Bank of New Jersey
Branch Offices
Bancorp of New Jersey, Inc.
201
ANNUAL REPORT
5
1365 Palisade Avenue
(MAIN OFFICE)
Fort Lee, N.J. 07024
(201) 944-8600
458 West Street
Fort Lee, N.J. 07024
(201) 944-7222
4 Park Street
Harrington Park, N.J. 07640
(201) 750-9970
104 Grand Avenue
Englewood, N.J. 07631
(201) 227-0160
585 Chestnut Ridge Road
Woodcliff Lake, N.J. 07677
(201) 505-9300
204 Main Street
Fort Lee, N.J. 07024
(201) 944-7200
401 Hackensack Avenue
Hackensack, N.J. 07601
(201) 968-0008
320 Haworth Avenue
Haworth, N.J. 07641
(201) 387-9910
354 Palisade Avenue
Cliffside Park, N.J. 07010
(201) 313-0025
750 East Palisade Avenue
Englewood Cliffs, N.J. 07632
(Coming Soon)
Bancorp of New Jersey, Inc.
41402_Cvr.indd 1
4/15/16 10:57 AM
To Our Shareholders and Friends:
Once again, it is with great pride that we announce the Company’s financial results. This is our tenth
annual report, and it presents the financial results for the year ended December 31, 2015. It reflects
the continued growth and profitability of Bancorp of New Jersey, Inc. and its wholly owned
subsidiary, Bank of New Jersey.
During this past year, we are proud to report that:
(cid:120) Net Income reached its highest level and exceeded $4.8 million;
(cid:120) Our record-breaking initial capital of $43.6 million grew to over $81 million;
(cid:120) Assets exceeded $800 million, an increase of $59.2 million or 8% from year-end 2014;
(cid:120) Total deposits exceeded $700 million, an increase of $51.8 million or 8% from year-end 2014;
(cid:120) Our loan portfolio has grown to $645.1 million, an increase of $11.1 million from year-end
2014;
(cid:120) Our on-going stream of quarterly and annual profits has continued uninterrupted since 2007
and our allowance for loan loss has increased to $8 million in 2015;
(cid:120) We remain focused on enhancing shareholder value with the continuation of earnings in
combination with a dividend policy reflective of that focus;
(cid:120) Our tenth location at 750 East Palisade Avenue, Englewood Cliffs, NJ, is under construction
and is expected to open during 2016;
(cid:120) We continue to be proud of our achievements in today’s challenging environment and remain
focused on meeting these challenges through commitment, dedication, and attention to our
customers.
We thank our shareholders, customers, directors and dedicated staff for our fine performance and
endeavor to continue and exceed these results.
A happy, healthy and profitable 2016 to all.
Gerald A. Calabrese, Jr.
Chairman of the Board
Nancy E. Graves
President and CEO
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 ...............................................................42
Management’s Discussion and Analysis of Financial Condition and Results of Operations ........43
Business .........................................................................................................................................62
Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities .....................................................................................76
Directors and Executive Officers ...................................................................................................78
2
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:
• Economic conditions affecting the financial industry;
• Changes in interest rates and shape of the yield curve;
• Credit risk associated with our lending activities;
• Risks relating to our market area, significant real estate collateral and the real estate market;
• Legislative and regulatory changes and our ability to comply with the significant laws and
regulations impacting the banking and financial services industry;
• Operating, legal and regulatory compliance risk;
• Regulatory capital requirements and our ability to raise and maintain capital;
• Our ability to prevent, detect and respond to any cyberattacks in order to protect our information
assets and supporting infrastructure including information of our customers;
Fiscal and monetary policy;
• Our ability to attract and retain well-qualified management;
•
• Economic, political and competitive forces affecting our business;
• Risks associated with potential business combinations; and
• That management’s analysis of these risks and factors could be incorrect, and/or that the
strategies developed to address them could be unsuccessful.
Bancorp of New Jersey, Inc., referred to as “we” or the “Company,” cautions that these forward-looking
statements are subject to numerous assumptions, risks and uncertainties, all of which change over time,
and we assume no duty to update forward-looking statements, except as may be required by applicable
law or regulation, and except as required by applicable law or regulation, we do not undertake, and
specifically disclaim any obligation, to publicly release any revisions to any forward-looking statements
to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such
statements. We caution readers not to place undue reliance on any forward-looking statements. These
statements speak only as of the date made, and we advise readers that various factors, including those
described above, could affect our financial performance and could cause actual results or circumstances
for future periods to differ materially from those anticipated or projected.
3
CONSOLIDATED BALANCE SHEETS
December 31, 2015 and 2014
(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 $5,829 and $15,921
at December 31, 2015 and 2014, 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
Savings and interest bearing transaction accounts
Time deposits under $250K
Time deposits $250K and over
Total deposits
Borrowed funds
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 6,240,241 and 5,369,984
December 31, 2015 and 2014, respectively
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders' equity
2015
2014
$
2,238
71,497
454
74,189
$
1,218
20,386
456
22,060
1,000
64,750
5,829
2,020
645,062
(381)
(8,020)
636,661
1,000
58,451
15,923
2,162
633,958
(414)
(7,192)
626,352
10,500
2,305
512
5,154
802,920
$
10,136
2,441
897
4,266
743,688
$
$
117,919
232,456
192,560
157,804
700,739
$
89,510
200,585
175,250
183,629
648,974
26,529
2,499
729,767
-
32,950
1,870
683,794
-
60,509
12,940
(296)
73,153
802,920
$
50,998
9,635
(739)
59,894
743,688
$
See accompanying notes to consolidated financial statements
4
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2015 and 2014
(Dollars in thousands, except per share data)
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
Borrowed funds
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non interest income
Fees and service charges on deposit accounts
Losses 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
Other real estate owned related expenses
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
2015
2014
$
30,451
887
182
6
31,526
$
26,879
927
48
5
27,859
1,244
6,332
465
8,041
23,485
924
22,561
324
(15)
309
7,634
2,805
911
287
226
774
974
1,916
15,527
7,343
2,535
999
5,397
215
6,611
21,248
3,075
18,173
207
(16)
191
6,503
2,608
399
217
54
444
817
1,411
12,453
5,911
2,121
$
4,808
$
3,790
$
$
0.79
0.79
$
$
0.71
0.70
See accompanying notes to consolidated financial statements
5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2015 and 2014
(Dollars in Thousands)
Net income
Other comprehensive income:
Net unrealized holding gains on securities available for sale arising during
the period, net of income tax expense of $253 and $600, respectively
Reclassification adjustment for losses on sales of securities, net of income tax
benefit of $6 and $6, respectively
Other comprehensive income
Comprehensive income
2015
2014
$
4,808
$
3,790
452
928
(9)
443
5,251
$
(10)
918
4,708
$
See accompanying notes to consolidated financial statements
6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years ended December 31, 2015 and 2014
(Dollars in Thousands)
Balance at January 1, 2014
50,475
7,132
(1,657)
55,950
Common
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss)
Total
Exercise of stock options (26,000 shares)
Stock based compensation
Dividends on common stock ($0.24 per share)
Net income
Total other comprehensive income
Balance at December 31, 2014
Exercise of stock options (2,200 shares)
Stock based compensation
Dividends on common stock ($0.24 per share)
Net income
Sale of common stock through a private placement
(868,057 shares issued)
Total other comprehensive income
273
250
-
-
-
50,998
20
211
-
-
9,280
-
-
-
(1,287)
3,790
-
9,635
-
-
(1,503)
4,808
-
-
-
-
918
(739)
-
-
-
-
-
443
273
250
(1,287)
3,790
918
59,894
20
211
(1,503)
4,808
9,280
443
Balance at December 31, 2015
$
60,509
$
12,940
$
(296)
$
73,153
See accompanying notes to consolidated financial statements
7
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2015 and 2014
(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
Loss on sale of securities
Loss on sale of other real estate owned
Write down of other real estate owned
Changes in operating assets and liabilities:
Decrease (increase) in accrued interest receivable
Decrease (increase) in other assets
(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 restricted investment in bank stock
Proceeds from calls of restricted investment of bank stock
Proceeds from sale of other real estate owned
Net increase in loans
Purchases of premises and equipment
Net cash used in investing activities
Cash flows from financing activities:
Net increase in deposits
Net (decrease) increase in borrowed funds
Dividends paid
Proceeds from the sale of common stock through the private placement
Proceeds from exercise of options
Net cash provided by financing activities
2015
2014
$
4,808
$
3,790
924
112
(542)
615
211
(33)
15
6
217
136
(594)
629
6,504
(23,720)
(5,829)
15,923
11,000
6,985
(170)
312
162
(11,200)
(979)
(7,516)
51,765
(6,421)
(1,503)
9,280
20
53,141
3,075
109
(406)
570
250
75
16
54
-
(985)
1,545
349
8,442
-
(11,923)
14,014
-
10,984
(1,370)
-
1,090
(164,229)
(279)
(151,713)
95,654
32,950
(1,287)
-
273
127,590
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
52,129
22,060
74,189
$
(15,681)
37,741
22,060
$
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
$
$
8,083
3,173
$
$
6,488
2,464
$
-
$
1,077
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. (together with its consolidated subsidiary, the “Company”), and its direct wholly-owned subsidiary,
Bank of New Jersey (the “Bank”) and the Bank’s wholly-owned subsidiaries, BONJ-New York Corp.,
BONJ-New Jersey Investment Company, BONJ- Delaware Investment Company, and BONJ REIT, Inc.
All significant inter-company accounts and transactions have been eliminated in consolidation.
The Company was incorporated under the laws of the State of New Jersey to serve as a holding
company for the Bank and to acquire all the capital stock of the Bank (referred to herein as the “holding
company reorganization”).
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 eight 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. During 2014, the Bank formed BONJ-Delaware Investment
Company and BONJ-New Jersey Investment Company to use to acquire, manage and administer
portions of the Bank of New Jersey’s investments and loans. Also in 2014, the Bank formed BONJ-
REIT, Inc. This company was formed to acquire, manage and administer portions of the Bank’s loans.
BONJ-Reit, Inc. is owned by BONJ-Delaware Investment Company.
On March 2, 2015, the Company closed on a private placement of approximately $9.5 million, or
868,057 shares of its common stock at a price of $10.95 per share. The shares of common stock were
offered and were sold in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933, as
amended. The shares have not been registered under the Securities Act, or the securities laws of any
other jurisdiction, and may not be offered or sold in the United States absent registration or an applicable
exemption from such registration requirements. Each of the investors in the private placement is a
member of the Company's board of directors or related party. The Company has contributed the
proceeds, net of costs associated with the private placement, to its banking subsidiary, Bank of New
Jersey, to enhance its capital, fund future growth and for general working capital.
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.
9
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 Company’s allowance for loan
losses. These agencies may require the Company 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.
Significant Group of Concentration of Credit Risk
The Company’s activities are, primarily, with customers located within Bergen County, New Jersey.
The Company does not have any significant concentration to any one industry or customers within its
primary service area. Note 3 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 applicable to banks chartered under the New
Jersey banking laws. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation
(“FDIC”). Accordingly, the Bank is subject to regulation, supervision, and examination by the New
Jersey State Department of Banking and Insurance and the FDIC. The Company is subject to regulation,
supervision and examination by the Board of Governors of the Federal Reserve System.
Securities
The Company reports investment securities in one of the following categories: (i) held to maturity
(management has the intent and ability to hold to maturity), which are reported at amortized cost; (ii)
trading (held for current resale), which are reported at fair value, with unrealized gains and losses
included in earnings; and (iii) available for sale, which are reported at fair value, with unrealized gains
and losses excluded from earnings and reported as a separate component of stockholders’ equity. The
Company has classified all of its holdings of investment securities as either held to maturity or available
for sale. At the time a security is purchased, a determination is made as to the appropriate classification.
Premiums and discounts on investment securities are amortized as expense and accreted as income over
the estimated life of the respective security using a method that generally approximates the level-yield
method. Gains and losses on the sales of investment securities are recognized upon realization, using
the specific identification method and shown separately in the consolidated statements of operations.
Management evaluates securities for Other Than Temporary Impairment (OTTI) on at least a quarterly
basis, and more frequently when economic or market conditions warrant such an evaluation. For
securities in an unrealized loss position, management considers the extent and duration of the unrealized
loss and the financial condition and near-term prospects of the issuer. Management also assesses
10
whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an
unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding
intent or requirement to sell is met, the entire difference between amortized cost and fair value is
recognized as impairment through earnings. For debt securities that do not meet the aforementioned
criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit
loss, which must be recognized in the statement of income and 2) OTTI related to other factors, which is
recognized in other comprehensive income (loss). The credit loss is defined as the difference between
the present value of the cash flows expected to be collected and the amortized cost basis. For equity
securities, the entire amount of impairment is recognized through earnings.
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”) and commercial real estate
which includes commercial construction loans. Consumer loans consist of 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 sheets. The
11
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.
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
12
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 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. Loans for which the terms have been modified resulting in a concession, and for
which the borrower is experiencing financial difficulties, are considered troubled debt restructurings
(“TDR”) and classified as impaired.
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 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
13
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 $211 thousand and $250 thousand during
2015 and 2014, respectively. At December 31, 2015, the Company had no unrecognized compensation
expense related to stock options. At December 31, 2015, the Company had $451,000 of unrecognized
compensation expense related to unvested restricted stock granted in 2015.
Stockholders’ Equity and Related Transactions
On March 2, 2015, the Company closed on a private placement of approximately $9.5 million (net of
expenses, approximatley $9.3 million) or 868,057 shares of its common stock at a price of $10.95 per
share. The shares of common stock were offered and were sold in a private placement pursuant to
Section 4(a)(2) of the Securities Act of 1933, as amended. The shares have not been registered under the
Securities Act, or the securities laws of any other jurisdiction, and may not be offered or sold in the
United States absent registration or an applicable exemption from such registration requirements. Each
of the investors in the private placement was a member of the Company's board of directors or related
party. The Company contributed the proceeds of the private placement to the Bank.
14
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 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 $289 thousand and
$245 thousand for 2015 and 2014, 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 of New York (the “FHLB”) of $1.9 million and $2.1 million and Atlantic Community Bankers
Bank, formerly Atlantic Central Bankers Bank (the “ACBB”) of $100 thousand and $100 thousand, as
of December 31, 2015 and 2014, respectively. Federal law requires a member institution of the Federal
15
Home Loan Bank to hold stock according to a predetermined formula. All restricted stock is recorded at
cost as of December 31, 2015 and 2014.
Management believes no impairment charge is necessary related to the FHLB or ACBB restricted stock
as of December 31, 2015.
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 (“FRB”). At December 31, 2015 and 2014, these reserve balances amounted to $3.4 million and
$1.2 million, respectively, and are reflected in interest bearing deposits in banks.
16
NOTE 2.
Securities
A summary of securities held to maturity and securities available for sale at December 31, 2015 and
2014 is as follows (in thousands):
2015
Securities Held to Maturity:
Obligations of states and
political subdivisions
Total securities held to maturity
Securities Available for Sale:
U.S. Treasury obligations
Government sponsored
enterprise obligations
Total securities available for sale
Amortized
Cost
$
5,829
5,829
6,512
58,720
65,232
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
-
$
-
-
$
-
$
5,829
5,829
-
-
-
(159)
(323)
(482)
6,353
58,397
64,750
$
71,061
$
-
$
(482)
$
70,579
2014
Securities Held to Maturity:
Obligations of states and
political subdivisions
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
Amortized
Cost
$
11,923
4,000
15,923
6,623
53,000
59,623
Gross
Unrealized
Gains
-
$
-
-
-
-
-
Gross
Unrealized
Losses
Fair
Value
$
-
(2)
(2)
$
11,923
3,998
15,921
(221)
(951)
(1,172)
6,402
52,049
58,451
$
75,546
$
-
$
(1,174)
$
74,372
Securities with an amortized cost of $31.3 million and a fair value of $31.0 million, respectively, were
pledged to secure public funds on deposit at December 31, 2015. In addition, securities with an
amortized cost of $11.2 million and a fair value of $11.1 million were pledged to secure borrowings
with the (“FHLB”) as of December 31, 2015. Securities with an amortized cost of $10.4 million and a
fair value of $10.1 million, respectively, were pledged to secure public funds on deposit at December 31,
2014. Securities with an amortized cost of $17.2 million and a fair value of $16.9 million were pledged
to secure borrowings with the FHLB as of December 31, 2014.
For the year ended December 31, 2015, the Company sold three securities from its available for sale
portfolio. The Company recognized a loss of approximately $15 thousand from the sale of these
securities. For the year ended December 31, 2014, the Company sold five securities from its available
for sale portfolio. The Company recognized a loss of approximately $16 thousand from the sale of those
securities. The Company did not sell any securities from its held to maturity portfolio in 2015 or 2014.
17
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, 2015 and 2014 are as follows (in thousands):
2015
Securities Available for Sale:
U.S. Treasury obligation
Government Sponsored
Enterprise obligations
Total securities available for sale
2014
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
Fair
Value
Unrealized
Losses
More than 12 Months
Unrealized
Losses
Fair
Value
Total
Fair
Value
Unrealized
Losses
-
15,707
15,707
-
(12)
(12)
6,354
42,689
49,043
(159)
(311)
(470)
6,354
(159)
58,396
64,750
(323)
(482)
$
15,707
$
(12)
$
49,043
$
(470)
$
64,750
$
(482)
Less than 12 Months
Fair
Value
Unrealized
Losses
More than 12 Months
Unrealized
Losses
Fair
Value
Total
Fair
Value
Unrealized
Losses
$
-
$
-
$
3,998
$
(2)
$
3,998
$
(2)
-
-
6,402
(221)
6,402
(221)
2,994
2,994
(6)
(6)
49,055
55,457
(945)
(1,166)
52,049
58,451
(951)
(1,172)
$
2,994
$
(6)
$
59,455
$
(1,168)
$
62,449
$
(1,174)
Unrealized losses at December 31, 2015 consisted of losses on sixteen investments in government
sponsored enterprise obligations, and two in U. S. Treasury securities, all of which were caused by
interest rate increases. Thirteen of the investments with unrealized losses at December 31, 2015 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, 2015.
The following table sets forth as of December 31, 2015, the maturity distribution of the Company’s held
to maturity and available for sale portfolios (in thousands):
2015
Securities Held to Maturity
Amortized
Cost
Fair
Value
Securities Available for Sale
Amortized
Cost
Fair
Value
1 year or less
$
5,829
$
5,829
$
15,720
$
15,708
After 1 year to 5 years
-
-
49,512
49,042
$
5,829
$
5,829
$
65,232
$
64,750
18
NOTE 3.
Loans and Allowance for Loan Losses
Loans at December 31, 2015 and 2014, are summarized as follows (in thousands):
Commercial real estate
Residential mortgages
Commercial
Home equity
Consumer
2015
2014
$ 460,396
$ 431,727
48,698
69,855
63,308
2,805
56,079
75,174
69,631
1,347
$ 645,062
$ 633,958
The Company 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 Company’s lien on the property. Such factors are dependent
upon various economic conditions and individual circumstances beyond the Company’s control; the
Company is therefore subject to risk of loss. The Company 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.
19
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, 2015 (in thousands):
Commercial
Real Estate
Residential
Mortgages
Commercial Home Equity Consumer Unallocated
Total
Allowance for loan
losses:
Beginning Balance
Charge-offs
Recoveries
Provision
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
$
$
4,950
(60)
226
450
5,566
$
348
-
-
224
572
$
1,128
(264)
2
200
1,066
$
500
-
-
73
573
$
$
24
-
-
15
39
$
$
242
-
-
(38)
204
$
$
$
7,192
(324)
228
924
8,020
$
$
$
-
$
267
$
-
$
80
$
-
$
-
$
347
$
5,566
$
305
$
1,066
$
493
$
39
$
204
$
7,673
$
460,396
$
48,698
$
69,855
$
63,308
$
2,805
$
-
$
645,062
$
842
$
4,524
$
-
$
2,626
$
-
$
-
$
7,992
$
459,554
$
44,174
$
69,855
$
60,682
$
2,805
$
-
$
637,070
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, 2014 (in thousands):
Commercial
Real Estate
Residential
Mortgages
Commercial Home Equity Consumer Unallocated
Total
Allowance for loan
losses:
Beginning Balance
Charge-offs
Recoveries
Reclassification
Provision
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
$
$
$
$
$
3,707
(940)
-
-
2,183
4,950
325
(32)
-
-
55
348
$
969
(327)
4
-
482
1,128
$
$
$
593
(72)
-
-
(21)
500
26
(93)
-
-
91
24
155
-
-
(198)
285
242
5,775
(1,464)
4
(198)
3,075
7,192
$
$
$
$
$
$
-
$
-
$
-
$
-
$
-
$
-
$
-
$
4,950
$
348
$
1,128
$
500
$
24
$
242
$
7,192
$
431,727
$
56,079
$
75,174
$
69,631
$
1,347
$
-
$
633,958
$
1,787
$
4,455
$
-
$
2,512
$
-
$
-
$
8,754
$
429,940
$
51,624
$
75,174
$
67,119
$
1,347
$
-
$
625,204
20
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,
2015 and 2014 (in thousands):
2015
Commercial real estate
Residential mortgages
Commercial
Home equity
Consumer
30-59 Days
Past Due
402
$
428
-
-
-
830
$
60-89 Days
Past Due
-
$
-
-
475
-
475
$
Greater than
90 Days
Total Past
Due
Current
$
$
$
842
3,992
-
2,522
-
7,356
1,244
4,420
-
2,997
-
8,661
459,152
44,278
69,855
60,311
2,805
636,401
$
$
$
$
2014
Commercial real estate
Residential mortgages
Commercial
Home equity
Consumer
30-59 Days
Past Due
-
$
361
-
-
-
361
$
60-89 Days
Past Due
377
$
-
-
475
-
852
$
Greater than
90 Days
-
$
963
-
1,275
-
2,238
$
Total Past
Due
$
377
1,324
-
1,750
-
3,451
Current
$
431,350
54,755
75,174
67,881
1,347
630,507
$
$
$
Total Loans
Receivables
460,396
$
48,698
69,855
63,308
2,805
645,062
$
Total Loans
Receivables
431,727
$
56,079
75,174
69,631
1,347
633,958
$
Nonaccrual
Loans
$
842
3,992
-
2,522
-
7,356
1,787
4,279
-
2,453
-
8,519
Nonaccrual
Loans
$
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 Company’s internal
risk rating system as of December 31, 2015 and 2014 (in thousands):
2015
Commercial
Real Estate
Residential
Mortgages Commercial
Home Equity
Consumer
Total
$
$
$
$
$
$
$
$
$
$
$
$
Pass
Special Mention
Substandard
Doubtful
Pass
Special Mention
Substandard
Doubtful
450,193
7,644
2,559
-
460,396
429,940
-
1,787
-
431,727
48,698
-
-
-
48,698
62,367
3,919
3,569
-
69,855
47,700
4,100
4,279
-
56,079
73,174
500
1,500
-
75,174
57,910
4,400
998
-
63,308
66,878
300
2,453
-
69,631
2,805
-
-
-
2,805
1,347
-
-
-
1,347
621,973
15,963
7,126
-
645,062
619,039
4,900
10,019
-
633,958
2014
Commercial
Real Estate
Residential
Mortgages Commercial
Home Equity
Consumer
Total
$
$
$
$
$
$
$
$
$
$
$
$
As of December 31, 2015 and 2014 the Company had no accruing loans greater than 90 days delinquent.
21
The following tables provide information about the Company’s impaired loans as of and for the years
ended December 31, 2015 and 2014 (in thousands):
Impaired loans with specific reserves:
2015
Residential mortgages
Home equity
Impaired loans with no specific reserves:
Commercial real estate
Residential mortgages
Home equity
Impaired loans with no specific reserves:
2014
Commercial real estate
Residential mortgages
Home equity
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
$
3,568
$
250
$
267
278
3,846
842
956
2,348
4,146
175
425
867
4,850
2,723
8,440
80
347
-
-
-
-
$
7,992
$
8,865
$
347
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
$
1,787
$
1,787
$
-
4,455
2,512
4,543
2,613
-
-
$
8,754
$
8,943
$
-
22
Impaired loans with specific reserves:
Commercial real estate
Residential mortgages
Commercial
Home equity
Impaired loans with no specific reserves:
Commercial real estate
Residential mortgages
Commercial
Home equity
Consumer
Year Ended
December 31, 2015
Year Ended
December 31, 2014
Average
Recorded
Investment
-
$
3,653
-
208
3,861
1,024
807
3
2,379
-
4,213
8,074
$
Interest
Income
Received
$
-
7
-
5
12
5
-
-
-
-
$
5
17
Average
Recorded
Investment
$
334
94
20
182
630
2,796
4,561
24
2,097
19
9,497
10,127
$
Interest
Income
Received
-
$
-
-
-
-
106
11
5
27
-
149
149
$
If interest had been accrued on these non-accrual loans, the interest income recognized would have been
approximately $267 thousand and $544 thousand for the years ended December 31, 2015 and 2014,
respectively.
The following table presents TDR loans as of December 31, 2015 and 2014 (in thousands):
Number of
Loans
Nonaccrual
Status
Number of
Loans
2015
Residential mortgages
Commercial real estate
Home equity
2014
Residential mortgages
Commercial real estate
Home equity
Accrual
Status
$
532
-
104
636
$
Accrual
Status
$
175
-
60
235
$
Number of
Loans
Nonaccrual
Status
Number of
Loans
Total
Total
$
$
4,000
367
963
5,330
$
$
4,183
377
1,014
5,574
4
1
1
6
5
1
2
8
-
2
2
4
$
$
3,468
367
859
4,694
$
$
4,008
377
954
5,339
-
1
1
2
23
There were no new troubled debt restructuring loans that occurred during 2015. The following table
summarizes information in regards to troubled debt restructurings that occurred during the year ended
December 31, 2014 (in thousands):
2014
Residential mortgages
Home equity
Pre-Modification
Outstanding
Recorded
Investments
Number of
Loans
Post-
Modification
Outstanding
Recorded
Investments
2
1
3
$
$
$
$
731
46
777
741
44
785
The following table displays the nature of modifications during the year ended December 31, 2014 (in
thousands):
2014
Pre-modification outstanding
recorded investment:
Residential mortgages
Home equity
Rate
Modification
Term
Modification
Interest Only
Modification
Payment
Modification
Combination
Modification
Total
Modifications
$
$
731
46
777
-
$
-
$
-
-
$
-
$
-
-
$
-
$
-
-
$
-
$
-
$
$
731
46
777
During the years ended December 31, 2015 and 2014, the Bank had no loans meeting the definition of a
TDR which had a payment default.
We may obtain physical possession of real estate collateralizing a residential mortgage loan or home
equity loan via foreclosure or an in-substance repossession. As of December 31, 2015, we have no
foreclosed residential real estate properties as a result of obtaining physical possession. In addition, as
of December 31, 2015, we had residential mortgage loans and home equity loans with a carrying value
of $2.3 million collateralized by residential real estate property for which formal foreclosure
proceedings were in process.
NOTE 4.
Premises and Equipment
At December 31, 2015 and 2014, premises and equipment consists of the following (in thousands):
Land
Building
Furniture and fixtures
Equipment
Less accumulated depreciation and
amortization
Total premises and equipment, net
2015
2014
$
4,828
6,906
855
2,003
14,592
$
4,828
6,286
787
1,712
13,613
4,092
10,500
$
3,477
10,136
$
Depreciation expense amounted to $615 thousand and $570 thousand for the years ended December 31,
2015 and 2014, respectively.
24
NOTE 5.
Deposits
At December 31, 2015 and 2014, 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
2015
$
2014
$
80,882
153,638
53,532
26,831
25,585
9,895
350,363
55,056
151,655
90,914
27,695
13,037
20,522
358,879
$
$
At December 31, 2015 and 2014, the Company’s brokered deposits are as follows:
2015
2014
$
6,050
17,125
-
$
-
16,668
39,843
-
-
CDARS*
Public Funds Reciprocal
Non-Public Funds Reciprocal
FTN**
Non-Reciprocal Funds
*Certificate of Deposit Account Registry Service
**First T ennessee National
NOTE 6.
Borrowed Funds
Borrowings may consist of long-term debt fixed rate advances from the FHLBNY as well as short term
borrowings through lines of credit with other financial institutions. Information concerning long-term
borrowings at December 31, 2015 and 2014 is as follows (in thousands):
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
2015
2014
Amount
$
3,621
5,555
5,299
4,158
7,896
$
26,529
Amount
4,598
$
7,018
6,662
4,833
9,839
$
32,950
Original
Term (years)
5
5
5
7
5
Maturity
June 2019
July 2019
August 2019
August 2021
October 2019
Rate
1.50%
1.51%
1.51%
2.02%
1.48%
1.58%
Original
Term (years)
5
5
5
7
5
Maturity
June 2019
July 2019
August 2019
August 2021
October 2019
Rate
1.50%
1.51%
1.51%
2.02%
1.48%
1.57%
25
The Bank has a $16 million overnight line of credit facility available with Zions First National Bank, a
$12.0 million overnight line of credit facility available with First Tennessee Bank and a $10.0 million
overnight line of credit with Atlantic Community Bankers Bank for the purchase of federal funds in the
event that temporary liquidity needs arise.
NOTE 7.
Income Taxes
Income tax expense from operations for the years ended December 31, 2015 and 2014 is as follows (in
thousands):
Current tax expense:
Federal
State
Deferred income tax benefit:
Federal
State
2015
2014
$
2,913
164
$
2,257
270
(425)
(117)
(291)
(115)
$
2,535
$
2,121
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, 2015 and 2014 are as follows (in thousands):
Deferred tax assets:
Start up expenses
Allowance for loan losses
Accrued expenses
Stock compensation plans
Unrealized losses on available for sale securities
Other
Total gross deferred tax assets
Deferred tax liabilities:
Deferred loan costs
Prepaid expenses
Depreciation
Total gross deferred tax liabilities
2015
2014
$
187
3,392
340
429
185
357
4,890
$
222
2,948
277
428
433
251
4,559
(100)
(165)
(501)
(766)
(97)
(102)
(530)
(729)
$
4,124
$
3,830
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 2015 and 2014, 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.
26
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
Increase (decrease) in taxes resulting
from:
State taxes, net of federal income tax
expense
Tax exempt income
Stock-based compensation
Meals and entertainment
Other
2015
2014
$
2,497
$
2,010
31
(13)
8
10
2
2,535
$
102
(18)
(1)
9
19
2,121
$
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 2012 through 2015 remain open to examination by taxing authorities.
NOTE 8.
Leases
The Company 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 $1.4 million and $1.3 million, respectively, for the years ended December 31, 2015 and
December 31, 2014.
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, 2015 (in thousands):
Year ending December 31,
2016
2017
2018
2019
2020
Thereafter
$
$
1,299
1,122
1,040
749
525
1,499
6,234
NOTE 9.
Related-party Transactions
The Company 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
Company’s board of directors. None of such loans at December 31, 2015 and 2014, 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
27
the normal risk of collectibility or present other unfavorable features. Related party deposit balances
were $53.6 million and $41.7 million at December 31, 2015 and 2014 respectively.
The following table represents a summary of related-party loan activity during the years ended
December 31, 2015 and 2014 (in thousands):
2015
2014
Outstanding loans at beginning of the year
Advances
Repayments
Outstanding loans at end of the year
$
36,318
6,606
(16,133)
26,791
$
$
$
33,623
10,979
(8,284)
36,318
Two of our directors have acted as the Company’s counsel on several loan closings. During 2015 and
2014 the total cost of such work has been reimbursed by the respective loan customers and totals $259
thousand and $453 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 $16 thousand and $30 thousand for the years ended December 31, 2015 and 2014,
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 $230 thousand and
$165 thousand for the years ended December 31, 2015 and 2014, respectively.
The Bank rents office space from entities related to some of the Company’s directors. The total amount
of rent expense to these entities was $435 thousand and $372 thousand for the years ended December
31, 2015 and 2014, 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, 2015
and 2014 (in thousands except per share data):
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
2015
2014
$
4,808
$
3,790
6,097
0.79
$
5,362
0.71
$
$
4,808
$
3,790
6,097
16
5,362
48
6,113
0.79
$
5,410
0.70
$
28
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 75,000 shares of common stock at a weighted average
price of $11.50; incentive stock options to purchase 84,700 shares of common stock at a weighted
average price of $9.09; and 64,000 unvested shares of restricted stock were included in the computation
of diluted earnings per share for the year ended December 31, 2015. 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 75,000 shares of common stock at a weighted average price of $11.50; incentive stock options
to purchase 86,900 shares of common stock at a weighted average price of $9.09; and 64,500 unvested
shares of restricted stock were included in the computation of diluted earnings per share for the year
ended December 31, 2014.
NOTE 11.
Stockholders’ Equity and Dividend Restrictions
In 2015, 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, 2015, June 30, 2015, September 30, 2015 and
December 31, 2015, respectively, and the Company expects that comparable quarterly cash dividends
will continue to be declared and paid in the future. The cash dividends were paid from the retained
earnings of the Company.
In 2014, 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, 2014, June 30, 2014, September 30, 2014 and
December 31, 2014, respectively.
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, regulatory requirements 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, liquidity asset quality and financial
condition. As part of its supervisory authority, the FRB may impose informal or formal restrictions on
the Company’s ability to pay dividends, including requiring the non-objection of the FRB to payment of
any dividends.
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.
29
NOTE 12.
Benefit Plans
2006 Stock Option Plan
During 2006, the Company’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. As of December 31, 2015 incentive stock options to purchase 209,900 shares have been granted
to employees of the Company.
A summary of stock option activity under the 2006 Stock Option Plan during the year ended December
31, 2015 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, 2014
161,900
$
10.21
Granted
Forfeited
Exercised
-
-
2,200
-
-
9.09
Outstanding at December 31, 2015
159,700
$
10.22
$
172,788
Exercisable at December 31, 2015
159,700
$
10.22
$
172,788
1.34
1.34
(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, 2015. 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, 2015 and 2014.
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. As of December 31,
2015, non-qualified options to purchase 460,000 shares of the Company’s stock have been granted to
non-employee directors of the Company.
There has been no stock option activity under the 2007 Non-Qualified Stock Option Plan for the year
ended 2015:
30
Weighted
Average
Exercise Price
per Share
$
11.50
Number of
Shares
331,334
Weighted
Average
Remaining
Contractual Life
(Years)
Aggregate
Intrinsic Value
(1)
Outstanding at December 31, 2014
Outstanding at December 31, 2015
331,334
$
11.50
$
-
Exercisable at December 31, 2015
331,334
$
11.50
$
-
1.81
1.81
(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, 2015. This amount changes based on the changes in the market value in
the Company’s common stock.
Under the 2007 Directors Stock Option Plan, there were no unvested options at December 31, 2015 and
2014.
2011 Equity Incentive Plan
During 2011, the shareholders of the Company approved the Bancorp of New Jersey, Inc. 2011 Equity
Incentive Plan (the “2011 Plan”). This plan authorizes the issuance of up to 250,000 shares of the
Company’s common stock, subject to adjustment in certain circumstances described in the 2011 Plan,
pursuant to awards of incentive stock options or non-qualified stock options, stock appreciation rights,
restricted stock, restricted stock units or performance awards. Employees, directors, consultants, and
other service providers of the Company and its affiliates (primarily the Bank) are eligible to receive
awards under the 2011 Plan, provided, that only employees are eligible to receive incentive stock
options.
The following is a summary of the non-vested restricted stock awards granted under the 2011 Plan:
2015
Weighted
Average
Number
Grant Date
of Shares
Fair Value
Non-vested resticted stock, beginning of year
64,500
12.99
Granted
Forfeited
Vested
Non-vested resticted stock, end of year
-
-
-
-
(16,250)
12.97
48,250
$
12.99
Approximately $451 thousand remains to be expensed over the next 27 months. At December 31, 2015,
16,250 shares were vested. During the year ended December 31, 2015, there were no new issuance
under the 2011 Plan. For the years ended December 31, 2015, and 2014, $211 thousand and $250
thousand, respectively, was recorded as compensation expense.
31
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 $100 thousand and $83 thousand during 2015 and 2014, respectively.
NOTE 13. Regulatory Capital Requirements
The Bank and the Company are subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory
and possibly additional discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Bank and the Company must meet
specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-
balance-sheet items as calculated under regulatory accounting practices. Capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank and the
Company to maintain minimum amounts and ratios of Tier 1 leverage ratio, Common equity tier 1 risk-
based capital ratio, Tier 1 risk-based capital ratio and Total risk-based capital ratio (as defined in the
regulations). In July 2013, the Federal Deposit Insurance Corporation and the other federal bank
regulatory agencies issued a final rule that revised their leverage and risk-based capital requirements and
the method for calculating riskweighted assets to make them consistent with agreements that were
reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act.
The Final Capital Rules also revised the quantity and quality of required minimum risk-based and
leverage capital requirements, consistent with the Reform Act and the Third Basel Accord adopted by
the Basel Committee on Banking Supervision, or Basel III capital standards. The Common equity tier 1
risk-based capital ratio and changes to the calculation of risk-weighted assets became effective for the
Bank and Company on January 1, 2015. As of December 31, 2015 and 2014, management believes that
the Company and the Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 2015, the most recent notification from the Federal Deposit Insurance Corporation
categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, the Bank and the Company must maintain minimum Tier 1
leverage capital, Common equity tier 1 capital, Tier 1 risk-based capital and Total risk-based capital as
set forth in the tables. There are no conditions or events since that notification that management believes
have changed the Bank and the Company's category.
The following is a summary of the Bank’s actual capital amounts and ratios as of December 31, 2015
compared to the FDIC minimum capital adequacy requirements and the FDIC requirements for
classification as a well-capitalized institution. The information presented as of December 31, 2014
reflect the requirements in effect at that time, as the Basel III requirements became effective on January
1, 2015:
32
2015
Leverage (Tier 1) Capital Ratio
Risk-Based Capital :
Common Equity Tier 1 Capital
Tier 1 Capital Ratio
Total Capital Ratio
2014
Leverage (Tier 1) Capital Ratio
Risk-based capital:
Tier 1 Capital Ration
Total Capital Ratio
FDIC requirements
Minimum Capital
For Classification
Bank actual
Adequacy
As Well Capitalized
Amount
Ratio
Amount
Ratio
Amount
Ratio
$73,449
9.02%
$32,565
4.00%
$40,707
5.00%
$73,449
$73,449
$81,790
10.95%
10.95%
12.19%
$30,186
$40,248
$53,664
4.50%
6.00%
8.00%
$43,602
$53,664
$67,080
6.50%
8.00%
10.00%
$60,045
8.16%
$29,447
4.00%
$36,808
5.00%
$60,045
$67,237
9.39%
10.51%
$25,580
$51,160
4.00%
8.00%
$38,370
$63,951
6.00%
10.00%
The Company’s capital amounts and ratios are similar to those of the Bank.
NOTE 14.
Financial Instruments with Off-Balance Sheet Risk
The Company 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 Company 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 Company evaluates
each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company 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 totaled $102.3 million and $120.3 million at December 31, 2015 and 2014.
Most of the Company’s lending activity is with customers located in Bergen County, New Jersey. At
December 31, 2015 and 2014, the Company had outstanding letters of credit to customers totaling $3.7
million and $2.3 million, respectively, whereby the Company 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, 2015 and 2014, such amounts
were deemed not material.
33
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, 2015 and 2014,
respectively, the statements of income for the twelve months ended December 31, 2015 and December
31, 2014, and the statements of cash flows for the twelve months ended December 31, 2015 and
December 31, 2014 and should be read in conjunction with the notes to the consolidated financial
statements.
Balance Sheets
(in thousands)
Assets:
Investment in subsidiary, net
Total assets
Liabilities and stockholders' equity:
Stockholders' equity
December 31,
2015
2014
$
$
73,153
73,153
$
$
59,894
59,894
$
$
73,153
73,153
$
$
59,894
59,894
Statements of Income and Comprehensive Income
Years ended December 31,
(in thousands)
Equity in undistributed earnings of
subsidiary bank
Net income
Other comprehensive income
Comprehensive Income
2015
2014
4,808
4,808
3,790
3,790
-
4,808
$
-
3,790
$
Statements 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 provided by investing activities
Cash flows from financing activities:
Cash dividends paid
Net cash used in financing activities
Net change in cash for the period
Net cash at beginning of year
Net cash at end of year
2015
2014
$
4,808
$
3,790
(4,808)
-
1,498
1,498
(1,498)
(1,498)
(3,790)
-
1,287
1,287
(1,287)
(1,287)
-
-
$
-
-
-
$
-
34
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).
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.
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, 2015 and December 31, 2014, respectively, are as
follows (in thousands):
(Level 1)
(Level 2)
(Level 3)
December 31,
2015
Quoted Prices in
Active Markets
for Identical
Assets
Significant Other
Observable
Inputs
Significant
Unobservable Inputs
$
6,353
$
-
$
6,353
$
-
58,397
64,750
$
-
$
-
$
58,397
64,750
-
$
-
(Level 1)
(Level 2)
(Level 3)
December 31,
2014
Quoted Prices in
Active Markets
for Identical
Assets
Significant Other
Observable
Inputs
Significant
Unobservable Inputs
$
6,402
$
-
$
6,402
$
-
52,049
58,451
$
-
$
-
$
52,049
58,451
-
$
-
Description
Securities available for sale:
U.S. Treasury obligations
Government sponsored
enterprise obligations
Total securities available for sale
Description
Securities available for sale:
U.S. Treasury obligations
Government sponsored
enterprise obligations
Total securities available for sale
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, 2015 and December 31, 2014, respectively, is as
follows (in thousands):
35
(Level 1)
(Level 2)
(Level 3)
Description
Impaired loans
December 31,
2015
Quoted Prices in
Active Markets for
Identical Assets
Significant Other
Observable Inputs
Significant
Unobservable Inputs
$
258
$
-
$
-
$
258
(Level 1)
(Level 2)
(Level 3)
December 31,
2014
Quoted Prices in
Active Markets for
Identical Assets
Significant Other
Observable Inputs
Significant
Unobservable Inputs
$
1,723
$
-
$
-
$
1,723
Description
Impaired loans
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, 2015
Fair Value
Estimate
Valuation Techniques
Unobservable Input
Range (Weighted Average)
Impaired loans
$ 258
Appraisal of Collateral (1)
Appriasal Adjustments (2)
0% - 1.0% (-0.5%)
Liquidation Expenses (2)
0% - 48.1% (-33.8%)
December 31, 2014
Fair Value
Estimate
Valuation Techniques
Unobservable Input
Range (Weighted Average)
Impaired loans
$ 1,723
Appraisal of Collateral (1)
Appriasal Adjustments (2)
0% - 46.3% (-38.4%)
Liquidation Expenses (2)
0% - 60.2% (-20.2%)
(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.
36
The following information should not be interpreted as an estimate of the fair value of the entire
Company since a fair value calculation is only provided for a limited portion of the Company’s assets
and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in
making the estimates, comparisons between the Company’s disclosures and those of other companies
may not be meaningful.
Fair value estimates for the Company’s financial instruments are as follows at December 31, 2015 and
2014 (in thousands):
(Level 1)
(Level 2)
(Level 3)
December 31, 2015
Carrying amount
Estimated Fair Value
Quoted Prices in
Active Markets for
Identical Assets
Significant Other
Observable Inputs
Significant
Unobservable
Inputs
Financial assets:
Cash and cash equivalents
Interest bearing time deposits
Securities available for sale
Securities held to maturity
Restricted investment in bank stock
Net loans
Accrued interest receivable
$ 74,189
1,000
64,750
5,829
2,020
636,661
2,305
$ 74,189
1,000
64,750
5,829
2,020
639,525
2,305
$ 74,189
-
-
-
-
-
-
$ -
1,000
64,750
5,829
2,020
-
2,305
$ -
-
-
639,525
-
Financial liabilities:
Deposits
Borrowed funds
Accrued interest payable
700,739
26,529
716
702,593
26,517
716
350,375
-
-
352,218
26,517
716
-
-
-
December 31, 2014
Carrying amount
Estimated Fair Value
Quoted Prices in
Active Markets for
Identical Assets
Significant Other
Observable Inputs
Significant
Unobservable
Inputs
Financial assets:
Cash and cash equivalents
Interest bearing time deposits
Securities available for sale
Securities held to maturity
Restricted investment in bank stock
Net loans
Accrued interest receivable
$ 22,060
1,000
58,451
15,923
2,162
626,352
2,441
$ 22,060
1,000
58,451
15,921
2,162
629,086
2,441
$ 22,060
-
-
-
-
-
-
$ -
1,000
58,451
15,921
2,162
-
2,441
$ -
-
-
629,086
-
Financial liabilities:
Deposits
Borrowed funds
Accrued interest payable
648,974
32,950
758
650,729
32,972
758
290,095
-
-
360,634
32,972
758
-
-
-
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, 2015 and 2014.
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.
37
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 may be 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)
would be used to support fair values of certain Level 3 investments if applicable.
Restricted Investment in Bank Stock
The carrying amount of restricted investment in bank stock approximates fair value and considers the
limited marketability of such securities.
Loans Receivable
The fair value of loans are estimated using discounted cash flow analyses, using market rates at the
balance sheet date that reflect the credit and the interest rate-risk inherent in the loans. Projected future
cash flows are calculated based upon contractual maturity or call dates, projected repayments and
prepayments of principal. Generally, for variable rate loans that re-price frequently and with no
significant change in credit risk, fair values approximate carrying values.
Impaired loans
Impaired loans are those for which the Company has measured fair value generally based on the fair
value of the loan’s collateral (based on independent third party appraisal) or discounted cash flows based
upon the expected proceeds. 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 non-interest checking, passbook savings
and money market accounts) are, by definition, equal to the amount payable on demand at the reporting
38
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, 2015 and 2014 based on pertinent
market data and relevant information on the financial instruments. 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, 2015 and 2014, 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 (Loss)
Reclassifications out of accumulated other comprehensive loss for the years ended December 31, 2015
and 2014 are as follows (in thousands):
Details About Accumulated Other
Comprehensive Income (Loss) Components
Year ended December 31, 2015
Available for Sale Securities
Realized losses on sale of securities
Total reclassifications
Year ended December 31, 2014
Available for Sale Securities
Realized gains on sale of securities
Total reclassifications
Amount Reclassified from
Accumulated Other
Comprehensive Income
(Loss)
$
$
$
$
(15)
6
(9)
(16)
6
(10)
Affected Line Item in the Statements
of Income (Loss)
Gains (losses) on sale of securities
Income tax expense
Net of tax
Gains (losses) on sale of securities
Income tax expense
Net of tax
39
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 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans
upon Foreclosure
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
did not have a material impact on the Company’s financial position or results of operations.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The
amendments in this ASU establish a comprehensive revenue recognition standard for virtually all
industries under U.S. GAAP, including those that previously followed industry-specific guidance such
as the real estate, construction and software industries. The revenue standard’s core principle is built on
the contract between a vendor and a customer for the provision of goods and services. It attempts to
depict the exchange of rights and obligations between the parties in the pattern of revenue recognition
based on the consideration to which the vendor is entitled. To accomplish this objective, the standard
requires five basic steps: i) identify the contract with the customer, (ii) identify the performance
obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the
performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a
performance obligation. Public entities will apply the new standard for annual periods beginning after
December 15, 2017, including interim periods therein. Three basic transition methods are available –
full retrospective, retrospective with certain practical expedients, and a cumulative effect approach.
Under the third alternative, an entity would apply the new revenue standard only to contracts that are
incomplete under legacy U.S. GAAP at the date of initial application (e.g. January 1, 2018) and
recognize the cumulative effect of the new standard as an adjustment to the opening balance of retained
earnings. That is, prior years would not be restated and additional disclosures would be required to
enable users of the financial statements to understand the impact of adopting the new standard in the
current year compared to prior years that are presented under legacy U.S. GAAP. Early adoption is
prohibited under U.S. GAAP. The same three transition alternatives apply. The implementation of ASU
2014-09 should not have a material impact on the Company’s financial position or results of operations.
40
ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40):
Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure (a consensus
of the FASB Emerging Issues Task Force
In August 2014 the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by
Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon
Foreclosure (a consensus of the FASB Emerging Issues Task Force. The amendments in this ASU
address a practice issue related to the classification of certain foreclosed residential and nonresidential
mortgage loans that are either fully or partially guaranteed under government programs. Specifically,
creditors should reclassify loans that meet certain conditions to "other receivables" upon foreclosure,
rather than reclassifying them to other real estate owned (OREO). The separate other receivable
recorded upon foreclosure is to be measured based on the amount of the loan balance (principal and
interest) the creditor expects to recover from the guarantor. The ASU is effective for public business
entities for annual periods, and interim periods within those annual periods, beginning after December
15, 2014. The implementation of ASU 2014-14 did not have a material impact on the Company’s
financial position or results of operations.
ASU 2016-1, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities.
In January 2016 the FASB issued ASU 2016-1, Financial Instruments – Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 requires
equity investments, with certain exceptions, to be measured at fair value with changes in fair value
recognized in net income, simplifies the impairment assessment of equity investments without readily
determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the
requirement for public business entities to disclose the methods and significant assumptions used to
estimate the fair value that is required to be disclosed for financial instruments measured at amortized
cost on the balance sheet; requires public business entities to use the exit price notion when measuring
the fair value of financial instruments for disclosure purposes; requires an entity to present separately in
other comprehensive income the portion of the total change in the fair value of a liability resulting from
a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair
value in accordance with the fair value option for financial instruments; requires separate presentation of
financial assets and financial liabilities by measurement category and form of financial asset on the
balance sheet or the accompanying notes to the financial statements; and clarifies that an entity should
evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale.
ASU 2016-01 will be effective for us on January 1, 2018 and is not expected to have a material impact
on the Company’s financial position or results of operations.
ASU 2016-02, Leases.
In February 2016 the FASB issued ASU 2016-02, Leases. ASU 2016-02 amends existing lease
accounting guidance to include the requirement to recognize most lease arrangements on the balance
sheet. The adoption of this standard will require the Company to recognize the rights and obligations
arising from operating leases as assets and liabilities. ASU 2016-02 will be effective for fiscal years
beginning after December 15, 2018, early adoption is permitted. The Company is presently evaluating
the potential impact of the adoption of this accounting pronouncement to its financial position or results
of operations.
41
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 sheets of Bancorp of New Jersey, Inc.
and subsidiary (the “Company”) as of December 31, 2015 and 2014 and the related consolidated
statements of income, comprehensive income, stockholders’ equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits 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 audits provide 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,
2015 and 2014, and the results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of America.
New York, New York
March 30, 2016
42
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, affecting the financial industry; changes in interest rates and shape of the yield
curve; credit risk associated with our lending activities; risks relating to our market area, significant real
estate collateral and the real estate market; legislative and regulatory changes, and our ability to comply
with the significant laws and regulations impacting the banking and financial services industry;
operating, legal and regulatory compliance risk; regulatory capital requirements and our ability to raise
and maintain capital; our ability to prevent, detect, and respond to any cyberattacks in order to protect
our information assets and supporting infrastructure, including information of our customers; our ability
to attract and retain well-qualified management; fiscal and monetary policy; economic, political and
competitive forces affecting our business; risks associated with potential business combinations; and that
management’s analysis of these risks and factors could be incorrect, and/or that the strategies developed
to address them could be unsuccessful. 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 a nine branch network and have received NJDOBI approval and applied for FDIC
approval to open our tenth 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 tenth branch location will be located at 750 East Palisade Avenue, Englewood
Cliffs, NJ 07632 and is expected to open during 2016.
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
43
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) To provide 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
(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.
44
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, 2015 and 2014, respectively, we consider the ALLL of $8.0 million and $7.2 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 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
Company 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, 2015 and 2014, the Company had nineteen
and eighteen 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
45
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, 2015 consisted of
losses on sixteen investments in government sponsored enterprise obligations, and two in U. S. Treasury
securities, which we believe 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, 2015. Thirteen of the investments with unrealized losses at
December 31, 2015 were in a loss position for more than twelve months. At December 31, 2015 and
2014, respectively, we did not have any other-than-temporarily impaired securities.
46
RESULTS OF OPERATIONS - Years ended December 31, 2015 and 2014
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, 2015, net income increased by $1.0 million, to $4.8 million from $3.8
million for the year ended December 31, 2014. The increase in net income for the year ended December
31, 2015 compared to 2014 was due to an increase in net interest income of $2.2 million and a decrease
in the provision for loan losses of $2.2 million, offset somewhat by an increase in non-interest expense
and income tax expense of $3.1 million and $414 thousand, respectively. The increase in net interest
income is reflective of the growth in interest-earning assets, offset somewhat by an increase in interest
bearing deposits. The decrease in the provision for loan losses was driven by slower loan growth in the
current year as compared to the prior year. Additionally, there was a decrease in the amount of loans
placed on nonaccrual status during 2015, which contributed to the decrease in the provision for loan
losses, as compared to 2014.
On a per share basis, basic and diluted earnings per share for the year ended December 31, 2015 were
$0.79 as compared to basic and diluted earnings per share of $0.71 and $0.70, respectively, for the year
ended December 31, 2014.
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, 2015, net interest income increased by $2.2 million, or 10.5%, to $23.5 million
from $21.2 million for the year ended December 31, 2014. This increase in net interest income was
primarily the result of an increase in average loans and interest earning cash accounts of $95.2 million,
or 17.4%, and $54.4 million, or 224.7%, respectively during 2015, as compared to 2014, offset
somewhat by a decrease in the average rate earned on all interest earning assets of 29 basis points, down
to 3.98% for the year ended December 31, 2015, from 4.27% for the year ended December 31, 2014,
and an increase in the average balance of interest bearing liabilities for the year ended December 31,
2015 of $102.2 million compared to the average balance for the prior year.
Average Balance Sheets
The following table sets forth certain information relating to our average assets and liabilities for the
years ended December 31, 2015, 2014 and 2013, 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 2015, 2014, and 2013 was $37, $46, and $16 thousand, respectively.
Securities available for sale are reflected in the following table at average 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 2015, 2014 and 2013.
47
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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, 2015 and 2014,
respectively (in thousands):
Interest income:
Loans
Securities
Federal funds sold
Interest bearing deposits in banks
Year ended December 31,
2015 compared with 2014
Increase (Decrease)
Due to Change in Average
Rate
Volume
Year ended December 31,
2014 compared with 2013
Increase (Decrease)
Due to Change in Average
Rate
Net
Net
Volume
$
4,464
(198)
-
126
$
(892)
158
1
8
$
3,572
(40)
1
134
$
4,240
26
(3)
(19)
$
(996)
(182)
(1)
(3)
$
3,244
(156)
(4)
(22)
Total interest income
4,392
(725)
3,667
4,244
(1,182)
3,062
Interest expense:
Demand deposits
Savings deposits
Money market deposits
Time deposits
Borrowed funds
Total interest expense
Change in net interest income
7
249
31
835
232
1,354
(2)
25
(65)
100
18
76
5
274
(34)
935
250
1,430
8
262
(2)
266
179
713
5
32
(102)
(172)
36
(201)
13
294
(104)
94
215
512
$
3,038
$
(801)
$
2,237
$
3,531
$
(981)
$
2,550
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. For the year ended December 31, 2015, the Company’s provision for loan
losses was $924 thousand, a decrease of $2.2 million from the provision of $3.1 million for the
year ended December 31, 2014. See “Allowance for Loan Losses” for additional information
about our allowance for loan losses and our methodology for determining the amount of the
allowance.
NON-INTEREST INCOME
Non-interest income which consists primarily of service fees received from deposit accounts and
gains (losses) on the sales of securities for the year ended December 31, 2015, was $309
thousand, an increase of $118 thousand from the $191 thousand recorded during the year ended
December 31, 2014. The increase in non-interest income was primarily due to a $117 thousand
increase in service fees received from deposit accounts in 2015, as compared to one year ago.
NON-INTEREST EXPENSES
Non-interest expenses for the year ended December 31, 2015 amounted to $15.5 million, an
increase of $3.1 million, or 24.7% over the $12.5 million for the year ended December 31, 2014.
This increase was due in most part to increases in salaries and employee benefits, FDIC and state
assessments and other expenses of $1.1 million, $512 thousand and $505 thousand, respectively.
The increase in salaries and employee benefits was primarily due to general increases in staff,
salaries and benefits. The increase in FDIC and state assessments was due to the growth of the
Bank as well as an increase in the Bank’s FDIC’s quarterly assessment factor.
INCOME TAX EXPENSE
The income tax provision, which includes both federal and state taxes, for the years ended
December 31, 2015 and 2014 was $2.5 million and $2.1 million, respectively, representing an
increase of $414 thousand. The increase in the income tax expense for 2015 as compared to 2014
was due to the increase in pretax income for 2015 as compared to 2014. The effective tax rate for
2015 was 34.5% compared to 35.9% for 2014.
49
FINANCIAL CONDITION – Years ended December 31, 2015 and December 31, 2014
Total consolidated assets increased $59.2 million, or 8.0%, from $743.7 million at December 31,
2014 to $802.9 million at December 31, 2015. Total loans increased from $634.0 million at
December 31, 2014 to $645.1 million at December 31, 2015, an increase of $11.1 million or
1.8%. Total deposits increased from $649.0 million at December 31, 2014 to $700.7 million at
December 31, 2015, an increase of $51.8 million, or 8.0%.
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 1.8% from $634.0 million at
December 31, 2014, to $645.1 million at December 31, 2015. This growth in the loan portfolio
continues to be primarily attributable to recommendations and referrals from members of our
board of directors, our shareholders and 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 share of local loans.
The following table sets forth the classification of the Company’s loans by major category as of
December 31, 2015, 2014, 2013, 2012 and 2011 (in thousands):
December 31,
2015
2014
2013
2012
2011
Commercial real estate
Residential mortgages
Commercial
Home equity
Consumer
$
460,396
48,698
69,855
63,308
2,805
$
431,727
56,079
75,174
69,631
1,347
$
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
Total Loans
$
645,062
$
633,958
$
472,465
$
435,729
$
365,160
50
The following table sets forth the maturity of fixed and adjustable rate loans as of December 31,
2015 (in thousands):
Loans with Fixed Rate
Commercial real estate
Residential mortgages
Commercial
Home equity
Consumer
Loans with Adjustable Rate
Commercial real estate
Commercial
Home equity
Consumer
Within
One Year
1 to 5
Years
After 5
Years
$
92,581
-
22,270
1,233
457
$
249,566
5,733
5,162
7,846
518
$
110,381
42,965
2,222
2,939
226
Total
$
452,528
48,698
29,654
12,018
1,201
$
6,745
37,964
2,015
1,604
$
1,123
2,237
1,600
-
-
$
-
47,675
-
7,868
40,201
51,290
1,604
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.
We attempt to manage overall credit risk through loan diversification and our loan underwriting
and approval procedures. Due diligence begins at the time we begin to discuss the origination of
a loan with a borrower. Documentation, including a borrower’s credit history, materials
establishing the value and liquidity of potential collateral, the purpose of the loan, the source and
timing of the repayment of the loan, and other factors are analyzed before a loan is submitted for
approval. Loans made are also subject to periodic audit and review.
As of December 31, 2015, the Bank had fifteen nonaccrual loans totaling approximately $7.4
million, of which eight loans totaling approximately $3.8 million have specific reserves totaling
$347 thousand and seven loans totaling approximately $3.5 million that have no specific reserve.
If interest had been accrued on these non-accrual loans, the interest income recognized would
have been approximately $267 thousand for the year ended December 31, 2015. Within its
nonaccrual loans at December 31, 2015, the Bank had four residential mortgage loans, one home
equity loan and one commercial real estate mortgage that met the definition of a TDR loan. TDRs
are loans where a concession has been granted to a borrower experiencing financial difficulties.
The concession 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, 2015, one
residential mortgage loan with a balance of $248 thousand has a specific reserve of $90 thousand,
three residential mortgages, one home equity and one commercial real estate TDR loan with
51
cumulative balances of $ 3.1 million, $859 thousand and $367 thousand, respectively, have no
specific reserves connected with them.
As of December 31, 2014, the Bank had sixteen nonaccrual loans totaling approximately $8.5
million, all of which have no specific reserve. If interest had been accrued on these non-accrual
loans, the interest income recognized would have been approximately $544 thousand for the year
ended December 31, 2014. Within its nonaccrual loans at December 31, 2014, the Bank had five
residential mortgage loans, two home equity loans and one commercial real estate mortgage that
met the definition of a TDR loan. At December 31, 2014, the five residential mortgages, two
home equity loans and the one commercial real estate mortgage TDR loan had cumulative
balances of $4.2 million, $1.0 million and $377 thousand, respectively and all had no specific
reserves connected with them.
The following table sets forth certain information regarding the Company’s impaired loans,
nonaccrual loans, troubled debt restructured loans, accruing loans 90 days or more past due, and
OREO as of December 31, 2015, 2014, 2013, 2012 and 2011:
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 impaired and troubled debt restructured loans
Total impaired loans
Other real estate owned
2015
2014
2013
2012
2011
842
3,992
-
2,522
7,356
-
532
104
636
7,992
512
1,787
4,279
-
2,453
8,519
-
175
60
235
8,754
897
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
-
Total impaired loans and other nonperforming assets
$
8,504
$
9,651
$
10,505
$
9,503
$
6,052
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 selected commercial loans after the Bank has extended credit.
This review process is intended to identify adverse developments in individual credits, regardless
of payment history. The loan review auditor also monitors the integrity of our credit risk rating
system. The loan review auditor reports directly to the audit committee of our board of directors
and provides the audit committee with reports on asset quality. The loan review audit reports
may be presented to our board of directors by the audit committee for review, as appropriate.
ALLOWANCE FOR LOAN LOSSES
Our ALLL totaled $8.0 million, $7.2 million and $5.8 million, respectively, at December 31,
2015, 2014, and 2013. 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):
52
Balance, January 1
$ 7,192
$ 5,775
$ 5,072
$ 4,474
$ 3,749
2015
2014
2013
2012
2011
Charge-offs:
Residential mortgages
Consumer loans
Home equity
Commercial
Commercial real estate
Recoveries:
Commercial real estate
Commercial
Consumer loans
-
-
-
(264)
(60)
226
2
-
(32)
(93)
(72)
(327)
(940)
-
-
4
-
(22)
-
-
(89)
-
-
4
(168)
(43)
-
(101)
(340)
-
6
3
-
-
(25)
-
(394)
-
2
2
Net charge-offs
Reclass reserve for unfunded loans
Provision charged to expense
Balance, December 31
(96)
-
924
$ 8,020
(1,460)
(198)
3,075
$ 7,192
(107)
-
810
$ 5,775
(600)
-
1,198
$ 5,072
(458)
-
1,183
$ 4,474
Ratio of net charge-offs to average loans
Outstanding
0.01%
0.27%
0.02%
0.15%
0.14%
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) :
2015
% of
ALLL
% of
Total
Loans
2014
% of
Amount ALLL
% of
Total
Loans
Amount
Balance applicable to:
Residential and
commercial real estate
Commercial
Home equity
Consumer
$ 6,138 76.53%
13.29%
7.14%
0.49%
1,066
573
39
78.92%
10.83%
9.81%
0.44%
$ 5,298 73.67% 76.95%
1,128 15.68% 11.86%
10.98%
0.21%
6.95%
0.33%
500
24
Unallocated reserves
7,816
204
97.45% 100.00%
2.54%
6,950 96.63% 100.00%
242
3.37%
$ 8,020 100.00%
$ 7,192 100.00%
2013
% of
ALLL
% of
Total
Loans
2012
2011
% of
Amount ALLL
% of
Total
Loans
% of
Amount ALLL
Amount
$ 4,032 69.82%
16.78%
10.27%
0.45%
969
593
26
74.54%
12.20%
12.95%
0.31%
$ 3,472 68.46% 69.05%
1,033 20.37% 14.89%
15.78%
7.55%
0.28%
0.47%
383
24
$ 2,878 64.33%
18.48%
8.23%
0.47%
827
368
21
Balance applicable to:
Residential and
commercial real estate
Commercial
Home equity
Consumer
Unallocated reserves
5,620
155
97.32% 100.00%
2.68%
4,912 96.85% 100.00%
160
3.15%
4,094
380
91.51%
8.49%
$ 5,775 100.00%
$ 5,072 100.00%
$ 4,474 100.00%
% of
Total
Loans
65.39%
15.74%
18.59%
0.28%
100.00%
53
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.
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 2015 and 2014, 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 has 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 fair value. Realized gains and losses, as well as gains and losses from
marking trading securities to fair 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
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.
income (loss), which
included
is
At December 31, 2015, total securities aggregated $70.6 million, of which $64.8 million were
classified as AFS and $5.8 million were classified as HTM. The Company 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, 2015, 2014, and 2013, respectively (in thousands):
54
2015
2014
2013
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
58,720
6,512
65,232
$
58,397
6,353
64,750
$
53,000
6,623
59,623
$
52,049
6,402
58,451
$
64,000
6,733
70,733
$
61,729
6,319
68,048
5,829
5,829
11,923
11,923
10,014
10,014
-
-
5,829
71,061
$
-
-
5,829
70,579
$
-
4,000
15,923
75,546
$
-
3,998
15,921
74,372
$
3,998
3,999
18,011
88,744
$
4,008
3,994
18,016
86,064
$
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
Total Investment Securities
The following tables set forth as of December 31, 2015 and 2014, the maturity distribution of the
Company’s debt investment portfolio (in thousands):
2015
1 year or less
Government sponsored enterprise obligations
Obligations of states and political subdivisions
After 1 year to 5 years
Government sponsored enterprise obligations
U.S. Treasury obligations
Securities Held to Maturity
Securities Available for Sale
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$ -
$ -
5,829
5,829
5,829
5,829
$ 15,720
-
15,720
$ 15,708
-
15,708
-
-
-
-
-
-
43,000
6,512
49,512
42,689
6,353
49,042
Weighted
Average
Yield (1)
0.63%
0.92%
0.71%
1.34%
1.14%
1.31%
Total
$ 5,829
$ 5,829
$ 65,232
$ 64,750
1.13%
2014
1 year or less
U.S. Treasury obligations
Government sponsored enterprise obligations
Obligations of states and political subdivisions
After 1 year to 5 years
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
$ 4,000
-
11,923
15,923
$ 3,998
-
11,923
15,921
$ -
$ -
3,000
-
3,000
2,994
-
2,994
-
-
-
-
43,000
43,000
42,231
42,231
-
-
-
-
-
-
6,623
7,000
13,623
6,402
6,824
13,226
Weighted
Average
Yield (1)
0.26%
0.70%
0.63%
0.56%
1.28%
1.28%
1.10%
1.71%
1.41%
Total
$ 15,923
$ 15,921
$ 59,623
$ 58,451
1.12%
55
During 2015, the Company sold three securities from its available for sale portfolio. The
Company recognized losses of approximately $15 thousand from the sale of these three securities.
During 2014, the Company sold five securities from its available for sale portfolio. The
Company recognized losses of approximately $16 thousand from the sale of these five securities.
DEPOSITS
Deposits are our primary source of funds. We experienced a growth of $51.8 million, or 8.0%, in
deposits from $649.0 million at December 31, 2014 to $700.7 million at December 31, 2015.
This increase consists of increases in non-interest bearing demand deposits, interest-bearing
demand and money markets and savings accounts of $28.4 million, $17.4 million and $14.5
million, respectively, offset somewhat by a decrease in time deposits of $8.5 million. We believe
the overall increase in deposits reflects our competitive but disciplined rate structure. Total
brokered deposits were $39.8 million and zero at December 31, 2015 and 2014, respectively.
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)
2015
2014
2013
Average
Yield/Rate
0.39%
0.89%
1.67%
Amount
$
117,919
153,003
79,453
350,364
$
700,739
Amount
$
89,510
135,604
64,981
358,879
$
648,974
Average
Yield/Rate
0.43%
0.84%
1.64%
Amount
$
69,620
137,782
31,101
314,817
$
553,320
Average
Yield/Rate
0.50%
0.66%
1.71%
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, 2015 (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
$
67,382
42,027
85,637
68,111
34,360
297,517
$
RETURN ON EQUITY AND ASSETS
The following table summarizes our return on average assets, or net income divided by average
total assets, return on average 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
At or for the year ended December 31,
2015
2013
2014
0.60%
6.95%
8.11%
31.28%
0.57%
6.49%
8.05%
33.94%
0.79%
8.47%
9.16%
27.27%
56
LIQUIDITY
Our liquidity is a measure of our ability to fund loans, withdrawals or maturities of deposits, and
other cash outflows in a cost-effective manner. Our principal sources of funds are deposits,
scheduled amortization and prepayments of loan principal, maturities of investment securities,
and funds provided by operations. While scheduled loan payments and maturing investments are
relatively predictable sources of funds, deposit flow and loan prepayments are greatly influenced
by general interest rates, economic conditions, and competition. In addition, if warranted, we
would be able to borrow funds.
Our total deposits equaled $700.7 million and $649.0 million, respectively, at December 31, 2015
and 2014. The growth in funds provided by deposit inflows during this period coupled with our
borrowed funds and cash position at the end of 2015 has been sufficient to provide for our loan
demand.
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. Securities available for sale would also be available to provide liquidity for
anticipated loan demand and liquidity needs.
At December 31, 2015, the Bank has borrowed funds of $26.5 million. These borrowings consist
of long-term debt fixed rate amortizing advances from the Federal Home Loan Bank of New
York, or “FHLBNY.” We also have a $16 million overnight line of credit facility available with
Zions First National Bank, a $12.0 million overnight line of credit facility available with First
Tennessee Bank and a $10.0 million overnight line of credit with Atlantic Community Bankers
Bank for the purchase of federal funds in the event that temporary liquidity needs arise. We are
an approved member of the 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
57
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 only $4.2 million of 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, 2015, we were within the target
gap range established by ALCO for all terms except for 0-1 year, which was 79 basis points over
the target gap range.
Cumulative Rate Sensitive Balance Sheet
December 31, 2015
(in thousands)
Securities, excluding
equity securities
$
2,850
$
9,823
$
21,536
$
70,579
$
-
$
70,579
0-3
Months
0-6
Months
0-1
Year
0-5
Years
All
Others
TOTAL
Loans
87,445
109,424
164,869
438,654
206,408
645,062
Federal Funds sold and
Interest-Bearing Deposits
in Banks
Other Assets
72,951
-
72,951
-
72,951
-
72,951
-
-
14,328
72,951
14,328
TOTAL ASSETS
$
163,246
$
192,198
$
259,356
$
582,184
$
220,736
$
802,920
Transaction / Demand
Accounts
Money Market
Savings Deposits
Time Deposits
Borrowed Funds
Other Liabilities
Equity
TOTAL LIABILITIES AND
EQUITY
$
34,541
118,462
79,454
80,882
$
34,541
118,462
79,454
132,478
$
34,541
118,462
79,454
234,520
$
34,541
118,462
79,454
350,363
-
$
-
-
-
$
34,541
118,462
79,454
350,363
-
-
-
-
-
-
-
-
-
22,371
-
-
4,158
120,418
73,153
26,529
120,418
73,153
$
313,339
$
364,935
$
466,977
$
605,191
$
197,729
$
802,920
$
Dollar Gap
Gap / Total Assets
Target Gap Range
RSA / RSL
(Rate Sensitive Assets to Rate Sensitive Liabilities)
(150,093)
-18.69%
+/- 35.00%
52.10%
(172,737)
-21.51%
+/- 30.00%
52.67%
$
$
(207,621)
-25.86%
+/- 25.00%
55.54%
$
(23,007)
-2.87%
+/- 25.00%
96.20%
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.
58
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. We also conduct a 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 2015, we believed
that available hedging instruments were not cost-effective, and therefore, focused our efforts on
our yield-cost spread through retail growth opportunities.
The following table discloses our financial instruments that are sensitive to change in interest
rates, categorized by expected maturity at December 31, 2015. Market risk sensitive instruments
are generally defined as on- and off- balance sheet financial instruments.
Expected Maturity/Principal Repayment
December 31, 2015
(Dollars in thousands)
Interest Rate
Sensitive Assets:
Loans
Securities net of
equity securities
Avg. Int.
Rate
2016
2017
2018
2019
2020
There-
After
Total
Fair Value
4.73%
$164,869
$84,903
$58,357
$78,555
$51,970
$206,408
$645,062
$647,926
1.33% 21,536 3,998 10,918 20,901 13,226
- 70,579 70,579
Fed Funds Sold
0.46% 454
-
-
-
-
- 454 454
Interest-earning cash
and time deposits
Interest Rate
Sensitive Liabilities :
Interest bearing
demand deposits and
money market
accounts
0.23% 71,497
-
-
-
-
- 71,497 71,497
0.23% 153,003
-
-
-
-
- 153,003 153,003
Savings deposits
0.89% 79,454
-
-
-
-
- 79,454 79,454
Time deposits
1.67% 234,520 53,532 26,831 25,585 9,895
- 350,363 351,877
Borrowed Funds
1.58% $ -
$ -
$ - $ 22,371
$0
$4,158
$26,529
$26,517
59
Although certain assets and liabilities may have similar maturities or periods of re-pricing, they
may react in different degrees to changes in market interest rates. The maturity of certain types of
assets and liabilities may fluctuate in advance of changes in market rates, while maturity of other
types of assets and liabilities may lag behind changes in market rates. In the event of a change in
interest rates, prepayment and early withdrawal levels could deviate significantly from the
maturities assumed in calculating this table.
CAPITAL
A significant measure of the strength of a financial institution is its capital base. In July 2013, the
federal banking agencies issued final rules to implement the Basel Committee on Banking
Supervision's capital guidelines for U.S. banks (commonly known as Basel III) and changes
required by the Dodd-Frank Act. The community banking organizations began compliance on
January 1, 2015. The final rules call for a minimum ratio of common equity tier 1 capital to risk-
weighted assets of 4.5%, a minimum ratio of tier 1 capital to risk-weighted assets of 6%, a
minimum ratio of total capital to risk-weighted assets of 8% (no change from the current rule) and
a minimum leverage ratio of 4%.
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, as well as countercyclical capital buffers, which
increase the required amount of capital in times of economic expansion, consistent with safety
and soundness, will begin for all banking organizations on January 1, 2016.
The following table summarizes the Bank’s risk-based capital and leverage ratios at December
31, 2015, as well as regulatory capital category definitions:
Minimum Requirements
to be
"Adequately
Capitalized"
Minimum Requirements
to be
“Well Capitalized”
December 31, 2015
Risk-Based Capital :
Common Equity Tier 1 Capital
Tier 1 Capital Ratio
Total Capital Ratio
Leverage Ratio
10.95%
10.95%
12.19%
9.02%
4.50%
6.00%
8.00%
4.00%
6.50%
8.00%
10.00%
5.00%
The capital levels detailed above represent the continued effect of our successful stock
subscription, in combination with the profitability experienced during 2015 and 2014,
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-capitalized”
institution.
The Bank’s capital ratios as presented in the table above are similar to those of the Company.
On March 2, 2015, the Company closed on a private placement of approximately $9.5 million, or
868,057 shares of its common stock at a price of $10.95 per share. The shares of common stock
were offered and were sold in a private placement pursuant to Section 4(a)(2) of the Securities
Act of 1933, as amended. The shares have not been registered under the Securities Act, or the
securities laws of any other jurisdiction, and may not be offered or sold in the United States
absent registration or an applicable exemption from such registration requirements. Each of the
investors in the private placement is a member of the Company's board of directors or related
party. The Company has contributed the proceeds, net of costs associated with the private
60
placement, to its banking subsidiary, Bank of New Jersey, to enhance its capital, fund future
growth and for general working capital.
See “Regulatory Capital Changes” in Part I, Item 1 of this report for additional information
regarding regulatory capital requirements.
CONTRACTUAL OBLIGATIONS
As of December 31, 2015, the Company had the following contractual obligations as provided in
the table below (in thousands):
Minimum annual rental under
non-cancelable operating leases
Remaining contractual maturities
of borrowed funds........................
Remaining contractual maturities
of time deposits.............................
Total Contractual Obligations
Payment due by Period
Less than
1 year
1 to 3
years
4 to 5
years
After 5
years
Total
Amounts
Committed
$
1,299
$
2,162
$
1,274
$
1,499
$
6,234
-
-
22,371
4,158
26,529
234,520
235,819
$
80,363
82,525
$
35,481
59,126
$
-
5,657
$
350,364
383,127
$
Additionally, the Bank had certain commitments to extend credit to customers. A summary of
commitments to extend credit at December 31, 2015 is provided as follows (in thousands):
Commercial real estate, construction, and
land development secured by land
Home equities
Standby letters of credit and other
$
74,615
27,675
3,662
105,952
$
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.
61
BUSINESS
General
The Company is a one-bank holding company incorporated under the laws of the State of New
Jersey in November, 2006 to serve as a holding company for Bank of New Jersey, referred to as
the “Bank.” (Unless the context otherwise requires, all references to the “Company” in this
annual report shall be deemed to refer also to the Bank). The Company was organized at the
direction of the board of directors of the Bank for the purpose of acquiring all of the capital stock
of the Bank. On July 31, 2007, the Company became the bank holding company of the Bank.
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 portfolios.
During the third quarter of 2014, the Bank formed BONJ-New Jersey Investment Company, a
New Jersey corporation; BONJ- Delaware Investment Company, a Delaware corporation; and
BONJ REIT, Inc., a New Jersey corporation. These subsidiaries were formed as part of the
establishment by the Company of a real estate investment trust to reduce the Company’s effective
corporate tax rate.
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 has applied to the Federal Deposit Insurance Corporation, or “FDIC” for approval. The
branch is expected to open in 2016.
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 that 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 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
62
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:
(cid:120) To provide local businesses, professionals, and individuals with banking services responsive
to and determined by the local market;
(cid:120) To provide 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
(cid:120) To provide a reasonable return to shareholders on capital invested.
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.
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, Main
Street in Fort Lee, which offers full service banking from 8:00 am to 6:00 pm weekdays and
Saturday 9:00 am to 1:00 pm, and Palisade Avenue 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.
63
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 88.8% of our loan
portfolio was collateralized by real estate, primarily in our market area, as of December 31, 2015.
Employees
At December 31, 2015, the Company employed seventy-four 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.
64
Supervision and Regulation
General
The Company and the Bank are each extensively regulated under both federal and state law.
These laws restrict permissible activities and investments and require compliance with various
consumer protection provisions applicable to lending, deposit, brokerage and fiduciary activities.
They also impose capital adequacy requirements and condition the Company’s ability to
repurchase stock or to receive dividends from the Bank. The Company 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 activities. Federal and state banking regulators
have the authority to initiate informal or formal enforcement actions against the Company and the
Bank. Informal actions may include board resolutions approved by the applicable regulators,
supervisory letters or memoranda of understanding. Formal actions may include consent orders,
cease-and-desist orders, termination of deposit insurance and civil money penalties. Informal
actions are generally a confidential part of the regulators’ examination and supervisory process
and may not be disclosed without the permission of the regulators. All formal actions, however,
are publicly disclosed.
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 savings bank, or merges or consolidates with another bank or savings bank
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
65
also imposes certain privacy requirements on all financial institutions and their treatment of
consumer information. At this time, the Company has not elected to become a financial holding
company, as we do not engage in any non-banking activities which would require us to be a
financial holding company.
There are a number of restrictions imposed on the Company and the Bank by law and regulatory
policy that are designed to minimize potential loss to the depositors of the Bank and the FDIC
insurance funds in the event the Bank should become insolvent. For example, FRB policy
requires a bank holding company to serve as a source of financial strength to its subsidiary
depository institutions and to commit resources to support such institutions in circumstances
where it might not do so absent such policy. While the authority of the FRB to invoke this so-
called “source of strength doctrine” has been called into question, the FRB maintains that it has
the authority to apply the doctrine when circumstances warrant. The FRB also has the authority
under the BHCA to require a bank holding company to terminate any activity or to relinquish
control of a non-bank subsidiary upon the FRB’s determination that such activity or control
constitutes a serious risk to the financial soundness and stability of any bank subsidiary of the
bank holding company.
Any capital loan by the Company to the Bank is subordinate in right of payment to deposits and
certain other indebtedness of the Bank. In addition, in the event of the Company’s bankruptcy,
any commitment by the Company to a federal bank regulatory agency to maintain the capital of
the Bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.
The Federal Deposit Insurance Act (“FDIA”) provides that, in the event of the “liquidation or
other resolution” of an insured depository institution, the claims of depositors of the institution
(including the claims of the FDIC as a subrogee of insured depositors) and certain claims for
administrative expenses of the FDIC as a receiver will have priority over other general unsecured
claims against the institution. If an insured depository institution fails, insured and uninsured
depositors, along with the FDIC will have priority in payment ahead of unsecured, non-deposit
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
66
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.
67
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 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, liquidity and financial condition. As part of its supervisory
authority, the FRB may impose informal or formal restrictions on the Company’s ability to pay
dividends, including requiring the non-objection of the FRB to payment of any dividends,
distribution of interest or creating new debt.
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.
68
Risk-Based Capital Requirements
The federal banking regulators have adopted certain risk-based capital guidelines to assist in
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, Common Equity Tier 1 capital and Tier
1 capital.
(cid:120)
(cid:120)
“Common Equity Tier 1 Capital” includes common equity and minority interest in equity
accounts of consolidated subsidiaries, less goodwill and other intangibles, subject to
certain exceptions and retained earnings.
“Tier 1”, or core capital, includes common equity, non-cumulative preferred stock and
minority interest in equity accounts of consolidated subsidiaries, less goodwill and other
intangibles, subject to certain exceptions.
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 began 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%.
(cid:120) A minimum leverage ratio of 4%.
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 began 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
was required to 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.
69
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.
Failure to meet applicable capital guidelines could subject a banking organization to a variety of
enforcement actions including:
(cid:120)
(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.
At December 31, 2015, the Bank met its capital requirements with a ratio of common equity tier 1
capital to risk-weighted assets of 10.95%; its ratio of tier 1 capital to risk-weighted assets of
10.95%; its ratio of total capital to risk-weighted assets of 12.19%; and its leverage ratio of
9.02%.
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
70
prohibition on the payment of certain “management fees” to any “controlling person.”
Institutions that are classified as undercapitalized are also subject to certain additional supervisory
actions, including: increased reporting burdens and regulatory monitoring; a limitation on the
institution’s ability to make acquisitions, open new branch offices, or engage in new lines of
business; obligations to raise additional capital; restrictions on transactions with affiliates; and
restrictions on interest rates paid by the institution on deposits. In certain cases, bank regulatory
agencies may require replacement of senior executive officers or directors, or sale of the
institution to a willing purchaser. If an institution is deemed to be “critically undercapitalized”
and continues in that category for four quarters, the statute requires, with certain narrowly limited
exceptions, that the institution be placed in receivership.
As of December 31, 2015, 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.
Beginning January 1, 2015, all insured depository institutions were required to incorporate the
revised regulatory capital requirements (see Supervision and Regulation – Risk-Based Capital
Requirements) into the prompt corrective action framework, including the new common equity
tier 1 capital asset ratio and a higher tier 1 risk-based capital ratio.
Community Reinvestment Act
The CRA requires that banks meet the credit needs of all of their assessment area (as established
for these purposes in accordance with applicable regulations based principally on the location of
branch offices), including those of low income areas and borrowers. The CRA also requires that
the FDIC assess all financial institutions that it regulates to determine whether these institutions
are meeting the credit needs of the community they serve. Under the CRA, institutions are
assigned a rating of “outstanding,” “satisfactory,” “needs to improve” or “unsatisfactory”. The
Bank’s record in meeting the requirements of the CRA is made publicly available and is taken
into consideration in connection with any applications with Federal regulators to engage in certain
activities, including approval of a branch or other deposit facility, mergers and acquisitions, office
relocations, or expansions into non-banking activities. As of December 31, 2015, 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
71
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 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.
The Dodd-Frank Act also:
(cid:120) Applies the same leverage and risk-based capital requirements to most bank holding
companies (“BHCs”) that apply to insured depository institutions;
(cid:120) 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;
(cid:120) 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;
(cid:120) 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;
72
(cid:120) 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;
(cid:120) 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;
(cid:120) 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
(cid:120) 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 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
73
alternative requires the mortgage lender to consider the following eight underwriting factors when
making the credit decision:
(cid:120)
(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.
TILA/RESPA Integrated Disclosures (TRID)
On October 3, 2015, the CFPB implemented a final rule combining the mortgage disclosures
consumers previously received under TILA and RESPA. For more than 30 years, the TILA and
RESPA mortgage disclosures had been administered separately by, respectively, the Federal
Reserve Board and the U.S. Department of Housing and Urban Development. The final rule
requires lenders to provide applicants with the new Loan Estimate and Closing Disclosure and
generally applies to most closed-end consumer mortgage loans for which the creditor or mortgage
broker receives an application on or after October 3, 2015.
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:
(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;
(cid:120) Raising the threshold for triggering deregistration under the Exchange Act for banks and
bank holding companies from 300 to 1,200 holders of record;
(cid:120) 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;
(cid:120) Permitting advertising and general solicitation in Rule 506 and Rule 144A offerings;
(cid:120) Allowing private companies to use “crowd funding” to raise up to $1 million in any 12-
month period, subject to certain conditions; and
(cid:120) 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.
74
Federal Home Loan Bank Membership
The Bank is a member of the Federal Home Loan Bank of New York (“FHLBNY”). Each
member of the FHLBNY is required to maintain a minimum investment in capital stock of the
FHLBNY. The Board of Directors of the FHLBNY can increase the minimum investment
requirements in the event it has concluded that additional capital is required to allow it to meet its
own regulatory capital requirements. Any increase in the minimum investment requirements
outside of specified ranges requires the approval of the Federal Housing Finance Agency.
Because the extent of any obligation to increase our investment in the FHLBNY depends entirely
upon the occurrence of a future event, potential payments to the FHLBNY is not determinable.
Additionally, in the event that the Bank fails, the right of the FHLBNY to seek repayment of
funds loaned to the Bank shall take priority (a “super lien”) over all other creditors.
Other Laws and Regulations
The Company and the Bank are subject to a variety of laws and regulations which are not limited
to banking organizations. For example, in lending to commercial and consumer borrowers, and in
owning and operating its own property, the Bank is subject to regulations and potential liabilities
under state and federal environmental laws.
We are heavily regulated by regulatory agencies at the federal and state levels. 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.
75
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The principal market in which the Company’s common stock is traded is the NYSE MKT LLC
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, 2015
Fourth quarter
Third quarter
Second quarter
First quarter
Year Ended December 31, 2014
Fourth quarter
Third quarter
Second quarter
First quarter
High
Low
$
$
11.65
11.82
11.88
11.88
12.29
12.99
14.26
15.08
$
$
10.66
10.40
10.82
10.30
10.50
11.01
12.66
12.75
Holders
As of March 23, 2016 there were approximately 1,130 shareholders of our common stock, which
includes an estimate of shareholders who hold their shares in street name.
Dividends
In 2015, 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, 2015, June 30, 2015, September 30,
2015 and December 31, 2015, respectively, and the Company currently expects that comparable
quarterly cash dividends will continue to be declared and paid in the future.
In 2014, the Company declared four quarterly cash dividends. Cash dividends of $0.06 per share
were paid to shareholders on March 31, 2014, June 28, 2014, September 30, 2014 and December
31, 2014.
Future dividends will be subject to approval by the board of directors. The decision to declare
and pay, as well as the timing and amount of any future dividends will be determined by the
board of directors with consideration to the Company’s earnings, capital needs, financial
condition, regulatory requirements 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,
liquidity, asset quality and financial condition. As part of its supervisory authority, the FRB may
impose informal or formal restrictions on the Company’s ability to pay dividends, including
requiring the non-objection of the FRB to payment of any dividends.
76
Under the New Jersey Banking Act of 1948, as amended, the Bank may declare and pay
dividends only if, after payment of the dividend, the capital stock of the Bank will be unimpaired
and either the Bank will have a surplus of not less than 50% of its capital stock or the payment of
the dividend will not reduce the Bank’s surplus. The FDIC prohibits payment of cash dividends
if, as a result, the Bank would be undercapitalized.
Securities Authorized for Issuance under Equity Compensation Plans
The following tables summarize our equity compensation plan information as of December 31,
2015:
Number of shares
of common stock
to be issued upon
exercise of
outstanding
options, warrants
and rights
Weighted-average
exercise price of
outstanding
options, warrants
and rights
Number of shares
of common stock
remaining
available for
future issuance
under equity
compensation
plans
Plan Category
Equity Compensation Plans approved by
security holders:
2006 Stock Option Plan
159,700
$10.22
30,084
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
-
166,282
-
Total
491,034
$11.11
239,700
See Note 12 to our audited financial statements included in this Annual Report on Form 10-K for
a description of the material features of each plan.
77
BANCORP OF NEW JERSEY, INC.
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)(cid:86)
BOARD OF DIRECTORS
1. Rosario Luppino, Real Estate Developer
2. Diane M. Spinner, Retired Bank Executive
3. John K. Daily, President and COO, C.A. Shea & Co. Commercial Surety
4. Anthony M. Lo Conte, President and CEO, Anthony L and S, LLC
5
6
7
9
8
10
11
1
2
3
Shoe Import and Distribution
5. Albert L. Buzzetti, Esq., Vice Chairman, Managing Partner,
A. Buzzetti and Associates, LLC
6. Michael Bello, President, Michael Bello Insurance Agency
7. Gerald A. Calabrese, Jr., Chairman of the Board, President,
4
Century 21 Calabrese Realty
8. Jay Blau, President, Imperial Sales & Sourcing, Inc.
9. Joel P. Paritz, CPA, President, Paritz & Company, P.A.
10. Anthony Siniscalchi CPA, Partner, A. Uzzo & Co., CPAS, P.C.
11. Mark J. Sokolich, Esq., Attorney at Law
Not Pictured: Stephen Crevani, Manager, Aniero Concrete
Carmelo Luppino, Jr., Real Estate Developer
Christopher M. Shaari MD, Physician
Nancy E. Graves, President and CEO, Bank of New Jersey
EXECUTIVE OFFICERS
Nancy E. Graves
President and
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)
Leo J. Faresich
Executive Vice President
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:47)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)
Nicole Bartuccelli
Senior Vice President
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)
Stephanie A. Caggiano
(cid:54)(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)
Corporate Secretary
Matthew Levinson
Senior Vice President
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)
78
Nancy E. Graves
President and
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)
OFFICERS
Leo J. Faresich
Executive Vice President
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:47)(cid:72)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)
Stephanie A. Caggiano
(cid:54)(cid:57)(cid:51)(cid:15)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)
Corporate Secretary
Matthew Levinson
Senior Vice President
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)
Rosemarie Yaverian
Senior Vice President
Branch Administration
Paul A. Meyer
Senior Vice President
Commercial Lending
Kory Buczynski
Vice President
BSA Manager
Alice Irizarry
Vice President
Retail Lending
Robert L. Cusick
Senior Vice President
Commercial Lending
Anna Maria Alberga
Vice President
Branch Manager
Anthony Cozzitorto
Vice President
Commercial Lending
Jaime Marley
Vice President
Branch Manager
Ali M. Mattera
Vice President
Compliance and Technology
Kinga Mikos
Vice President
Operations
Alejandra Pazmino
Vice President
Business Development
(cid:47)(cid:76)(cid:71)(cid:76)(cid:68)(cid:3)(cid:54)(cid:82)(cid:191)(cid:68)
Vice President
Branch Manager
Kathy Donleavy
Assistant Vice President
Assistant Branch Manager
Jenna Pascale
Assistant Vice President
Branch Manager
Allison Peterson
Vice President
Branch Manager
Jakia Sultana
Vice President
Branch Manager
Rosemarie Fuchs
Assistant Vice President
Lending Department
Elizabeth Ranalli
Assistant Vice President
Lending Department
Peter Tomasi
Assistant Vice President
Commercial Lending Portfolio Mgr.
Suzanne Wirth
Assistant Vice President
Assistant Branch Manager
Nicole Bartuccelli
Senior Vice President
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)
Ronald M. Urtiaga
Senior Vice President
Commercial Lending
Frank Greco
Senior Vice President
Commercial Lending
Cornelia Brummer
Vice President
Marketing Director
Tamara A. Francis
Vice President
Branch Manager
Reina Martinez
Vice President
Branch Manager
Anna Nan Oh
Vice President
Business Development
Ryan Petrillo
Vice President
Branch Manager
Jean Albert
Assistant Vice President
Assistant Controller
Chaya Kochis
Assistant Vice President
(cid:54)(cid:85)(cid:17)(cid:3)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:36)(cid:71)(cid:80)(cid:76)(cid:81)(cid:76)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)
Kimberly Tapken
Assistant Vice President
Lending Department
Independent Auditors
BDO USA, LLP
100 Park Avenue
New York, NY 10017
Regulatory Counsel
Pepper Hamilton LLP
STE 400-301 Carnegie Center
Princeton, NJ 08543-4276
Common Stock Date
Common Stock is traded on
NYSE MKT LLC Exchange
Under the symbol: BKJ
Registrar and Transfer Agent
American Stock Transfer &
Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
79
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Bank of New Jersey
Branch Offices
Bancorp of New Jersey, Inc.
1365 Palisade Avenue
(MAIN OFFICE)
Fort Lee, N.J. 07024
(201) 944-8600
458 West Street
Fort Lee, N.J. 07024
(201) 944-7222
4 Park Street
Harrington Park, N.J. 07640
(201) 750-9970
104 Grand Avenue
Englewood, N.J. 07631
(201) 227-0160
585 Chestnut Ridge Road
Woodcliff Lake, N.J. 07677
(201) 505-9300
204 Main Street
Fort Lee, N.J. 07024
(201) 944-7200
401 Hackensack Avenue
Hackensack, N.J. 07601
(201) 968-0008
320 Haworth Avenue
Haworth, N.J. 07641
(201) 387-9910
354 Palisade Avenue
Cliffside Park, N.J. 07010
(201) 313-0025
750 East Palisade Avenue
Englewood Cliffs, N.J. 07632
(Coming Soon)
Bancorp of New Jersey, Inc.
41402_Cvr.indd 2
4/15/16 10:57 AM
201
5
ANNUAL REPORT