-term borrowings
Total interest expense
Change in net interest income
Year ended December 31,
2013 compared with 2012
Increase (Decrease)
Due to Change in Average
Year ended December 31,
2012 compared with 2011
Increase (Decrease)
Due to Change in Average
Volume
Rate
Net
Volume
Rate
Net
$
3,009
$
(940)
$
2,069
$
3,336
$
(673)
$
2,663
(92)
(1)
7
17
46
141
114
-
318
(607)
2
(3)
(3)
17
57
(365)
(294)
(699)
1
4
1,375
198
(251)
14
63
-
24
860
1
21
4,218
14
5
137
1,016
(3)
1,169
13
1
2
(657)
(3)
7
132
25
-
161
873
2
23
3,561
11
12
269
1,041
(3)
1,330
$
2,605
$
(1,254)
$
1,351
$
3,049
$
(818)
$
2,231
PROVISION FOR LOAN LOSSES
The provision for loan losses represents our determination of the amount necessary to bring our allowance for loan
losses to the level that we consider adequate to absorb probable losses inherent in our loan portfolio. See
“Allowance for Loan Losses” for additional information about our allowance for loan losses and our methodology
for determining the amount of the allowance. For the year ended December 31, 2013, the Company’s provision for
loan losses was $810 thousand, a decrease of $388 thousand from the provision of $1.2 million for the year ended
December 31, 2012. The overall credit quality of the loan portfolio and the stabilization of nonperforming loans is
reflected in the provision decreasing for 2013 as compared to 2012.
NON-INTEREST INCOME
Non-interest income which consists primarily of service fees received from deposit accounts and gains on the sales
of securities for the year ended December 31, 2013, was $379 thousand, a decrease of $36 thousand from the $415
thousand received during the year ended December 31, 2012. The decrease in non-interest income was primarily
due to a $48 thousand decrease in gains on the sales of securities to $195 thousand in 2013 from of $243 thousand in
2012.
NON-INTEREST EXPENSES
Non-interest expenses for the year ended December 31, 2013 amounted to $10.6 million, an increase of $941
thousand, or 9.8% over the $9.6 million for the year ended December 31, 2012. This increase was due in most part
to increases in salaries and employee benefits and occupancy and equipment expense of $524 thousand and $386
thousand, respectively. The increases in salaries and employee benefits and occupancy and equipment were
primarily due to the opening of a branch, Cliffside Park, in March of 2012, with 2013 reflecting a full year of
additional expenses. Occupancy and equipment expense for the year ended December 31, 2013 also include
occupancy costs for the new location in Woodcliff Lake.
44
45
INCOME TAX EXPENSE
The income tax provision, which includes both federal and state taxes, for the years ended December 31, 2013 and
2012 was $3.1 million and $2.7 million, respectively. The increase in income tax expense during 2013 resulted
from the increased pre-tax income in 2013. The effective tax rate for 2013 was 39.6% compared to 39.5% for 2012.
FINANCIAL CONDITION
Total consolidated assets increased $39.4 million, or 6.9%, from $571.4 million at December 31, 2012 to $610.8
million at December 31, 2013. Total loans increased from $435.7 million at December 31, 2012 to $472.5 million at
December 31, 2013, an increase of $36.7 million or 8.4%. Total deposits increased from $515.7 million on
December 31, 2012 to $553.3 million at December 31, 2013, an increase of $37.6 million, or 7.3%.
LOANS
Our loan portfolio is the primary component of our assets. Total loans, excluding net deferred fees and costs and the
allowance for loan losses, increased by 8.4% from $435.7 million at December 31, 2012, to $472.5 million at
December 31, 2013. This growth in the loan portfolio continues to be primarily attributable to recommendations
and referrals from members of our board of directors, our shareholders, our executive officers, and selective
marketing by our management and staff. We believe that we will continue to have opportunities for loan growth
within the Bergen County market of northern New Jersey, due in part, to future consolidation of banking institutions
within our market, which we expect to see as a result of increased regulatory standards, market pressures, and the
overall economy. We believe that it is not cost-efficient for large institutions, many of which are headquartered out
of state, to provide the level of personal service to small business borrowers that these customers seek and that we
intend to provide.
Our loan portfolio consists of commercial loans, real estate loans, consumer loans and home equity loans.
Commercial loans are made for the purpose of providing working capital, financing the purchase of equipment or
inventory, as well as for other business purposes. Real estate loans consist of loans secured by commercial or
residential real property and loans for the construction of commercial or residential property. Consumer loans
including home equity loans, are made for the purpose of financing the purchase of consumer goods, home
improvements, and other personal needs, and are generally secured by the personal property being owned or being
purchased.
Our loans are primarily to businesses and individuals located in Bergen County, New Jersey. We have not made
loans to borrowers outside of the United States. We have not made any sub-prime loans. Commercial lending
activities are focused primarily on lending to small business borrowers. We believe that our strategy of customer
service, competitive rate structures, and selective marketing have enabled us to gain market entry to local loans.
Furthermore, we believe that bank mergers and lending restrictions at larger financial institutions with which we
compete have also contributed to the success of our efforts to attract borrowers. Additionally, during this current
economic climate, our capital position and safety has also become important to potential borrowers.
46
47
The following table sets forth the classification of the Company’s loans by major category as of December 31, 2013,
2012, 2011, 2010 and 2009 (in thousands):
We attempt to manage overall credit risk through loan diversification and our loan underwriting and approval
procedures. Due diligence begins at the time we begin to discuss the origination of a loan with a borrower.
Documentation, including a borrower’s credit history, materials establishing the value and liquidity of potential
December 31,
2013
2012
2011
2010
2009
Commercial real estate
Residential mortgages
Commercial
Home equity
Consumer
$
298,548
53,601
57,634
61,204
1,478
$
246,545
54,332
64,900
68,737
1,215
$
186,187
52,595
57,464
67,895
1,019
$
142,198
52,407
46,073
60,378
1,047
$
121,504
55,527
36,036
49,969
895
Total Loans
$
472,465
$
435,729
$
365,160
$
302,103
$
263,931
The following table sets forth the maturity of fixed and adjustable rate loans as of December 31, 2013 (in
thousands):
Loans with Fixed Rate
Commercial real estate
Residential mortgages
Commercial
Home equity
Consumer
Loans with Adjustable Rate
Commercial real estate
Residential mortgages
Commercial
Home equity
Consumer
Within
One Year
1 to 5
Years
After 5
Years
$
$
20,513
1,635
3,955
220
264
11,948
-
40,679
333
124
$
26,536
-
2,755
6,414
808
$
3,943
-
3,940
1,500
-
$
235,608
51,037
5,391
3,454
282
-
$
929
914
49,283
-
Total
$
282,657
52,672
12,101
10,088
1,354
15,891
929
45,533
51,116
124
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 nonaccrual 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 (nonaccrual loans) as a result of principal or
interest being in default for a period of 90 days or more and accruing loans that are 90 days past due, troubled debt
restructuring loans and foreclosed assets. When a loan is classified as nonaccrual, interest accruals discontinue and
all current year past due interest is reversed against loan interest income and any past due interest applicable to prior
years, is reversed against the allowance for loan losses. 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. In the case of modified
loans that meet the definition of a troubled debt restructuring loan (“TDR”), loan payments are applied as
contractually agreed to in the TDR modification.
collateral, the purpose of the loan, the source and timing of the repayment of the loan, and other factors are analyzed
before a loan is submitted for approval. Loans made are also subject to periodic audit and review.
As of December 31, 2013 the Bank has twelve nonaccrual loans totaling approximately $5.0 million, of which nine
loans totaling approximately $2.6 million have specific reserves of $454 thousand and three loans totaling
approximately $2.5 million have no specific reserve. If interest had been accrued on these non-accrual loans, the
interest income recognized would have been approximately $295 thousand for the year ended December 31, 2013.
Within its nonaccrual loans at December 31, 2013, the Bank has four residential mortgage loans and one commercial
real estate mortgage loan that met the definition of a TDR loan. TDRs are loans where the contractual terms of the
loan have been modified for a borrower experiencing financial difficulties. These modifications could include a
reduction in the interest rate of the loan, payment extensions, forgiveness of principal or other actions to maximize
collection. At December 31, 2013, three of these residential TDR loans have a cumulative balance of $879
thousand, have specific reserves connected with them of $53 thousand and are not performing in accordance with
their modified terms. The fourth residential loan classified as a TDR has an outstanding balance of $1.6 million, has
no specific reserve and is not performing in accordance with its modified terms. The commercial real estate
mortgage loan classified as a TDR has an outstanding balance of $746 thousand, has no specific reserve and is not
performing in accordance with its modified terms.
As of December 31, 2012 the Bank had fourteen nonaccrual loans totaling approximately $5.9 million, of which six
loans totaling approximately $2.2 million had specific reserves of $327 thousand and eight loans totaling
approximately $3.8 million had no specific reserve. If interest had been accrued on these non-accrual loans, the
interest income would have been approximately $354 thousand for the year ended December 31, 2012. Within its
nonaccrual loans at December 31, 2012, the Bank had three residential mortgage loans, one commercial real estate
mortgage loan, one home equity loan and one commercial loan that met the definition of a TDR loan. At December
31, 2012, two of these residential TDR loans had a cumulative balance of $629 thousand, had a specific reserve
connected with them for $7 thousand and were not performing in accordance with their modified terms. The third
residential loan classified as a TDR had an outstanding balance of $1.7 million, had no specific reserve and was not
performing in accordance with its modified terms. The commercial real estate mortgage loan classified as a TDR
had an outstanding balance of $746 thousand, had no specific reserve and was not performing in accordance with its
modified terms. The home equity loan and the commercial loan, each classified as a TDR, had outstanding balances
of $730 thousand and $275 thousand, respectively, had no specific reserves and were not performing in accordance
with their modified terms.
48
49
The following table sets forth certain information regarding the Company’s nonaccrual loans, troubled debt
restructured loans, accruing loans 90 days or more past due, and OREO as of December 31, 2013, 2012, 2011, 2010
and 2009:
ALLOWANCE FOR LOAN LOSSES
Nonaccrual loans
Commercial real estate
Residential mortgages
Commercial
Home equity
Total nonaccrual loans
Performing troubled debt restructured loans
Commercial real estate
Residential mortgages
Home equity
Total performing troubled debt restructured loans
Total nonperforming loans
Other real estate owned
Total nonperforming assets and performing
troubled debt restructured loans
2013
2012
2011
2010
2009
1,700
2,608
50
673
5,031
397
3,053
1,060
4,510
9,541
964
$
1,704
2,509
325
1,408
5,946
3,557
-
-
3,557
9,503
-
$
1,733
2,487
325
1,253
5,798
-
254
-
254
6,052
-
$
1,580
554
-
25
2,159
-
972
-
972
3,131
1,938
$
780
2,789
-
389
3,958
-
-
-
-
3,958
-
$
10,505
$
9,503
$
6,052
$
5,069
$
3,958
In each of the years noted in the table above, the Bank had no loans greater than 90 days delinquent that were
accruing interest.
The Bank maintains an external independent loan review auditor. The loan review auditor performs periodic
examinations of a sample of commercial loans after the Bank has extended credit. This review process is intended
to identify adverse developments in individual credits, regardless of payment history. The loan review auditor also
monitors the integrity of our credit risk rating system. The loan review auditor reports directly to the audit
committee of our board of directors and provides the audit committee with reports on asset quality. The loan review
audit reports may be presented to our board of directors by the audit committee for review, as appropriate.
Our ALLL totaled $5.8 million, $5.1 million and $4.5 million respectively, at December 31, 2013, 2012, and 2011.
The growth of the allowance is primarily due to the growth and composition of the loan portfolio, including growth
in commercial real estate loans as a percentage of the portfolio.
The following is an analysis of the activity in the allowance for loan losses for the periods indicated (dollars in
thousands):
Balance, January 1
$ 5,072
$ 4,474
$ 3,749
$ 2,792
$ 2,371
2013
2012
2011
2010
2009
(168)
(43)
(160)
-
(219)
(4)
-
-
-
-
-
(22)
(89)
4
(101)
(340)
6
3
-
-
-
(25)
(394)
-
-
-
2
2
-
-
-
-
-
1
-
-
-
-
-
1
*
Net charge-offs
(107)
(600)
(458)
(378)
(3)
Provision charged to expense
Balance, December 31
810
1,198
1,183
1,335
424
$ 5,775
$ 5,072
$ 4,474
$ 3,749
$ 2,792
Ratio of net charge-offs to average loans
Outstanding
0.02%
0.15%
0.14%
0.14%
Charge-offs:
Residential mortgages
Consumer loans
Home equity
Commercial
Commercial real estate
Recoveries:
Commercial real estate
Commercial
Consumer loans
*
Less than 0.01%
50
51
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 (dollars in thousands) :
2013
2012
% of
Amount ALLL
% of
Total
Loans
% of
Amount ALLL
% of
Total
Loans
$ 4,032 69.82% 74.54%
969 16.78% 12.20%
593 10.27% 12.95%
0.31%
26 0.45%
$ 3,472 68.46% 69.05%
1,033 20.37% 14.89%
383 7.55% 15.78%
24 0.47% 0.28%
Balance applicable to:
Residential and
commercial real estate
Commercial
Home equity
Consumer
Unallocated reserves
155 2.68%
160 3.15%
5,620 97.32% 100.00%
4,912 96.85% 100.00%
$ 5,775 100.00%
$ 5,072 100.00%
2011
2010
2009
% of
Amount ALLL
% of
Total
Loans
% of
Amount ALLL
% of
Total
Loans
% of
Amount ALLL
% of
Total
Loans
$ 2,878 64.33% 65.39%
827 18.48% 15.74%
368 8.23% 18.59%
0.28%
21 0.47%
$ 2,328 62.10% 65.25%
627 16.72% 23.37%
358 9.55% 10.72%
22 0.59% 0.66%
$ 2,032 72.83% 80.92%
213 7.63% 8.48%
247 8.86% 9.92%
17 0.61% 0.68%
Balance applicable to:
Residential and
commercial real estate
Commercial
Home equity
Consumer
Unallocated reserves
380 8.49%
414 11.04%
281 10.07%
4,094 91.51% 100.00%
3,335 88.96% 100.00%
2,509 89.93% 100.00%
$ 4,474 100.00%
$ 3,749 100.00%
$ 2,790 100.00%
The provision for loan losses represents our determination of the amount necessary to bring the ALLL to a level that
we consider adequate to provide for probable losses inherent in our loan portfolio as of the balance sheet date. We
evaluate the adequacy of the ALLL by performing periodic, systematic reviews of the loan portfolio. While
allocations are made to specific loans and pools of loans, the total allowance is available for any loan losses.
Although the ALLL is our best estimate of the inherent loan losses as of the balance sheet date, the process of
determining the adequacy of the ALLL is judgmental and subject to changes in external conditions. Accordingly,
existing levels of the ALLL may ultimately prove inadequate to absorb actual loan losses. However, we have
determined, and believe, that the ALLL is at a level adequate to absorb the probable loan losses in our loan portfolio
as of the balance sheet dates.
$
10,014
$
10,014
$
5,482
$
5,482
$
4,787
$
4,787
3,998
3,999
18,011
4,008
3,994
18,016
-
-
-
-
-
-
-
-
5,482
5,482
4,787
4,787
Total Investment Securities
$
88,744
$
86,064
$
93,518
$
93,962
$
60,935
$
61,432
52
53
INVESTMENT SECURITIES
In addition to our loan portfolio, we maintain an investment portfolio which is available to fund increased loan
demand or deposit withdrawals and other liquidity needs, and which provides an additional source of interest
income. During 2013 and 2012, the portfolio was composed of U.S. Treasury Securities, obligations of U.S.
Government Agencies and obligations of states and political subdivisions.
Securities are classified as held to maturity, referred to as “HTM,” trading, or available for sale, referred to as
“AFS,” at the time of purchase. Securities are classified as HTM if management intends and we have the ability to
hold them to maturity. Such securities are stated at cost, adjusted for unamortized purchase premiums and
discounts. Securities which are bought and held principally for the purpose of selling them in the near term are
classified as trading securities, which are carried at market value. Realized gains and losses, as well as gains and
losses from marking trading securities to market value, are included in trading revenue. Securities not classified as
HTM or trading securities are classified as AFS and are stated at fair value. Unrealized gains and losses on AFS
securities are excluded from results of operations, and are reported as a component of accumulated other
comprehensive income, which is included in stockholders’ equity. Securities classified as AFS include securities
that may be sold in response to changes in interest rates, changes in prepayment risks, the need to increase
regulatory capital, or other similar requirements.
At December 31, 2013, total securities aggregated $86.0 million, of which $68.0 million were classified as AFS and
$18.0 million were classified as HTM. The Bank had no securities classified as trading.
The following table sets forth the carrying value of the Company’s security portfolio as of the December 31, 2013,
2012, and 2011, respectively (in thousands):
2013
2012
2011
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
64,000
$
61,729
$
70,051
$
70,303
$
45,069
$
45,321
6,733
70,733
6,319
68,048
17,985
88,036
18,177
88,480
11,079
56,148
11,324
56,645
Available for Sale
Government sponsored
enterprise obligations
U.S. Treasury obligations
Total available for sale
Held to Maturity
Obligations of states and
political subdivisions
Government sponsored
enterprise obligations
U.S. Treasury obligations
Total held to maturity
The following tables set forth as of December 31, 2013 and 2012, the maturity distribution of the Company’s debt
investment portfolio (in thousands):
2013
1 year or less
Obligations of states and political subdivisions
After 1 year to 5 years
U.S. Treasury obligations
Government sponsored enterprise obligations
After 5 years to 10 years
U.S. Treasury obligations
Government sponsored enterprise obligations
Securities Held to Maturity
Securities Available for Sale
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Weighted
Average
Yield (1)
$ 10,014
10,014
$ 10,014
10,014
$ -
-
$ -
-
0.58%
0.58%
3,999
3,998
7,997
3,994
4,008
8,002
-
29,000
29,000
-
28,573
28,573
-
-
-
-
-
-
6,733
35,000
41,733
6,319
33,156
39,475
0.26%
0.88%
0.81%
1.10%
1.45%
1.40%
Total
$ 18,011
$ 18,016
$ 70,733
$ 68,048
1.06%
2012
1 year or less
Obligations of states and political subdivisions
U.S. Treasury obligations
Government sponsored enterprise obligations
After 1 year to 5 years
U.S. Treasury obligations
Government sponsored enterprise obligations
After 5 years to 10 years
U.S. Treasury obligations
Government sponsored enterprise obligations
After 10 years
Government sponsored enterprise obligations
Securities Held to Maturity
Securities Available for Sale
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$ 5,482
-
-
5,482
$ 5,482
-
-
5,482
$ -
1,001
1,000
2,001
$ -
1,005
1,015
2,020
-
-
-
-
-
-
5,008
6,004
11,012
5,194
6,097
11,291
-
-
-
-
-
-
11,976
47,047
59,023
11,978
47,234
59,212
-
-
-
-
16,000
16,000
15,957
15,957
Weighted
Average
Yield (1)
0.66%
1.19%
4.00%
2.60%
1.80%
1.64%
1.71%
1.28%
1.89%
1.77%
2.93%
2.93%
Total
$ 5,482
$ 5,482
$ 88,036
$ 88,480
1.91%
During 2013, the Company sold sixteen securities from its available for sale portfolio. It recognized gains of
approximately $541 thousand from six of the securities sold and a loss of approximately $346 thousand from the
sale of eight of the securities, resulting in net gains of approximately $195 thousand from the transactions. One
security was sold at par and no gain or loss was recorded. During 2012, the Company sold five securities from its
available for sale portfolio. It recognized gains of approximately $252 thousand from two of the securities sold and
a loss of approximately $9 thousand from the sale of three of the securities, resulting in net gains of approximately
$243 thousand from the transactions. The Company did not sell any securities from its held to maturity portfolio in
2013 or 2012.
DEPOSITS
Deposits are our primary source of funds. We experienced a growth of $37.6 million, or 7.3%, in deposits from
$515.7 million at December 31, 2012 to $553.3 million at December 31, 2013. This increase consists of increases in
savings accounts, time deposits, and noninterest-bearing demand accounts, which increased $22.2 million, $12.3
million, and $3.7 million, respectively, offset somewhat by a decrease in interest-bearing demand accounts, which
decreased $702 thousand. We believe the overall increase in deposits reflects our competitive but disciplined rate
structure and the public perception of our safety and soundness. During this interest rate environment, our deposit
products have allowed the Bank to increase its overall deposits while still being able to reduce its overall cost of
deposits. The increase is also attributable to the continued referrals of our board of directors, stockholders,
management, and staff.
The following table sets forth the actual amount of various types of deposits for each of the periods indicated:
Non-interest bearing demand
Interest bearing demand and money markets
Savings
Time deposits
December 31,
(dollars in thousands)
2013
2012
2011
Average
Yield/Rate
0.50%
0.66%
1.71%
Amount
$
69,620
137,782
31,101
314,817
$
553,320
Amount
$
65,910
138,484
8,862
302,479
$
515,735
Average
Yield/Rate
0.47%
0.50%
1.83%
Amount
$
49,585
77,330
8,126
281,122
$
416,163
Average
Yield/Rate
0.36%
0.51%
1.82%
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, 2013 (in thousands):
Three months or less
Over three months through 6 months
Over six months through twelve months
Over one year through three years
Over three years
$
51,900
24,064
58,381
98,078
32,132
$
264,555
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, equity to assets ratio, or average equity divided by average total assets and
dividend payout ratio, or dividends declared per share divided by net income per share.
Selected Fiancial Ratios:
Return on Average Assets (ROA)
Return on Average Equity (ROE)
Equity to Total Assets
Dividend Payout Ratio
LIQUIDITY
At or for the year ended December 31,
2013
2012
2011
0.79%
8.47%
9.16%
27.27%
0.80%
7.91%
9.40%
59.26%
0.80%
6.44%
11.05%
62.50%
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 $553.3 million and $515.7 million, respectively, at December 31, 2013 and 2012. The
growth in funds provided by deposit inflows during this period coupled with our cash position at the end of 2013 has
been sufficient to provide for our loan demand.
54
55
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 needs.
Although we were a net seller of federal funds at December 31, 2013, 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 Community
Bankers Bank for the purchase of federal funds in the event that temporary liquidity needs arise. At December 31,
2013, the Bank had no borrowed funds outstanding. We are an approved member of the Federal Home Loan Bank
of New York, or “FHLBNY.” The FHLBNY relationship could provide additional sources of liquidity, if required.
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, 2013, we were within the target
gap range established by ALCO.
Cumulative Rate Sensitive Balance Sheet
December 31, 2013
(in thousands)
0-3
Months
0-6
Months
0-1
Year
0-5
Years
All
Others
TOTAL
$
10,014
$
10,014
$
10,014
$
46,585
$
39,474
$
86,059
51,603
21,772
51,933
24
36,625
-
51,813
31,070
51,933
253
36,625
-
111,432
31,101
31,181
-
-
111,432
31,101
90,428
-
-
52,213
55,741
51,933
589
36,625
-
111,432
31,101
160,959
-
-
54,420
294,272
51,933
7,810
36,625
-
111,432
31,101
314,817
-
-
3,214
57,877
2,939
15,642
-
-
-
-
-
71,141
55,950
57,634
352,149
51,933
10,749
36,625
15,642
111,432
31,101
314,817
71,141
55,950
$
26,350
$
26,350
$
26,350
$
26,350
$
-
$
26,350
Securities, excluding
equity securities
Loans:
Commercial
Real Estate
Home Equity
Consumer
Federal Funds sold and
Interest-Bearing Deposits
in Banks
Other Assets
Transaction / Demand
Accounts
Money Market
Savings Deposits
Time Deposits
Other Liabilities
Equity
TOTAL LIABILITIES AND
TOTAL ASSETS
$
171,971
$
181,708
$
207,115
$
491,645
$
119,146
$
610,791
EQUITY
$
200,064
$
259,311
$
329,842
$
483,700
$
127,091
$
610,791
Dollar Gap
Gap / Total Assets
Target Gap Range
RSA / RSL
$
(28,093)
$
(77,603)
$
(122,727)
$
7,945
-4.60%
+/- 35.00%
85.96%
-12.71%
+/- 30.00%
70.07%
-20.09%
+/- 25.00%
62.79%
1.30%
+/- 25.00%
101.64%
(Rate Sensitive Assets to Rate Sensitive Liabilities)
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 or decrease 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. In the future, we may use additional analyses,
including periodic “shock analysis” to evaluate the effect of interest rates upon our operations and our financial
condition and to manage our exposure to interest rate risk.
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.
We continually evaluate interest rate risk management opportunities. During 2013, we believed that available
hedging instruments were not cost-effective, and therefore, focused our efforts on our yield-cost spread through
retail growth opportunities.
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57
The following table discloses our financial instruments that are sensitive to change in interest rates, categorized by
expected maturity at December 31, 2013. Market risk sensitive instruments are generally defined as on- and off-
balance sheet financial instruments.
CAPITAL
Expected Maturity/Principal Repayment
December 31, 2013
(Dollars in thousands)
Avg. Int.
Rate
2014
2015
2016
2017
2018
There-
After
Total
Fair Value
5.13%
$160,477
$22,296
$42,286
$77,344
$106,031
$64,031
$472,465
$474,238
1.41% 10,014 8,985 12,979 1,987 12,620 39,474 86,059 86,059
Interest Rate
Sensitive Assets:
Loans………………….
Securities net of equity
securities………………
Fed Funds
Sold……………………
Interest-earning cash
and time deposits……..
Interest Rate
Sensitive Liabilities :
Interest bearing
demand deposits and
money market
accounts…….
0.34% 458
–
0.22% 36,168
–
–
–
–
–
–
–
–
–
–
–
–
–
–
458 458
–
36,168 36,168
–
–
137,782 26,350
31,101 31,101
Savings deposits…….
0.67% 31,101
0.22% 137,782
–
–
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 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.”
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. We are
currently required to maintain a leverage ratio of 4.0%.
The following table summarizes the Bank’s risk-based capital and leverage ratios at December 31, 2013 and 2012,
as well as regulatory capital category definitions:
December 31, 2013
December 31, 2012
Minimum Requirements
to be
"Adequately
Capitalized"
Minimum Requirements
to be
“Well Capitalized”
11.89%
13.08%
9.45%
12.07%
13.21%
9.63%
4.00%
8.00%
4.00%
6.00%
10.00%
5.00%
Risk-Based Capital :
Tier 1 Capital Ratio
Total Capital Ratio
Leverage Ratio
The capital levels detailed above represent the continued effect of our successful stock subscription, in combination
with the profitability experienced during 2013 and 2012, respectively. As we continue to employ our capital and
continue to grow our operations, we expect that our capital ratios will decrease, but that we will remain a “well-
Time deposits………..
1.71%
$160,959
$60,942
$54,493
$21,559
$16,864
–
$314,817
$317,353
capitalized” institution.
The Bank had no borrowed funds at December 31, 2013.
The Bank’s capital ratios as presented in the table above are similar to those of the Company.
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.
See “Regulatory Capital Changes” in Part I, Item 1 of this report for additional information regarding regulatory
capital requirements.
58
59
CONTRACTUAL OBLIGATIONS
As of December 31, 2013, the Company had the following contractual obligations as provided in the table below (in
thousands):
ITEM 1.
BUSINESS
General
Payment due by Period
Less than
1 year
1 to 3
years
4 to 5
years
After 5
years
Total
Amounts
Committed
Minimum annual rental under
non-cancelable operating leases
Remaining contractual maturities
of time deposits.............................
Total Contractual Obligations
$
1,133
$
1,940
$
1,054
$
2,016
$
6,143
portfolios.
160,959
162,092
$
115,435
117,375
$
38,423
39,477
$
-
2,016
$
314,817
320,960
$
Additionally, the Bank had certain commitments to extend credit to customers. A summary of commitments to
extend credit at December 31, 2013 is provided as follows (in thousands):
Commercial real estate, construction, and
land development secured by land
Home equities
Standby letters of credit and other
$
80,658
23,499
2,771
106,928
$
OFF-BALANCE SHEET ARRANGEMENTS
The Bank’s commitments to extend credit and letters of credit constitute financial instruments with off-balance sheet
risk. See Note 14 of the notes to consolidated financial statements included in this report for additional discussion
of “Off-Balance Sheet” items, which discussion is incorporated in this item by reference.
IMPACT OF INFLATION AND CHANGING PRICES
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 accounting principles generally accepted in the United States of
America, 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 our assets and liabilities 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.
60
61
The Company is a one-bank holding company incorporated under the laws of the State of New Jersey in November,
2006 to serve as a holding company for Bank of New Jersey, referred to as the “Bank.” (Unless the context
otherwise requires, all references to the “Company” in this annual report shall be deemed to refer also to the Bank).
The Company was organized at the direction of the board of directors of the Bank for the purpose of acquiring all of
the capital stock of the Bank. On July 31, 2007, the Company became the bank holding company of the Bank.
During the second quarter of 2009, the Bank formed BONJ-New York Corp. The New York subsidiary is engaged
in the business of acquiring, managing and administering portions of Bank of New Jersey’s investment and loan
The Bank is a commercial bank formed under the laws of the State of New Jersey on May 10, 2006. The Bank
operates from its main office at 1365 Palisade Avenue, Fort Lee, New Jersey, 07024, and its additional eight branch
offices located at 204 Main Street, Fort Lee, New Jersey, 07024, 401 Hackensack Avenue, Hackensack, New Jersey,
07601, 458 West Street, Fort Lee, New Jersey, 07024, 320 Haworth Avenue, Haworth, New Jersey, 07641, 4 Park
Street, Harrington Park, New Jersey, 07640, 104 Grand Avenue, Englewood, NJ 07631, 354 Palisade Avenue,
Cliffside Park, NJ 07010, and 585 Chestnut Ridge Road, Woodcliff Lake, NJ 07677. A tenth location at 750 East
Palisade Avenue, Englewood Cliffs, NJ, 07632 has received approval from the New Jersey Department of Banking
and Insurance, sometimes referred to as “NJDOBI”, and the Federal Deposit Insurance Corporation, or “FDIC”.
The branch is expected to open in 2014.
The Company is subject to the supervision and regulation of the Board of Governors of the Federal Reserve System,
sometimes referred to as the “FRB.” The Bank is supervised and regulated by the FDIC and the NJDOBI. The
Bank’s deposits are insured by the FDIC up to applicable limits. The operation of the Company and the Bank are
subject to the supervision and regulation of the FRB, FDIC, and the NJDOBI. The principal executive offices of the
Bank are located at 1365 Palisade Avenue, Fort Lee, NJ, 07024 and the telephone number is (201) 944-8600.
Business of the Company
The Company’s primary business is ownership and supervision of the Bank. The Company, through the Bank,
conducts a traditional commercial banking business, accepting deposits from the general public, including
individuals, businesses, non-profit organizations, and governmental units. The Bank makes commercial loans,
consumer loans, and both residential and commercial real estate loans. In addition, the Bank provides other
customer services and makes investments in securities, as permitted by law. The Bank continues to offer an
alternative, community-oriented style of banking in an area, which is presently dominated by larger, statewide and
national institutions. Our goal remains to establish and retain customer relationships by offering a broad range of
traditional financial services and products, competitively-priced and delivered in a responsive manner to small
businesses, professionals, and individuals in the local market. As a locally owned and operated community bank,
the Bank seeks to provide superior customer service that is highly personalized, efficient, and responsive to local
needs. To better serve our customers and expand our market reach, we provide for the delivery of certain financial
products and services to local customers and to a broader market through the use of mail, telephone, and internet
banking. The Bank strives to deliver these products and services with the care and professionalism expected of a
community bank and with a special dedication to personalized customer service.
The specific objectives of the Bank are:
To provide local businesses, professionals, and individuals with banking services responsive to and determined
by the local market;
(cid:120) 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.
(cid:120)
(cid:120)
(cid:120)
Market Area
The principal market for our deposit gathering and lending activities lies within Bergen County in New Jersey. The
market is dominated by offices of large statewide and interstate banking institutions. The market area has a
relatively large affluent base for our services and a diversified mix of commercial businesses and residential
neighborhoods. In order to meet the demands of this market, the Company operates its main office in Fort Lee, New
Jersey and eight additional branch offices, two in Fort Lee, one in Hackensack, one in Haworth, one in Harrington
Park, one in Englewood, one in Cliffside Park, and one in Woodcliff Lake, all in Bergen County, New Jersey.
Supervision and Regulation
Extended Hours
The Bank provides convenient full-service banking from 9:00 am to 5:00 pm weekdays and 9:00 am to 1:00 pm on
Saturday in all offices except Hackensack, which has no Saturday hours and Palisade Avenue and Main Street, both
in Fort Lee, which offer full service banking from 7:00 am to 7:00 pm weekdays and Saturday 9:00 am to 1:00 pm.
Competition
The banking business remains highly competitive and is increasingly more regulated. The profitability of the
Company depends upon the Bank’s ability to compete in its market area. The Bank continues to face considerable
competition in its market area for deposits and loans from other depository institutions. The Bank faces competition
in attracting and retaining deposit and loan customers, and with respect to the terms and conditions it offers on its
deposit and loan products. Many of its competitors have greater financial resources, broader geographic markets,
and greater name recognition, and are able to provide more services and finance wide-ranging advertising
campaigns.
The Bank competes with local, regional, and national commercial banks, savings banks, and savings and loan
associations. The Bank also competes with money market mutual funds, mortgage bankers, insurance companies,
stock brokerage firms, regulated small loan companies, credit unions, and issuers of commercial paper and other
securities.
Concentration
The Company is not dependent for deposits or exposed by loan concentrations to a single customer or a small group
of customers the loss of any one or more of which would have a material adverse effect upon the financial condition
of the Company. As a community bank however, our market area is concentrated in Bergen County, New Jersey,
and 87.5% of our loan portfolio was collateralized by real estate, primarily in our market area, as of December 31,
2013.
Employees
At December 31, 2013, the Company employed sixty-six full-time equivalent employees. None of these employees
are covered by a collective bargaining agreement. The Company believes its relations with employees to be good.
General
activities.
The Company and the Bank are each extensively regulated under both federal and state law. These laws restrict
permissible activities and investments and require compliance with various consumer protection provisions
applicable to lending, deposit, brokerage and fiduciary activities. They also impose capital adequacy requirements
and condition the Company’s ability to repurchase stock or to receive dividends from the Bank. The Company is
also subject to comprehensive examination and supervision by the FRB and the Bank is also subject to
comprehensive examination and supervision by NJDOBI 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 and Bank’s
To the extent that the following information describes statutory and regulatory provisions, it is qualified in its
entirety by reference to the particular statutory and regulatory provisions. Proposals to change the laws and
regulations governing the banking industry are frequently raised at both the state and federal level. The likelihood
and timing of any changes in these laws and regulations, and the impact such changes may have on the Company
and the Bank, are difficult to ascertain. A change in applicable laws and regulations, or in the manner such laws or
regulations are interpreted by regulatory agencies or courts, may have a material effect on our business, operations
and earnings.
Bank Holding Company Act
The Company is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended
(the “BHCA”), and is subject to regulation and supervision by the FRB. The BHCA requires the Company to secure
the prior approval of the FRB before it owns or controls, directly or indirectly, more than five percent (5%) of the
voting shares or substantially all of the assets of, any bank or thrift, or merges or consolidates with another bank or
thrift holding company. Further, under the BHCA, the activities of the Company and any nonbank subsidiary are
limited to those activities which the FRB determines to be so closely related to banking as to be a proper incident
thereto, and prior approval of the FRB may be required before engaging in certain activities. In making such
determinations, the FRB is required to weigh the expected benefits to the public such as greater convenience,
increased competition and gains in efficiency, against the possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest, and unsound banking practices.
The BHCA was substantially amended by the Gramm-Leach-Bliley Act (“GLBA”), which among other things
permits a “financial holding company” to engage in a broader range of non-banking activities, and to engage on less
restrictive terms in certain activities than were previously permitted. These expanded activities include securities
underwriting and dealing, insurance underwriting and sales, and merchant banking activities. To become a financial
holding company, the Company and the Bank must be “well capitalized” and “well managed” (as defined by federal
law), and have at least a “satisfactory” Community Reinvestment Act (“CRA”) rating. GLBA also imposes certain
privacy requirements on all financial institutions and their treatment of consumer information. At this time, the
Company has not elected to become a financial holding company, as we do not engage in any non-banking activities
which would require us to be a financial holding company.
There are a number of restrictions imposed on the Company and the Bank by law and regulatory policy that are
designed to minimize potential loss to the depositors of the Bank and the FDIC insurance funds in the event the
Bank should become insolvent. For example, FRB policy requires a bank holding company to serve as a source of
financial strength to its subsidiary depository institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. While the authority of the FRB to invoke this so-called
“source of strength doctrine” has been called into question, the FRB maintains that it has the authority to apply the
doctrine when circumstances warrant. The FRB also has the authority under the BHCA to require a bank holding
company to terminate any activity or to relinquish control of a non-bank subsidiary upon the FRB’s determination
that such activity or control constitutes a serious risk to the financial soundness and stability of any bank subsidiary
of the bank holding company.
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Any capital loan by the Company to the Bank is subordinate in right of payment to deposits and certain other
indebtedness of the Bank. In addition, in the event of the Company’s bankruptcy, any commitment by the Company
to a federal bank regulatory agency to maintain the capital of the Bank will be assumed by the bankruptcy trustee
and entitled to a priority of payment.
The Federal Deposit Insurance Act (“FDIA”) provides that, in the event of the “liquidation or other resolution” of an
insured depository institution, the claims of depositors of the institution (including the claims of the FDIC as a
subrogee of insured depositors) and certain claims for administrative expenses of the FDIC as a receiver will have
priority over other general unsecured claims against the institution. If an insured depository institution fails, insured
and uninsured depositors, along with the FDIC will have priority in payment ahead of unsecured, nondeposit
creditors, including the Company, with respect to any extensions of credit they have made to such insured
depository institution.
Supervision and Regulation of the Bank
The operations and investments of the Bank are also limited by federal and state statutes and regulations. The Bank
is subject to the supervision and regulation by the NJDOBI and the FDIC. The Bank is also subject to various
requirements and restrictions under federal and state law, including requirements to maintain reserves against
deposits, restrictions on the types, amount and terms and conditions of loans that may be originated, and limits on
the type of other activities in which the Bank may engage and the investments it may make. Under the GLBA, the
Bank may engage in expanded activities (such as insurance sales and securities underwriting) through the formation
of a “financial subsidiary.” In order to be eligible to establish or acquire a financial subsidiary, the Bank must be
“well capitalized” and “well managed” and may not have less than a “satisfactory” CRA rating. At this time, the
Bank does not engage in any activity which would require it to maintain a financial subsidiary.
The Bank is also subject to federal laws that limit the amount of transactions between the Bank and its nonbank
affiliates, including the Company. Under these provisions, transactions (such as a loan or investment) by the Bank
with any nonbank affiliate are generally limited to 10% of the Bank’s capital and surplus for all covered transactions
with such affiliate or 20% of capital and surplus for all covered transactions with all affiliates. Any extensions of
credit, with limited exceptions, must be secured by eligible collateral in specified amounts. The Bank is also
prohibited from purchasing any “low quality” assets from an affiliate. The Dodd-Frank Act imposed additional
requirements on transactions with affiliates, including an expansion of the definition of “covered transactions” and
increasing the amount of time for which collateral requirements regarding covered transactions must be maintained.
Securities and Exchange Commission
The Company is also under the jurisdiction of the Securities and Exchange Commission (“SEC”) for matters relating
to the offering and sale of its securities and is subject to the SEC’s rules and regulations relating to periodic
reporting, reporting to shareholders, proxy solicitations, and insider-trading regulations.
Monetary Policy
The earnings of the Company are and will be affected by domestic economic conditions and the monetary and fiscal
policies of the United States government and its agencies. The monetary policies of the FRB have a significant
effect upon the operating results of commercial banks such as the Bank. The FRB has a major effect upon the levels
of bank loans, investments and deposits through its open market operations in United States government securities
and through its regulation of, among other things, the discount rate on borrowings of member banks and the reserve
requirements against member banks’ deposits. It is not possible to predict the nature and impact of future changes in
monetary and fiscal policies.
Deposit Insurance
The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. The Deposit
Insurance Fund is the successor to the Bank Insurance Fund and the Savings Association Insurance Fund, which
were merged in 2006.
No institution may pay a dividend if in default of the federal deposit insurance assessment.
On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act changed the assessment base for
federal deposit insurance from the amount of insured deposits held by the depository institution to the depository
institution’s average total consolidated assets less average tangible equity, eliminating the ceiling on the size of the
deposit insurance fund (“DIF”) and increasing the floor on the size of the DIF. The Dodd-Frank Act established a
minimum designated reserve ratio (“DRR”) of 1.35 percent of the estimated insured deposits, mandates the FDIC to
adopt a restoration plan should the DRR fall below 1.35 percent, and provides dividends to the industry should the
DRR exceed 1.50 percent.
On February 7, 2011, the Board of Directors of the FDIC approved a final rule on Assessments, Dividend
Assessment Base and Large Bank Pricing (the “Final Rule”). The Final Rule implements the changes to the deposit
insurance assessment system as mandated by the Dodd-Frank Act. The Final Rule became effective April 1, 2011.
The Final Rule changed the assessment base for insured depository institutions from adjusted domestic deposits to
the average consolidated total assets during an assessment period less average tangible equity capital during that
assessment period. Tangible equity is defined in the Final Rule as Tier 1 Capital and shall be calculated monthly,
unless, like us, the insured depository institution has less than $1 billion in assets, then the insured depository
institution will calculate the Tier 1 Capital on an end-of-quarter basis. Parents or holding companies of other
insured depository institutions are required to report separately from their subsidiary depository institutions.
The Final Rule retains the unsecured debt adjustment, which lowers an insured depository institution’s assessment
rate for any unsecured debt on its balance sheet. In general, the unsecured debt adjustment in the Final Rule will be
measured to the new assessment base and will be increased by 40 basis points. The Final Rule also contains a
brokered deposit adjustment for assessments. The Final Rule provides an exemption to the brokered deposit
adjustment to financial institutions that are “well capitalized” and have composite CAMEL ratings of 1 or 2.
CAMEL ratings are confidential ratings used by the federal and state regulators for assessing the soundness of
financial institutions. These ratings range from 1 to 5, with a rating of 1 being the highest rating.
The Final Rule also creates a new rate schedule that intends to provide more predictable assessment rates to
financial institutions. The revenue under the new rate schedule will be approximately the same. Moreover, it
indefinitely suspends the requirement that it pay dividends from the insurance fund when it reaches 1.5 percent of
insured deposits, to increase the probability that the fund reserve ratio will reach a sufficient level to withstand a
future crisis. In lieu of the dividend payments, the FDIC has adopted progressively lower assessment rate schedules
that become effective when the reserve ratio exceeds 2 percent and 2.5 percent.
The Dodd-Frank Act made permanent the $250,000 limit for federal deposit insurance and increased the cash limit
of Securities Investor Protection Corporation protection from $100,000 to $250,000.
The FDIC has authority to increase insurance assessments. A significant increase in insurance assessments would
likely have an adverse effect on our operating expenses and results of operations. Management cannot predict what
insurance assessment rates will be in the future.
Deposit insurance may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or
unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed the FDIC.
Dividend Restrictions
Under applicable New Jersey law, the Company is not permitted to pay dividends on its capital stock if, following
the payment of the dividend, (1) it would be unable to pay its debts as they become due in the usual course of
business or (2) its total assets would be less than its total liabilities. Further, it is the policy of the FRB that bank
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holding companies should pay dividends only out of current earnings and only if future retained earnings would be
consistent with the Company’s capital, asset quality and financial condition.
(cid:120) A minimum leverage ratio of 4%.
Since it has no significant independent sources of income, the ability of the Company to pay dividends is dependent
on its ability to receive dividends from the Bank. Under the New Jersey Banking Act of 1948, as amended (the
“Banking Act”), a bank may declare and pay cash dividends only if, after payment of the dividend, the capital stock
of the bank will be unimpaired and either the bank will have a surplus of not less than 50% of its capital stock or the
payment of the dividend will not reduce the bank’s surplus. The FDIC prohibits payment of cash dividends if, as a
result, the institution would be undercapitalized or the Bank is in default with respect to any assessment due to the
FDIC. These restrictions do not materially influence the Company or the Bank’s ability to pay dividends at this time.
Risk-Based Capital Requirements
The federal banking regulators have adopted certain risk-based capital guidelines to assist in the assessing capital
adequacy of a banking organization’s operations for both transactions reported on the balance sheet as assets and
transactions, such as letters of credit, and recourse agreements, which are recorded as off-balance sheet items. Under
these guidelines, nominal dollar amounts of assets and credit-equivalent amounts of off-balance sheet items are
multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such
as certain US Treasury securities, to 100% for assets with relatively high credit risk, such as business loans.
A banking organization’s risk-based capital ratios are obtained by dividing its qualifying capital by its total risk
adjusted assets. The regulators measure risk-adjusted assets, which include off-balance-sheet items, against both
total qualifying capital, the sum of Tier 1 capital and limited amounts of Tier 2 capital, and Tier 1 capital.
(cid:120)
(cid:120)
“Tier 1”, or core capital, includes common equity, perpetual preferred stock and minority interest in equity
accounts of consolidated subsidiaries, less goodwill and other intangibles, subject to certain exceptions.
“Tier 2”, or supplementary capital, includes, among other things, limited life preferred stock, hybrid capital
instruments, mandatory convertible securities, qualifying subordinated debt, and the allowance for loan and
lease losses, subject to certain limitations and less restricted deductions. The inclusion of elements of Tier 2
capital is subject to certain other requirements and limitations of the federal banking agencies.
Banks and bank holding companies subject to the risk-based capital guidelines are required to maintain a ratio of
Tier 1 capital to risk-weighted assets of at least 4.00% and a ratio of total capital to risk-weighted assets of at least
8%. The appropriate regulatory authority may set higher capital requirements when particular circumstances
warrant. At December 31, 2013, the Company met both requirements with Tier 1 and Total capital ratios of 11.89%
and 13.08%. In addition to risk-based capital, banks and bank holding companies are required to maintain a
minimum amount of Tier 1 capital to total assets, referred to as the leverage capital ratio, of at least 4.00%. At
December 31, 2013, the Company’s leverage ratio was 9.45%.
Failure to meet applicable capital guidelines could subject a banking organization to a variety of enforcement
actions including:
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(cid:120)
limitations on its ability to pay dividends;
the issuance by the applicable regulatory authority of a capital directive to increase capital, and in the case
of depository institutions, the termination of deposit insurance by the FDIC, as well as to the measures
described under FDICIA as applicable to undercapitalized institutions.
In addition, future changes in regulations or practices could further reduce the amount of capital recognized for
purposes of capital adequacy. Such a change could affect the ability of the Bank to grow and could restrict the
amount of profits, if any, available for the payment of dividends to the Company.
Regulatory Capital Changes
In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms
and changes required by the Dodd-Frank Act. The phase-in period for community banking organizations begins
January 1, 2015, while larger institutions (generally those with assets of $250 billion or more) began compliance on
January 1, 2014. The final rules call for the following capital requirements:
(cid:120) A minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5%.
(cid:120) A minimum ratio of tier 1 capital to risk-weighted assets of 6%.
(cid:120) A minimum ratio of total capital to risk-weighted assets of 8% (no change from the current rule).
In addition, the final rules establish a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted
assets applicable to all banking organizations. If a banking organization fails to hold capital above the minimum
capital ratios and the capital conservation buffer, it will be subject to certain restrictions on capital distributions and
discretionary bonus payments. The phase-in period for the capital conservation and countercyclical capital buffers
for all banking organizations will begin on January 1, 2016.
Under the proposed rules, accumulated other comprehensive income (AOCI) would have been included in a banking
organization’s common equity tier 1 capital. The final rules allow community banks to make a one-time election not
to include these additional components of AOCI in regulatory capital and instead use the existing treatment under
the general risk-based capital rules that excludes most AOCI components from regulatory capital. The opt-out
election must be made in the first call report or FR Y-9 series report that is filed after the financial institution
becomes subject to the final rule. The final rules permanently grandfather non-qualifying capital instruments (such
as trust preferred securities and cumulative perpetual preferred stock) issued before May 19, 2010 for inclusion in
the tier 1 capital of banking organizations with total consolidated assets less than $15 billion as of December 31,
2009 and banking organizations that were mutual holding companies as of May 19, 2010.
The proposed rules would have modified the risk-weight framework applicable to residential mortgage exposures to
require banking organizations to divide residential mortgage exposures into two categories in order to determine the
applicable risk weight. In response to commenter concerns about the burden of calculating the risk weights and the
potential negative effect on credit availability, the final rules do not adopt the proposed risk weights but retain the
current risk weights for mortgage exposures under the general risk-based capital rules.
Consistent with the Dodd-Frank Act, the new rules replace the ratings-based approach to securitization exposures,
which is based on external credit ratings, with the simplified supervisory formula approach in order to determine the
appropriate risk weights for these exposures. Alternatively, banking organizations may use the existing gross-up
approach to assign securitization exposures to a risk weight category or choose to assign such exposures a 1,250
percent risk weight.
Under the new rules, mortgage servicing assets (MSAs) and certain deferred tax assets (DTAs) are subject to stricter
limitations than those applicable under the current general risk-based capital rule. The new rules also increase the
risk weights for past-due loans, certain commercial real estate loans, and some equity exposures, and makes selected
other changes in risk weights and credit conversion factors.
The Company is in the process of assessing the impact of these changes on the regulatory ratios of the Bank and the
Company on the capital, operations, liquidity and earnings of the Bank and the Company.
Prompt Corrective Action
In addition to the required minimum capital levels described above, Federal law establishes a system of “prompt
corrective actions” which Federal banking agencies are required to take, and certain actions which they have
discretion to take, based upon the capital category into which a Federally regulated depository institution falls.
Regulations set forth detailed procedures and criteria for implementing prompt corrective action in the case of any
institution which is not adequately capitalized. Under the rules, an institution will be deemed “well capitalized” or
better if its leverage ratio exceeds 5%, its Tier 1 risk based capital ratio exceeds 6%, and if the Total risk based
capital ratio exceeds 10%. An institution will be deemed to be “adequately capitalized” or better if it exceeds the
minimum Federal regulatory capital requirements. However, it will be deemed “undercapitalized” if it fails to meet
the minimum capital requirements; “significantly undercapitalized” if it has a total risk based capital ratio that is less
than 6%, a Tier 1 risk based capital ratio that is less than 3%, or a leverage ratio that is less than 3%, and “critically
undercapitalized” if the institution has a ratio of tangible equity to total assets that is equal to or less than 2%.
The prompt corrective action rules require an undercapitalized institution to file a written capital restoration plan,
along with a performance guaranty by its holding company or a third party. In addition, an undercapitalized
institution becomes subject to certain automatic restrictions including a prohibition on payment of dividends, a
limitation on asset growth and expansion, in certain cases, a limitation on the payment of bonuses or raises to senior
executive officers, and a prohibition on the payment of certain “management fees” to any “controlling person.”
Institutions that are classified as undercapitalized are also subject to certain additional supervisory actions,
including: increased reporting burdens and regulatory monitoring; a limitation on the institution’s ability to make
acquisitions, open new branch offices, or engage in new lines of business; obligations to raise additional capital;
restrictions on transactions with affiliates; and restrictions on interest rates paid by the institution on deposits. In
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certain cases, bank regulatory agencies may require replacement of senior executive officers or directors, or sale of
the institution to a willing purchaser. If an institution is deemed to be “critically undercapitalized” and continues in
that category for four quarters, the statute requires, with certain narrowly limited exceptions, that the institution be
placed in receivership.
As of December 31, 2013, the Bank was classified as “well capitalized.” This classification is primarily for the
purpose of applying the federal prompt corrective action provisions and is not intended to be and should not be
interpreted as a representation of overall financial condition or prospects of the Bank.
industry. The CFPB has exclusive authority through rulemaking, orders, policy statements, guidance and
enforcement actions to administer and enforce federal consumer finance laws, to oversee non federally regulated
entities, and to impose its own regulations and pursue enforcement actions when it determines that a practice is
unfair, deceptive or abusive (“UDA”). The federal consumer finance laws and all of the functions and
responsibilities associated with them were transferred to the CFPB on July 21, 2011. While the CFPB has the
exclusive power to interpret, administer and enforce federal consumer finance laws and UDA, the Dodd-Frank Act
provides that the FDIC continues to have examination and enforcement powers over us relating to the matters within
the jurisdiction of the CFPB because it has less than $10 billion in assets. The Dodd-Frank Act also gives state
attorneys general the ability to enforce federal consumer protection laws.
Community Reinvestment Act
The Dodd-Frank Act also:
The CRA requires that banks meet the credit needs of all of their assessment area (as established for these purposes
in accordance with applicable regulations based principally on the location of branch offices), including those of low
income areas and borrowers. The CRA also requires that the FDIC assess all financial institutions that it regulates to
determine whether these institutions are meeting the credit needs of the community they serve. Under the CRA,
institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve” or “unsatisfactory”. The
Bank’s record in meeting the requirements of the CRA is made publicly available and is taken into consideration in
connection with any applications with Federal regulators to engage in certain activities, including approval of a
branch or other deposit facility, mergers and acquisitions, office relocations, or expansions into non-banking
activities. As of December 31, 2013, the bank maintains a “satisfactory” CRA rating.
USA Patriot Act
Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism (USA PATRIOT) Act, financial institutions are subject to prohibitions against specified financial
transactions and account relationships as well as enhanced due diligence and “know your customer” standards in
their dealings with foreign financial institutions and foreign customers. Under the USA PATRIOT Act, financial
institutions must establish anti-money laundering programs meeting the minimum standards specified by the Act
and implementing regulations. The USA PATRIOT Act also requires the Federal banking regulators to consider the
effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and bank
holding company acquisitions.
The Bank has implemented the required internal controls to ensure proper compliance with the USA PATRIOT Act.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 comprehensively revised the laws affecting corporate governance, auditing and
accounting, executive compensation and corporate reporting for entities, such as the Company, with equity or debt
securities registered under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Among other things,
Sarbanes-Oxley and its implementing regulations have established new membership requirements and additional
responsibilities for our audit committee, imposed restrictions on the relationship between the Company and its
outside auditors (including restrictions on the types of non-audit services our auditors may provide to us), imposed
additional responsibilities for our external financial statements on our chief executive officer and chief financial
officer, and expanded the disclosure requirements for our corporate insiders. The requirements are intended to allow
stockholders to more easily and efficiently monitor the performance of companies and directors. The Company and
its Board of Directors have, as appropriate, adopted or modified the Company’s policies and practices in order to
comply with these regulatory requirements and to enhance the Company’s corporate governance practices.
Pursuant to Sarbanes-Oxley, the Company has adopted a Code of Conduct and Ethics applicable to its Board,
executives and employees. This Code of Conduct can be found on the Company’s website at www.bonj.net.
Dodd-Frank Act
The Dodd-Frank Act became law on July 21, 2010. The Dodd-Frank Act implements far-reaching changes across
the financial regulatory landscape.
The Dodd-Frank Act creates the CFPB of Consumer Financial Protection (“CFPB”), which is an independent CFPB
within the Federal Reserve System with broad authority to regulate the consumer finance industry including
regulated financial institutions such as us, and non-banks and others who are involved in the consumer finance
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(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120) Applies the same leverage and risk-based capital requirements to most bank holding companies (“BHCs”)
that apply to insured depository institutions;
Requires BHCs and banks to be both well-capitalized and well-managed in order to acquire banks located
outside their home state and requires any BHC electing to be treated as a financial holding company to be
both well-managed and well-capitalized;
Changes the assessment base for federal deposit insurance from the amount of insured deposits held by the
depository institution to the depository institution’s average total consolidated assets less tangible equity,
eliminates the ceiling on the size of the DIF and increases the floor of the size of the DIF;
(cid:120) Makes permanent the $250,000 limit for federal deposit insurance and increases the cash limit of Securities
Investor Protection Corporation protection from $100,000 to $250,000;
Eliminates all remaining restrictions on interstate banking by authorizing national and state banks to
establish de novo branches in any state that would permit a bank chartered in that state to open a branch at
that location;
Repeals Regulation Q, the federal prohibitions on the payment of interest on demand deposits thereby
permitting depository institutions to pay interest on business transaction and other accounts;
Enhances the requirements for certain transactions with affiliates under Section 23A and 23B of the Federal
Reserve Act, including an expansion of the definition of “covered transactions” and increasing the amount
of time for which collateral requirements regarding covered transactions must be maintained;
Expands insider transaction limitations through the strengthening of loan restrictions to insiders and the
expansion of the types of transactions subject to the various limits, including derivative transactions,
repurchase agreements, reverse repurchase agreements and securities lending or borrowing transactions.
Restrictions are also placed on certain asset sales to and from an insider to an institution, including
requirements that such sales be on market terms and, in certain circumstances, approved by the
institution’s board of directors; and
Strengthens the previous limits on a depository institution’s credit exposure to one borrower which limited
a depository institution’s ability to extend credit to one person (or group of related persons) in an amount
exceeding certain thresholds. The Dodd-Frank Act expanded the scope of these restrictions to include credit
exposure arising from derivative transactions, repurchase agreements, and securities lending and borrowing
transactions.
While designed primarily to reform the financial regulatory system, the Dodd Frank Act also contains a number of
corporate governance provisions that will affect public companies with securities registered under the Exchange Act.
The Dodd-Frank Act requires the Securities and Exchange Commission to adopt rules which may affect our
executive compensation policies and disclosure. It also exempts smaller issuers, such as us, from the requirement,
originally enacted under Section 404(b) of the Sarbanes-Oxley Act of 2002, that our independent auditor also attest
to and report on management’s assessment of internal control over financial reporting.
Although a significant number of the rules and regulations mandated by the Dodd-Frank Act have been finalized,
including rules regulating compensation of residential mortgage loan originators and mortgage loan servicing
practices, and defining qualified mortgage loans, many of the new requirements called for have yet to be
implemented and will likely be subject to implementing regulations over the course of several years. Given the
uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the
various agencies, the full extent of the impact such requirements will have on financial institutions’ operations is
unclear. The Dodd-Frank Act could require us to make material expenditures, in particular personnel training costs
and additional compliance expenses, or otherwise adversely affect our business, financial condition, results of
operations or cash flow. It could also require us to change certain of our business practices, adversely affect our
ability to pursue business opportunities that we might otherwise consider pursuing, cause business disruptions and/or
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have other impacts that are as of yet unknown to us. Failure to comply with these laws or regulations, even if
inadvertent, could result in negative publicity, fines or additional expenses, any of which could have an adverse
effect on our business, financial condition, results of operations, or cash flow.
Ability to Repay and Qualified Mortgage Rule
Pursuant to the Dodd Frank Act, the Consumer Financial Protection Bureau issued a final rule on January 10, 2013
(which became effective January 10, 2014), amending Regulation Z as implemented by the Truth in Lending Act,
requiring mortgage lenders to make a reasonable and good faith determination based on verified and documented
information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its
terms. Mortgage lenders are required to determine consumers’ ability to repay in one of two ways. The first
alternative requires the mortgage lender to consider the following eight underwriting factors when making the credit
decision:
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(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
current or reasonably expected income or assets;
current employment status;
the monthly payment on the covered transaction;
the monthly payment on any simultaneous loan;
the monthly payment for mortgage-related obligations;
current debt obligations, alimony, and child support;
the monthly debt-to-income ratio or residual income; and
credit history.
Alternatively, the mortgage lender can originate “qualified mortgages,” which are entitled to a presumption that the
creditor making the loan satisfied the ability-to-repay requirements. In general, a “qualified mortgage” is a mortgage
loan without negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. In
addition, to be a qualified mortgage, the points and fees paid by a consumer cannot exceed 3% of the total loan
amount. Loans which meet these criteria will be considered qualified mortgages, and as a result generally protect
lenders from fines or litigation in the event of foreclosure. Qualified mortgages that are “higher-priced” (e.g.
subprime loans) garner a rebuttable presumption of compliance with the ability-to-repay rules, while qualified
mortgages that are not “higher-priced” (e.g. prime loans) are given a safe harbor of compliance. The final rule, as
issued, is not expected to have a material impact on our lending activities or our results of operations or financial
condition.
Jumpstart Our Business Startups (JOBS) Act
In April 2012, the JOBS Act became law. The JOBS Act is aimed at facilitating capital raising by smaller companies
and banks and bank holding companies by implementing the following changes:
extent of any obligation to increase our investment in the FHLBNY depends entirely upon the occurrence of a future
event, potential payments to the FHLBNY is not determinable.
Additionally, in the event that the Bank fails, the right of the FHLBNY to seek repayment of funds loaned to the
Bank shall take priority (a “super lien”) over all other creditors.
Other Laws and Regulations
The Company and the Bank are subject to a variety of laws and regulations which are not limited to banking
organizations. For example, in lending to commercial and consumer borrowers, and in owning and operating its own
property, the Bank is subject to regulations and potential liabilities under state and federal environmental laws.
We are heavily regulated by regulatory agencies at the federal and state levels. We, like most of our competitors,
have faced and expect to continue to face increased regulation and regulatory and political scrutiny, which creates
significant uncertainty for us and the financial services industry in general.
Future Legislation and Regulation
Regulators have increased their focus on the regulation of the financial services industry in recent years. Proposals
that could substantially intensify the regulation of the financial services industry have been and are expected to
continue to be introduced in the U.S. Congress, in state legislatures and from applicable regulatory authorities.
These proposals may change banking statutes and regulation and our operating environment in substantial and
unpredictable ways. If enacted, these proposals could increase or decrease the cost of doing business, limit or
expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and
other financial institutions. We cannot predict whether any of these proposals will be enacted and, if enacted, the
effect that it, or any implementing regulations, would have on our business, results of operations or financial
condition.
(cid:120)
(cid:120)
(cid:120)
Raising the threshold requiring registration under the Securities Exchange Act of 1934 (Exchange Act) for
banks and bank holding companies from 500 to 2,000 holders of record;
Raising the threshold for triggering deregistration under the Exchange Act for banks and bank holding
companies from 300 to 1,200 holders of record;
Raising the limit for Regulation A offerings from $5 million to $50 million per year and exempting some
Regulation A offerings from state blue sky laws;
Permitting advertising and general solicitation in Rule 506 and Rule 144A offerings;
(cid:120)
(cid:120) Allowing private companies to use “crowd funding” to raise up to $1 million in any 12-month period,
(cid:120)
subject to certain conditions; and
Creating a new category of issuer, called an “Emerging Growth Company”, for companies with less than
$1 billion in annual gross revenue, which will benefit from certain changes that reduce the cost and burden
of carrying out an equity initial public offering (IPO) and complying with public company reporting
obligations for up to five years.
Federal Home Loan Bank Membership
The Bank is a member of the Federal Home Loan Bank of New York (“FHLBNY”). Each member of the FHLBNY
is required to maintain a minimum investment in capital stock of the FHLBNY. The Board of Directors of the
FHLBNY can increase the minimum investment requirements in the event it has concluded that additional capital is
required to allow it to meet its own regulatory capital requirements. Any increase in the minimum investment
requirements outside of specified ranges requires the approval of the Federal Housing Finance Agency. Because the
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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Securities Authorized for Issuance under Equity Compensation Plans
Market Information
The principal market in which the Company’s common stock is traded is the NYSE MKT LLC exchange, formerly
NYSE AMEX and the American Stock Exchange. The Company’s common stock trades under the symbol “BKJ”.
The following table sets forth the high and low sales prices for our common stock for each of the indicated periods.
Year Ended December 31, 2013
Fourth quarter
Third quarter
Second quarter
First quarter
Year Ended December 31, 2012
Fourth quarter
Third quarter
Second quarter
First quarter
High
Low
$
$
14.41
15.59
15.00
14.62
14.00
10.95
9.81
10.22
$
$
12.74
13.39
12.55
12.50
10.00
9.16
9.05
8.59
Holders
As of March 18, 2014 there were approximately 1,018 shareholders of our common stock, which includes an
estimate of shareholders who hold their shares in street name.
Dividends
In 2013, the Company declared four quarterly cash dividends in the amount of $0.06 per share. These cash
dividends were paid to shareholders on March 31, 2013, June 28, 2013, September 30, 2013 and December 31,
2013, respectively, and the Company currently expects that comparable quarterly cash dividends will continue to be
paid in the future.
In 2012, the Company declared four quarterly cash dividends. Cash dividends of $0.06 per share were paid to
shareholders on March 31, 2012, June 29, 2012, September 28, 2012 and December 20, 2012.
In addition, the Company also declared a special cash dividend of $0.24 per share to shareholders of record as of
December 10, 2012 which was paid on December 20, 2012. This was a special and non-recurring dividend.
Future dividends will be subject to approval by the board of directors. The decision to pay, as well as the timing and
amount of any future dividends to be paid by the Company will be determined by the board of directors, giving
consideration to the Company’s earnings, capital needs, financial condition, and other relevant factors.
Under applicable New Jersey law, the Company is permitted to pay dividends on its capital stock if, following the
payment of the dividend, it is able to pay its debts as they become due in the usual course of business, or its total
assets are greater than its total liabilities. Further, it is the policy of the FRB that bank holding companies should pay
dividends only out of current earnings and only if future retained earnings would be consistent with the holding
company’s capital, asset quality and financial condition.
Under the New Jersey Banking Act of 1948, as amended, the Bank may declare and pay dividends only if, after
payment of the dividend, the capital stock of the Bank will be unimpaired and either the Bank will have a surplus of
not less than 50% of its capital stock or the payment of the dividend will not reduce the Bank’s surplus. The FDIC
prohibits payment of cash dividends if, as a result, the Bank would be undercapitalized.
The following tables summarize our equity compensation plan information as of December 31, 2013:
Number of shares
of common stock
to be issued upon
Weighted-average
exercise of
outstanding
exercise price of
future issuance
outstanding
options, warrants
options, warrants
and rights
and rights
Number of shares
of common stock
remaining
available for
under equity
compensation
plans
187,900
$10.24
30,084
Plan Category
Equity Compensation Plans approved by
security holders:
2006 Stock Option Plan
2007 Non-Qualified Stock Option Plan for
Directors
331,334
$11.50
43,334
2011 Equity Incentive Plan
Equity compensation plans not approved
by security holders
-
-
N/A
-
170,000
-
Total
519,234
$11.11
243,418
2013
Weighted
Average
Number
Grant Date
of Shares
Fair Value
90,000
(10,000)
-
-
N/A
13.00
13.00
-
Non-vested resticted stock, beginning of year
Granted
Forfeited
Vested
Non-vested resticted stock, end of year
80,000
$
13.00
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BANCORP OF NEW JERSEY, INC.
Directors and Executive Officers
Board of Directors
Gerald A. Calabrese, Jr.
Chairman of the Board,
President,
Century 21 Calabrese Realty
Michael Bello
President,
Michael Bello Insurance
Agency
John K. Daily
President and COO,
C.A. Shea & Co.
Commercial Surety
Michael Lesler
Vice Chairman,
President and CEO,
Bank of New Jersey
Joel P. Paritz, CPA
President
Paritz & Company, P.A.
Christopher M. Shaari MD
Physician
Jay Blau
President,
Imperial Sales & Sourcing, Inc.
Anthony M. Lo Conte
President and CEO,
Anthony L and S, LLC
Shoe Import and Distribution
Anthony Siniscalchi CPA
Partner,
A. Uzzo & Co., CPAS, P.C.
Albert L. Buzzetti, Esq.
Managing Partner,
A. Buzzetti and Associates, LLC
Carmelo Luppino, Jr.
Real Estate Developer
Mark J. Sokolich, Esq.
Attorney at Law
Stephen Crevani
President, Aniero Concrete
Rosario Luppino
Real Estate Developer
Diane M. Spinner
Executive Vice President and
Chief Administrative Officer,
Bank of New Jersey
Executive Officers
Michael Lesler
Vice Chairman, President and
Chief Executive Officer
Leo J. Faresich
Executive Vice President and
Chief Lending Officer
Diane M. Spinner
Executive Vice President and
Chief Administrative Officer
Officers
Michael Lesler
President and
Chief Executive Officer
Richard A. Capone
Senior Vice President
Chief Financial Officer
Robert L. Cusick
Senior Vice President
Commercial Lending
Rosemarie Yaverian
Senior Vice President
Branch Administration
Allison Peterson
Vice President
Branch Manager
Jamie Cariddi
Vice President
Branch Manager
Lidia Sofia
Vice President
Branch Manager
Kimberley Tapken
Assistant Vice President
Lending Department
Elizabeth Ranalli
Assistant Vice President
Lending Department
Leo J. Faresich
Executive Vice President
Chief Lending Officer
Stephanie A. Caggiano
Senior Vice President
Consumer Lending
Paul A. Meyer
Senior Vice President
Commercial Lending
Anna Maria Alberga
Vice President
Branch Manager
Tamara A. Francis
Vice President
Branch Manager
Alejandra Pazmino
Vice President
Business Development
Ryan Petrillo
Vice President
Branch Manager
Kinga Mikos
Assistant Vice President
Operations
Rosemarie Fuchs
Assistant Vice President
Lending Department
Diane M. Spinner
Executive Vice President
Chief Administrative Officer
Ronald M. Urtiaga
Senior Vice President
Commercial Lending
Frank Greco
Senior Vice President
Commercial Lending
Kory Buczynski
Vice President
Branch Manager
Jakia Sultana
Vice President
Branch Manager
Cornelia Brummer
Vice President
Marketing Director
Suzanne Wirth
Assistant Vice President
Assistant Branch Manager
Anthony Cozzitorto
Assistant Vice President
Lending Department
Connie Caltabellatta
Corporate Secretary
Independent Auditors
ParenteBeard LLC
1200 Atwater Drive STE 4500
Malvern, PA 19355
Independent Auditors
BDO USA, LLP
100 Park Avenue
New York, New York 10017
Common Stock Date
Common Stock is traded on
NYSE MKT LLC Exchange
Under the symbol: BKJ
Regulatory Counsel
Pepper Hamilton LLP
Registrar and Transfer Agent
American Stock Transfer & Trust Co.
STE 400 – 301 Carnegie Center
59 Maiden Lane
Princeton NJ 08543-4276
New York, NY 10038
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