2016
Board of Directors
Gerald A. Calabrese, Jr.
Chairman
Nancy E. Graves
President & CEO
Albert L. Buzzetti, Esq.
Vice Chairman
Michael Bello
Jay Blau
Stephen Crevani
Anthony M. LoConte
Rosario Luppino
Joel P. Paritz
Christopher M. Shaari, MD
Anthony Siniscalchi
Mark J. Sokolich, Esq.
To Our Shareholders:
The past year was a year of significant change for the Company. With new
leadership we have spent the year investing in new systems to enhance risk
management to build a strong foundation for our future growth. The Company
has recently completed a rigorous three year strategic planning process. We
recognize we will need to manage through the challenges of rising interest rates,
increased competition and the complex commercial real estate landscape. We
are proud of our commercial real estate expertise and believe we are uniquely
positioned to capitalize in our market place.
Total assets increased in 2016 to $822.4 million from $802.9 million in 2015.
Net income for 2016 was $4 million compared with $4.8 million in 2015. This
decrease reflects the impact of the increased provision of $1.6 million compared
with $924,000 in 2015 and the 2016 non-interest expense increase of $1.7 million
or 10.9%. Net interest income grew compared with prior year, as a result of the
increasing loan portfolio and the decreasing cost of deposits. Net interest margin
for 2016 was 3.02% compared to 2.97% for 2015. Cost of deposits ended the
year at .88%, a positive trend from the 1.0% experienced in 2015. Our deposit
strategy is to increase demand deposits as a relationship-based component of
the commercial loan relationship and to attract new deposit customers into our
branches. Our demand deposits currently represent 20% of the total portfolio.
Our commercial loan opportunities are strong, reflecting the engagement of
management, experienced lenders and directors with our borrowers.
We have our focus clearly on the roadmap for our future. We are committed to
sound growth and risk management. We thank our shareholders, customers,
directors and dedicated employees. We appreciate your continued support.
Gerald A. Calabrese, Jr.
Chairman of the Board
Nancy E. Graves
President and CEO
Executive Management
Nancy E. Graves
President and
Chief Executive Officer
Matthew Levinson
Senior Vice President
Chief Financial Officer
Katherine M. Kremins
Senior Vice President
Corporate Administration Officer
Mina Turelli
Executive Vice President
Chief Risk Officer
Michael J. Trepicchio
Executive Vice President
Chief Lending Officer
Lori A. Young
Senior Vice President
Retail Banking & Human Resources
Ramsey Chong
Senior Vice President
Chief Credit Officer
Senior Vice Presidents & Vice Presidents
Robert Cusick
Senior Vice President
Commercial Lender
Syeda Sheba Ali
Vice President
Credit Department Manager
Michael Gambatese
Vice President
Senior Relationship Manager
John Messina
Vice President
Information Technology
Peter J. Tomasi
Vice President
Senior Portfolio Manager
Ronald Urtiaga
Senior Vice President
Commercial Lender
Rosalba Bambara
Vice President
BSA Officer
Michael Leffelholz
Vice President
Commercial Lender
Kinga Mikos
Vice President
Operations
Jay Albert
Vice President
Controller
Cornelia Brummer
Vice President
Marketing Director
Ross Mazer
Vice President
Commercial Lender
Gina Solomon
Vice President
Loan Operations Manager
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended December 31, 2016
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from to .
Commission file number: 001-34089
Bancorp of New Jersey, Inc.
(Exact name of Registrant as specified in its charter)
New Jersey
(State or other jurisdiction of
incorporation or organization)
1365 Palisade Avenue, Fort Lee, NJ
(Address of principal executive offices)
20-8444387
(I.R.S. Employer
Identification)
07024
(Zip Code)
201-944-8600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
Common stock
Name of each exchange on which registered
NYSE MKT, LLC
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. YES NO
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing
requirements for the past 90 days. YES NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files.) YES NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments
to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerate filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) YES NO
The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant as of June 30, 2016 was approximately $52,443,191
based on the last sale price as of such date.
The number of shares outstanding of the registrant’s common stock, no par value, outstanding as of March 17, 2017 was 6,327,491.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement, to be filed with the Securities and Exchange Commission in connection with its 2017 Annual
Meeting of Shareholders to be held May 25, 2017, are incorporated by reference in Part III of this annual report on Form 10-K.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedules
PAGE
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PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
2
FORWARD-LOOKING STATEMENTS
PART I
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.
There are a number of important factors that could cause future results to differ materially from historical performance
and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1)
competitive pressures among depository institutions may increase significantly; (2) changes in the interest rate
environment may reduce interest margins; (3) prepayment speeds, loan origination and sale volumes, charge-offs and
loan loss provisions may vary substantially from period to period; (4) general economic conditions may be less favorable
than expected; (5) political developments, wars or other hostilities may disrupt or increase volatility in securities markets
or other economic conditions; (6) legislative or regulatory changes or actions may adversely affect the businesses in
which we are engaged; (7) changes and trends in the securities markets may adversely impact us; (8) a delayed or
incomplete resolution of regulatory issues could adversely impact our planning; (9) difficulties in integrating any
businesses that we may acquire, which may increase our expenses and delay the achievement of any benefits that we
may expect from such acquisitions; (10) the impact of reputation risk created by the developments discussed above on
such matters as business generation and retention, funding and liquidity could be significant; and (11) the outcome of
any future regulatory and legal investigations and proceedings may not be anticipated. Further information on other
factors that could affect our financial results are included in Item 1A of this Annual Report on Form 10-K and in our
other filings with the Securities and Exchange Commission. These documents are available free of charge at the
Commission’s website at http://www.sec.gov and/or from Bancorp of New Jersey, Inc. We assume no obligation to
update forward-looking statements at any time.
ITEM 1. BUSINESS
General
Bancorp of New Jersey, Inc., is referred to herein as “we” or the “Company”. 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 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 nine branch offices located at 1365
Palisade Avenue, Fort Lee, New Jersey, 07024, 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.
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 Federal Deposit Insurance
Corporation or “FDIC” and the New Jersey Department of Banking and Insurance or “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
3
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. We expect to relocate our
corporate headquarters to 750 East Palisades Avenue, Englewood Cliffs, New Jersey later this year. This move will
enable us to consolidate our operations and more efficiently serve our customers.
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 and consumer loans. In addition,
the Bank provides other customer services and makes investments in securities, as permitted by law. The Bank
continues to offer community-oriented relationship 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 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 local
customers and to a broader market through the use of mail, telephone, and internet banking. The Bank strives to deliver
these products and services with the care and professionalism expected of a community bank and with a special
dedication to personalized customer service.
The specific objectives of the Bank are:
•
•
•
•
To provide local businesses, professionals, and individuals with banking services responsive to and determined
by the local market;
For bank management to be accessible to and engaged with its customers, shareholders and communities;
To attract deposits and loans by competitive pricing; and
To provide a reasonable return to shareholders on capital invested.
Market Area
The principal market for our deposit gathering and lending activities is 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
affluent population base of potential customers 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 nine branch offices, three 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. We offer
convenient branch hours, online banking, mobile banking and remote deposit capture for commercial customers.
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.
4
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, 2016.
Employees
At December 31, 2016, the Company employed seventy-five full-time equivalent employees. None of these employees
are covered by a collective bargaining agreement. The Company believes its relations with employees to be good.
General
Supervision and Regulation
The Company and the Bank are each extensively regulated under both federal and state law. These laws restrict
permissible activities and investments and require compliance with various consumer protection provisions applicable to
lending, deposit, brokerage and fiduciary activities. They also impose capital adequacy requirements and condition the
Company’s ability to repurchase stock or to receive dividends from the Bank or pay dividends to its shareholders. 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, among other activities. To become a
financial holding company, the Company and the Bank must be “well capitalized” and “well managed” (as defined by
federal law), and have at least a “satisfactory” Community Reinvestment Act (“CRA”) rating. GLBA also imposes
5
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 fund in the event the Bank should
become insolvent. For example, FRB policy and regulation require 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 and regulation. 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 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 such extensions of credit,
with limited exceptions, must be secured by eligible collateral in specified amounts. The Bank is also prohibited from
purchasing any “low quality” assets from an affiliate. The Dodd-Frank Act imposed additional requirements on
transactions with affiliates, including an expansion of the definition of “covered transactions” and increasing the amount
of time for which collateral requirements regarding covered transactions must be maintained.
Securities and Exchange Commission
The Company is also under the jurisdiction of the Securities and Exchange Commission (“SEC”) for matters relating to
the offering and sale of its securities and is subject to the SEC’s rules and regulations relating to periodic reporting,
reporting to shareholders, proxy solicitations, and insider-trading regulations.
Monetary Policy
The earnings of the Company are and will be affected by domestic economic conditions and the monetary and fiscal
policies of the United States government and its agencies. The monetary policies of the FRB have a significant effect
upon the operating results of commercial banks such as the Bank. The FRB has a major effect upon the levels of bank
6
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.
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. In that case, the insured depository institutions calculate
the Tier 1 Capital on an end-of-quarter basis. Parents or holding companies of other insured depository institutions are
required to report separately from their subsidiary depository institutions.
The Final Rule retains the unsecured debt adjustment, which lowers an insured depository institution’s assessment rate
for any unsecured debt on its balance sheet. In general, the unsecured debt adjustment in the Final Rule will be
measured to the new assessment base and will be increased by 40 basis points. The Final Rule also contains a brokered
deposit adjustment for assessments. The Final Rule provides an exemption to the brokered deposit adjustment to
financial institutions that are “well capitalized” and have composite CAMEL ratings of 1 or 2. CAMEL ratings are
confidential ratings used by the federal and state regulators for assessing the soundness of financial institutions. These
ratings range from 1 to 5, with a rating of 1 being the highest rating.
The Final Rule also creates a new rate schedule that intends to provide more predictable assessment rates to financial
institutions. The revenue under the new rate schedule will be approximately the same. Moreover, it indefinitely
suspends the requirement that the FDIC 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.
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.
7
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.
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 600% for certain equity exposures.
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.
•
•
“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.
These requirements apply to all insured depository institutions and to bank holding companies with at least $1 billion in
consolidated assets. Therefore, these requirements only apply to the Bank, not the Company, at this time.
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:
• 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%.
• 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 at the 0.625% level, and the required buffer increases by 0.625% on each
subsequent January 1 until it reaches 2.5% on January 1, 2019.
8
The final rules allow community banks to make a one-time election not to include accumulated other comprehensive
income (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. On March 19,
2015, the Company’s Board of Directors adopted a resolution to “opt-out” of the inclusion of the components of AOCI
in regulatory capital.
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 prior 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:
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•
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, 2016, the Bank met its capital requirements with a ratio of common equity tier 1 capital to risk-
weighted assets of 10.98%; its ratio of tier 1 capital to risk-weighted assets of 10.98%; its ratio of total capital to risk-
weighted assets of 12.21%; and its leverage ratio of 9.29%. As can be seen from these ratios, the Bank also satisfied its
capital conservation buffer.
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” if it (i) has a total risk-based
capital ratio of at least 10.0 percent, (ii) has a Tier 1 risk-based capital ratio of at least 8.0 percent, (iii) has a Tier 1
leverage ratio of at least 5.0 percent, (iv) has a common equity Tier 1 capital ratio of at least 6.5%, and (v) meets certain
other requirements. An institution will be classified as “adequately capitalized” if it (i) has a total risk-based capital ratio
of at least 8.0 percent, (ii) has a Tier 1 risk-based capital ratio of at least 6.0 percent, (iii) has a Tier 1 leverage ratio of at
least 4.0 percent, has a common equity Tier 1 capital ratio of at least 4.5%, and (v) does not meet the definition of “well
capitalized.” An institution will be classified as “undercapitalized” if it (i) has a total risk-based capital ratio of less than
8.0 percent, (ii) has a Tier 1 risk-based capital ratio of less than 6.0 percent, (iii) has a Tier 1 leverage ratio of less than
4.0 percent, or (iv) has a common equity Tier 1 capital ratio of less than 4.5%. An institution will be classified as
“significantly undercapitalized” if it (i) has a total risk-based capital ratio of less than 6.0 percent, (ii) has a Tier 1 risk-
based capital ratio of less than 4.0 percent, (iii) has a Tier 1 leverage ratio of less than 3.0 percent, or (iv) has a common
equity Tier 1 capital ratio of less 3.0%. An institution will be classified as “critically undercapitalized” if it has a tangible
equity to total assets ratio that is equal to or less than 2.0 percent. An insured depository institution may be deemed to be
in a lower capitalization category if it receives an unsatisfactory examination rating.
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The prompt corrective action rules require an undercapitalized institution to file a written capital restoration plan, along
with a performance guaranty by its holding company or a third party. In addition, an undercapitalized institution
becomes subject to certain automatic restrictions including a prohibition on payment of dividends, a limitation on asset
growth and expansion, in certain cases, a limitation on the payment of bonuses or raises to senior executive officers, and
a prohibition on the payment of certain “management fees” to any “controlling person.” Institutions that are classified as
undercapitalized are also subject to certain additional supervisory actions, including: increased reporting burdens and
regulatory monitoring; a limitation on the institution’s ability to make acquisitions, open new branch offices, or engage
in new lines of business; obligations to raise additional capital; restrictions on transactions with affiliates; and
restrictions on interest rates paid by the institution on deposits. In 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, 2016, 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.
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, 2016, the bank maintains a “satisfactory” CRA rating.
USA Patriot Act
Under the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism (USA PATRIOT) Act, financial institutions are subject to prohibitions against specified financial transactions
and account relationships as well as enhanced due diligence and “know your customer” standards in their dealings with
foreign financial institutions and foreign customers. Under the USA PATRIOT Act, financial institutions must establish
anti-money laundering programs meeting the minimum standards specified by the Act and implementing regulations.
The USA PATRIOT Act also requires the Federal banking regulators to consider the effectiveness of a financial
institution’s anti-money laundering activities when reviewing bank mergers and bank holding company acquisitions.
The Bank has implemented the required internal controls to ensure proper compliance with the USA PATRIOT Act.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 comprehensively revised the laws affecting corporate governance, auditing and
accounting, executive compensation and corporate reporting for entities, such as the Company, with equity or debt
securities registered under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Among other things,
Sarbanes-Oxley and its implementing regulations have established new membership requirements and additional
responsibilities for our audit committee, imposed restrictions on the relationship between the Company and its outside
auditors (including restrictions on the types of non-audit services our auditors may provide to us), imposed additional
responsibilities for our external financial statements on our chief executive officer and chief financial officer, and
expanded the disclosure requirements for our corporate insiders. The requirements are intended to allow stockholders to
more easily and efficiently monitor the performance of companies and directors. The Company and its Board of
Directors have, as appropriate, adopted or modified the Company’s policies and practices in order to comply with these
regulatory requirements and to enhance the Company’s corporate governance practices.
Pursuant to Sarbanes-Oxley, the Company has adopted a Code of Conduct and Ethics applicable to its Board, executives
and employees. This Code of Conduct can be found on the Company’s website at www.bonj.net.
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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 Consumer Financial Protection Bureau (“CFPB”), which is an independent organization
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 insured depository institutions like us that have 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:
• Applies the same leverage and risk-based capital requirements to most bank holding companies (“BHCs”) that
apply to insured depository institutions;
• Requires BHCs and banks to be both well-capitalized and well-managed in order to acquire banks located
outside their home state and requires any BHC electing to be treated as a financial holding company to be both
well-managed and well-capitalized;
• Changes the assessment base for federal deposit insurance from the amount of insured deposits held by the
depository institution to the depository institution’s average total consolidated assets less tangible equity,
eliminates the ceiling on the size of the DIF and increases the floor of the size of the DIF.
• Makes permanent the $250,000 limit for federal deposit insurance;
• Eliminates all remaining restrictions on interstate banking by authorizing national and state banks to establish
de novo branches in any state that would permit a bank chartered in that state to open a branch at that location;
• Repeals Regulation Q, the federal prohibitions on the payment of interest on demand deposits thereby
permitting depository institutions to pay interest on business transaction and other accounts;
• Enhances the requirements for certain transactions with affiliates under Section 23A and 23B of the Federal
Reserve Act, including an expansion of the definition of “covered transactions” and increasing the amount of
time for which collateral requirements regarding covered transactions must be maintained;
• Expands insider transaction limitations through the strengthening of loan restrictions to insiders and the
expansion of the types of transactions subject to the various limits, including derivative transactions, repurchase
agreements, reverse repurchase agreements and securities lending or borrowing transactions. Restrictions are
also placed on certain asset sales to and from an insider to an institution, including requirements that such sales
be on market terms and, in certain circumstances, approved by the institution’s board of directors; and
• Strengthens the previous limits on a depository institution’s credit exposure to one borrower which limited a
depository institution’s ability to extend credit to one person (or group of related persons) in an amount
exceeding certain thresholds. The Dodd-Frank Act expanded the scope of these restrictions to include credit
exposure arising from derivative transactions, repurchase agreements, and securities lending and borrowing
transactions.
While designed primarily to reform the financial regulatory system, the Dodd Frank Act also contains a number of
corporate governance provisions that will affect public companies with securities registered under the Exchange Act.
The Dodd-Frank Act requires the Securities and Exchange Commission to adopt rules which may affect our executive
compensation policies and disclosure. It also exempts smaller issuers, such as us, from the requirement, originally
enacted under Section 404(b) of the Sarbanes-Oxley Act of 2002, that our independent auditor also attest to and report
on management’s assessment of internal control over financial reporting.
Although a significant number of the rules and regulations mandated by the Dodd-Frank Act have been finalized,
including rules regulating compensation of residential mortgage loan originators and mortgage loan servicing practices,
and defining qualified mortgage loans, many of the new requirements called for have yet to be implemented and will
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likely be subject to implementing regulations over the course of several years. In addition, as a result of the recent
presidential election, some commentators believe the Dodd-Frank Act may be repealed, in whole or in part, or
substantially amended. 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 CFPB issued a final rule on January 10, 2013 (which became effective January 10,
2014), amending Regulation Z as implemented by the Truth in Lending Act, requiring mortgage lenders to make a
reasonable and good faith determination based on verified and documented information that a consumer applying for a
mortgage loan has a reasonable ability to repay the loan according to its terms. Mortgage lenders are required to
determine consumers’ ability to repay in one of two ways. The first alternative requires the mortgage lender to consider
the following eight underwriting factors when making the credit decision:
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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 the originator will be deemed to have
satisfied the ability-to-repay requirement. Qualified mortgages that are “higher-priced” (e.g. subprime loans) garner a
rebuttable presumption of compliance with the ability-to-repay rules. 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:
• Raising the threshold requiring registration under the Securities Exchange Act of 1934 (Exchange Act) for
banks and bank holding companies from 500 to 2,000 holders of record;
• Raising the threshold for triggering deregistration under the Exchange Act for banks and bank holding
companies from 300 to 1,200 holders of record;
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• Raising the limit for Regulation A offerings from $5 million to $50 million per year and exempting some
Regulation A offerings from state blue sky laws;
• Permitting advertising and general solicitation in Rule 506 and Rule 144A offerings;
• Allowing private companies to use “crowd funding” to raise up to $1 million in any 12-month period, subject to
certain conditions; and
• Creating a new category of issuer, called an “Emerging Growth Company”, for companies with less than $1
billion in annual gross revenue, which will benefit from certain changes that reduce the cost and burden of
carrying out an equity initial public offering (IPO) and complying with public company reporting obligations
for up to five years.
Federal Home Loan Bank Membership
The Bank is a member of the Federal Home Loan Bank of New York (“FHLBNY”). Each member of the FHLBNY is
required to maintain a minimum investment in capital stock of the FHLBNY. The Board of Directors of the FHLBNY
can increase the minimum investment requirements in the event it has concluded that additional capital is required to
allow it to meet its own regulatory capital requirements. Any increase in the minimum investment requirements outside
of specified ranges requires the approval of the Federal Housing Finance Agency. Because the 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.
ITEM 1A. RISK FACTORS
An investment in our common stock involves risks. Stockholders should carefully consider the risks described below,
together with all other information contained in this Annual Report on Form 10-K, before making any purchase or sale
decisions regarding our common stock. If any of the following risks actually occur, our business, financial condition or
operating results may be harmed. In that case, the trading price of our common stock may decline, and stockholders may
lose part or all of their investment in our common stock.
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Risks Applicable to Our Business:
Our growth-oriented business strategy could be adversely affected if we are not able to attract and retain skilled
employees or if we lose the services of our senior management team.
We may not be able to successfully manage our business as a result of the strain on our management and operations that
may result from growth. Our ability to manage growth will depend upon our ability to continue to attract, hire and retain
skilled employees. The loss of members of our senior management team, including those officers named in the summary
compensation table of our proxy statement, could have a material adverse effect on our results or operations and ability
to execute our strategic goals. Our success will also depend on the ability of our officers and key employees to continue
to implement and improve our operational and other systems, to manage multiple, concurrent customer relationships and
to hire, train and manage our employees.
We may need to raise additional capital to execute our growth oriented business strategy.
In order to continue our growth, we will be required to maintain our regulatory capital ratios at levels higher than the
minimum ratios set by our regulators. In light of current economic conditions, our regulators have been seeking higher
capital bases for insured depository institutions experiencing strong growth. In addition, the implementation of the Basel
III regulatory capital requirements may require us to increase our regulatory capital ratios and raise additional capital.
We can offer you no assurances that we will be able to raise capital in the future, or that the terms of any such capital
will be beneficial to our existing security holders. In the event we are unable to raise capital in the future, we may not be
able to continue our growth strategy
We have a significant concentration in commercial real estate loans.
Our loan portfolio is made up largely of commercial real estate loans. Loans secured by owner-occupied real estate are
reliant on the operating businesses to provide cash flow to meet debt service obligations, and as a result they are more
susceptible to the general impact on the economic environment affecting those operating companies as well as the real
estate. Any significant failure to pay on time by our customers or a significant default by our customers would materially
and adversely affect us.
At December 31, 2016, we had $492 million of commercial real estate loans, which represented 74.53% of our total loan
portfolio. Our commercial real estate loans include loans secured by multifamily, owner-occupied and non-owner-
occupied properties for commercial uses.
Although the economy in our market area generally, and the real estate market in particular, is improving, we can give
you no assurance that it will continue to grow or that the rate of growth will accelerate. Many factors, including
continuing European economic difficulties, a strengthening U.S. dollar, and potential international trade tariffs could
reduce or halt growth in our local economy and real estate market. Accordingly, it may be more difficult for commercial
real estate borrowers to repay their loans in a timely manner in the current economic climate, as commercial real estate
borrowers’ ability to repay their loans frequently depends on the successful development of their properties. The
deterioration of one or a few of our commercial real estate loans could cause a material increase in our level of
nonperforming loans, which would result in a loss of revenue from these loans and could result in an increase in the
provision for loan and lease losses and/or an increase in charge-offs, all of which could have a material adverse impact
on our net income. We also may incur losses on commercial real estate loans due to declines in occupancy rates and
rental rates, which may decrease property values and may decrease the likelihood that a borrower may find permanent
financing alternatives. Any weakening of the commercial real estate market in the future may increase the likelihood of
default of these loans, which could negatively impact our loan portfolio’s performance and asset quality. If we are
required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, we
could incur material losses. Any of these events could increase our costs, require management time and attention, and
materially and adversely affect us.
If we are limited in our ability to originate loans secured by commercial real estate we may face greater risk in
our loan portfolio.
Federal banking agencies have issued guidance regarding high concentrations of commercial real estate loans within
bank loan portfolios. The guidance requires financial institutions that exceed certain levels of commercial real estate
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lending compared with their total capital to maintain heightened risk management practices that address the following
key elements: board and management oversight and strategic planning, portfolio management, development of
underwriting standards, risk assessment and monitoring through market analysis and stress testing, and maintenance of
increased capital levels as needed to support the level of commercial real estate lending. If there is any deterioration in
our commercial real estate portfolio or if our regulators conclude that we have not implemented appropriate risk
management practices, it could adversely affect our business, and could result in the requirement to maintain increased
capital levels. Such capital may not be available at that time, and may result in our regulators requiring us to reduce our
concentration in commercial real estate loans.
If because of our concentration of commercial real estate loans, or for any other reasons, we are limited in our ability to
originate loans secured by commercial real estate, our results of operations may be negatively impacted and we may
incur greater risk in our loan portfolio.
The small to medium-sized businesses that the Bank lends to may have fewer resources to weather a downturn in
the economy, which may impair a borrower’s ability to repay a loan to the Bank that could materially harm our
operating results.
The Bank targets its business development and marketing strategy primarily to serve the banking and financial services
needs of small to medium-sized businesses. These small to medium-sized businesses frequently have smaller market
share than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to
expand or compete and may experience significant volatility in operating results. Any one or more of these factors may
impair the borrower’s ability to repay a loan. In addition, the success of a small to medium-sized business often depends
on the management talents and efforts of one or two persons or a small group of persons, and the death, disability or
resignation of one or more of these persons could have a material adverse impact on the business and its ability to repay
a loan. Economic downturns and other events that negatively impact our market areas could cause the Bank to incur
substantial credit losses that could negatively affect our results of operations and financial condition.
We are a community bank and our ability to maintain our reputation is critical to the success of our business and
the failure to do so may materially adversely affect our performance.
We are a community bank, and our reputation is one of the most valuable components of our business. As such, we
strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and
retaining employees who share our core values of being an integral part of the communities we serve, delivering superior
service to our customers and caring about our customers and associates. If our reputation is negatively affected, by the
actions of our employees or otherwise, our business and, therefore, our operating results may be materially adversely
affected.
Historically low interest rates may adversely affect our net interest income and profitability.
During the last seven years it has been the policy of the FRB to maintain interest rates at historically low levels through
its targeted federal funds rate and the purchase of mortgage-backed securities. As a result, yields on securities we have
purchased, and to a lesser extent, market rates on the loans we have originated, have been at levels lower than were
available prior to 2008. Consequently, the average yield on our interest-earning assets has decreased during the recent
low interest rate environment. As a general matter, our interest-bearing liabilities re-price or mature more quickly than
our interest-earning assets. However, our ability to lower our interest expense is limited at these interest rate levels,
while the average yield on our interest-earning assets may continue to decrease. Accordingly, our net interest income
may decrease, which may have an adverse effect on our profitability. For information with respect to changes in interest
rates, see “Risk Factors-Changes in interest rates may adversely affect or our earnings and financial condition.”
Competition from other financial institutions in originating loans and attracting deposits may adversely affect
our profitability.
We face substantial competition in originating loans. This competition comes principally from other banks, savings
institutions, mortgage banking companies, and other lenders. Many of our competitors enjoy advantages, including
greater financial resources and higher lending limits, a wider geographic presence, more accessible branch office
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locations, the ability to offer a wider array of services or more favorable pricing alternatives, as well as lower origination
and operating costs. This competition could reduce our net income by decreasing the number and size of loans that we
originate and the interest rates we may charge on these loans.
In attracting deposits, we face substantial competition from other insured depository institutions such as banks, savings
institutions and credit unions, as well as institutions offering uninsured investment alternatives, including money market
funds. Many of our competitors enjoy advantages, including greater financial resources, more aggressive marketing
campaigns, better brand recognition and more branch locations.
These competitors may offer higher interest rates than we do, which could decrease the deposits that we attract or require
us to increase our rates to retain existing deposits or attract new deposits. Increased deposit competition could adversely
affect our ability to generate the funds necessary for lending operations, which may increase our cost of funds.
We also compete with non-bank providers of financial services, such as brokerage firms, consumer finance companies,
insurance companies and governmental organizations, which may offer more favorable terms. Some of our non-bank
competitors are not subject to the same extensive regulations that govern our operations. As a result, such non-bank
competitors may have advantages over us in providing certain products and services. This competition may reduce or
limit our margins on banking services, reduce our market share and adversely affect our earnings and financial condition.
External factors, many of which we cannot control, may result in liquidity concerns for us.
Liquidity risk is the potential that the Bank may be unable to meet its obligations as they come due, capitalize on growth
opportunities as they arise, or pay regular dividends because of an inability to liquidate assets or obtain adequate funding
in a timely basis, at a reasonable cost and within acceptable risk tolerances.
Liquidity is required to fund various obligations, including credit commitments to borrowers, mortgage and other loan
originations, withdrawals by depositors, repayment of borrowings, operating expenses, capital expenditures and dividend
payments to shareholders.
Liquidity is derived primarily from deposit growth and retention; principal and interest payments on loans; principal and
interest payments on investment securities; sale, maturity and prepayment of investment securities; net cash provided
from operations, and access to other funding sources.
Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us
specifically or the financial services industry in general. Factors that could detrimentally impact our access to liquidity
sources include a decrease in the level of our business activity due to market factors or an adverse regulatory action
against us. In addition, our ability to use alternate deposit originations channels could be substantially impaired if we fail
to remain “well capitalized”. Our ability to borrow could also be impaired by factors that are not specific to us, such as a
severe disruption of the financial markets or negative views and expectations about the prospects for the financial
services industry as a whole. The liquidity issues have been particularly acute for regional and community banks, as
many of the larger financial institutions have significantly curtailed their lending to regional and community banks to
reduce their exposure to the risks of other banks. In addition, many of the larger correspondent lenders have reduced or
even eliminated federal funds lines for their correspondent customers. Furthermore, regional and community banks
generally have less access to the capital markets than do the national and super-regional banks because of their smaller
size and limited analyst coverage. Any decline in available funding could adversely impact our ability to originate loans,
invest in securities, meet our expenses, or fulfill obligations such as meeting deposit withdrawal demands, any of which
could have a material adverse impact on our liquidity, business, results of operations and financial condition.
Declines in the value of our investment securities portfolio may adversely impact our results.
As of December 31, 2016, we had approximately $68.9 million in investment securities. We may be required to record
impairment charges on our investment securities if they suffer a decline in value that is considered other-than-temporary.
Numerous factors, including lack of liquidity for re-sales of certain investment securities, absence of reliable pricing
information on investment securities, adverse changes in business climate, adverse actions by regulators, or
unanticipated changes in the competitive environment could have a negative effect on our investment portfolio in future
periods. If an impairment charge is significant enough, it could affect the ability of the Bank to upstream dividends to the
16
Company, which could have a material adverse effect on our liquidity and our ability to pay dividends to shareholders
and could also negatively impact our regulatory capital ratios.
As a regulated Bank, the ability to pay dividends is subject to regulatory limitations, which may impact the
Company’s ability to pay dividends to its shareholders.
As a bank holding company, the Company is a separate legal entity from the Bank and its subsidiaries and does not have
significant operations. We currently depend on the Bank’s cash and liquidity to pay our operating expenses and to fund
dividends to shareholders. We cannot assure you that in the future the Bank will have the capacity to pay the necessary
dividends and that we will not require dividends from the Bank to satisfy our obligations. Various statutes and
regulations limit the availability of dividends from the Bank. It is possible, depending upon our and the Bank’s financial
condition and other factors, that bank regulators could assert that payment of dividends or other payments by the Bank
are an unsafe or unsound practice. In the event that the Bank is unable to pay dividends, we may not be able to service
our obligations, as they become due, or pay dividends on our capital stock. Consequently, the inability to receive
dividends from the Bank could adversely affect our financial condition, results of operations, cash flows and prospects.
In addition, as described under “Capital Adequacy Guidelines,” beginning in 2016, banks and larger bank holding
companies will be required to maintain a capital conservation buffer on top of minimum risk-weighted asset ratios.
When fully phased in on January 1, 2019, the capital conservation buffer will be 2.5%. Banking institutions which do not
maintain capital in excess of the capital conservation buffer will face constraints on the payment of dividends, equity
repurchases and compensation based on the amount of the shortfall. Accordingly, if the Bank fails to maintain the
applicable minimum capital ratios and the capital conservation buffer, distributions to the Company may be prohibited or
limited.
Hurricanes or other adverse weather events could negatively affect our local economies or disrupt our operations,
which would have an adverse effect on our business or results of operations.
Hurricanes and other weather events can disrupt our operations, result in damage to our properties and negatively affect
the local economies in which we operate. In addition, these weather events may result in a decline in value or destruction
of properties securing our loans and an increase in delinquencies, foreclosures and loan losses.
Risks Applicable to the Banking Industry Generally:
The financial services industry is undergoing a period of great volatility and disruption.
Beginning in mid-2007, there has been significant turmoil and volatility in global financial markets. Recent market
uncertainty regarding the financial sector has increased. In addition to the impact on the economy generally, changes in
interest rates, in the shape of the yield curve, or in valuations in the debt or equity markets or disruptions in the liquidity
or other functioning of financial markets, all of which have been seen recently, could directly impact us in one or more
of the following ways:
• Net interest income, the difference between interest earned on our interest earning assets and interest paid on
interest bearing liabilities, represents a significant portion of our earnings. Both increases and decreases in the
interest rate environment may reduce our profits. We expect that we will continue to realize income from the
spread between the interest we earn on loans, securities and other interest-earning assets, and the interest we
pay on deposits, borrowings and other interest-bearing liabilities. The net interest spread is affected by the
differences between the maturity and repricing characteristics of our interest-earning assets and interest-bearing
liabilities. Our interest-earning assets may not reprice as slowly or rapidly as our interest-bearing liabilities.
• The market value of our securities portfolio may decline and result in other than temporary impairment
charges. The value of securities in our portfolio is affected by factors that impact the U.S. securities market in
general as well as specific financial sector factors and entities.
• Asset quality may deteriorate as borrowers become unable to repay their loans.
17
Our allowance for loan and lease losses may not be adequate to cover actual losses.
Like all financial institutions, we maintain an allowance for loan and lease losses to provide for loan defaults and
nonperformance. The process for determining the amount of the allowance is critical to our financial results and
condition. It requires difficult, subjective and complex judgments about the future, including the impact of national and
regional economic conditions on the ability of our borrowers to repay their loans. If our judgment proves to be incorrect,
our allowance for loan and lease losses may not be sufficient to cover losses inherent in our loan portfolio. Further, state
and federal regulatory agencies, as an integral part of their examination process, review our loans and allowance for loan
and lease losses and may require an increase in our allowance for loan and lease losses.
Although we believe that our allowance for loan and lease losses is adequate to cover known and probable incurred
losses included in the portfolio, we cannot assure you that we will not further increase the allowance for loan and lease
losses or that our regulators will not require us to increase this allowance. Either of these occurrences could adversely
affect our earnings.
Changes in interest rates may adversely affect our earnings and financial condition.
Our net income depends primarily upon our net interest income. Net interest income is the difference between interest
income earned on loans, investments and other interest-earning assets and the interest expense incurred on deposits and
borrowed funds. The level of net interest income is primarily a function of the average balance of our interest-earning
assets, the average balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost
of such liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our
interest-bearing liabilities which, in turn, are impacted by such external factors as the local economy, competition for
loans and deposits, the monetary policy of the Federal Open Market Committee of the Federal Reserve Board of
Governors (the “FOMC”), and market interest rates.
A sustained increase in market interest rates could adversely affect our earnings if our cost of funds increases more
rapidly than our yield on our earning assets, and compresses our net interest margin. In addition, the economic value of
portfolio equity would decline if interest rates increase. For example, we estimate that as of December 31, 2016, a 200
basis point increase in interest rates would have resulted in our economic value of portfolio equity declining by
approximately $11.2 million or 10.76%. See “Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Interest Rate Sensitivity Analysis.”
Different types of assets and liabilities may react differently, and at different times, to changes in market interest rates.
We expect that we will periodically experience gaps in the interest rate sensitivities of our assets and liabilities. That
means either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-
earning assets, or vice versa. When interest-bearing liabilities mature or re-price more quickly than interest-earning
assets, an increase in market rates of interest could reduce our net interest income. Likewise, when interest-earning
assets mature or re-price more quickly than interest-bearing liabilities, falling interest rates could reduce our net interest
income. We are unable to predict changes in market interest rates, which are affected by many factors beyond our
control, including inflation, deflation, recession, unemployment, money supply, domestic and international events and
changes in the United States and other financial markets.
We also attempt to manage risk from changes in market interest rates, in part, by controlling the mix of interest rate
sensitive assets and interest rate sensitive liabilities. However, interest rate risk management techniques are not exact. A
rapid increase or decrease in interest rates could adversely affect our results of operations and financial performance.
The banking business is subject to significant government regulations.
We are subject to extensive governmental supervision, regulation and control. These laws and regulations are subject to
change, and may require substantial modifications to our operations or may cause us to incur substantial additional
compliance costs. In addition, future legislation and government policy could adversely affect the commercial banking
industry and our operations. Such governing laws can be anticipated to continue to be the subject of future modification.
Our management cannot predict what effect any such future modifications will have on our operations. In addition, the
primary focus of Federal and state banking regulation is the protection of depositors and not the shareholders of the
regulated institutions.
18
For example, the Dodd-Frank Act may result in substantial new compliance costs. The Dodd-Frank Act was signed into
law on July 21, 2010. Generally, the Dodd-Frank Act is effective the day after it was signed into law, but different
effective dates apply to specific sections of the law, many of which will not become effective until various Federal
regulatory agencies have promulgated rules implementing the statutory provisions. In addition, as a result of the 2016
elections, certain provisions of The Dodd-Frank Act may be repealed or modified. Uncertainty remains as to the ultimate
impact of the Dodd-Frank Act, which could have a material adverse impact either on the financial services industry as a
whole, or on our business, results of operations and financial condition.
The following aspects of the financial reform and consumer protection act are related to the operations of the Bank:
• The act also imposes new obligations on originators of residential mortgage loans, such as the Bank.
Among other things, originators must make a reasonable and good faith determination based on
documented information that a borrower has a reasonable ability to repay a particular mortgage loan over
the long term. If the originator cannot meet this standard, the loan may be unenforceable in foreclosure
proceedings. The act contains an exception from this ability to repay rule for “qualified mortgages”, which
are deemed to satisfy the rule, but does not define the term, and left authority to the CFPB to adopt a
definition. A rule issued by the CFPB in January 2013, and effective January 10, 2014, sets forth specific
underwriting criteria for a loan to qualify as a Qualified Mortgage Loan. The criteria generally exclude
loans that are interest-only, have excessive upfront points or fees, have negative amortization features or
balloon payments, or have terms in excess of 30 years. The underwriting criteria also impose a maximum
debt to income ratio of 43%. If a loan meets these criteria and is not a “higher priced loan” as defined in
FRB regulations, the CFPB rule establishes a safe harbor preventing a consumer from asserting as a
defense to foreclosure the failure of the originator to establish the consumer’s ability to repay. However,
this defense will be available to a consumer for all other residential mortgage loans.
• Tier 1 capital treatment for “hybrid” capital items like trust preferred securities is eliminated subject to
various grandfathering and transition rules.
• The prohibition on payment of interest on demand deposits was repealed, effective July 21, 2011.
• Deposit insurance is permanently increased to $250,000.
• The deposit insurance assessment base calculation now equals the depository institution’s total assets
minus the sum of its average tangible equity during the assessment period.
• The minimum reserve ratio of the Deposit Insurance Fund increased to 1.35 percent of estimated annual
insured deposits or assessment base; however, the FDIC is directed to “offset the effect” of the increased
reserve ratio for insured depository institutions with total consolidated assets of less than $10 billion.
In addition, in order to implement Basel III and certain additional capital changes required by the Dodd-Frank Act, on July
9, 2013, the Federal banking agencies, including the FDIC, the Federal Reserve and the Office of the Comptroller of the
Currency, approved, as an interim final rule, the regulatory capital requirements for U.S. insured depository institutions
and their holding companies. This regulation requires financial institutions to maintain higher capital levels and more
equity capital.
These provisions, as well as any other aspects of current or proposed regulatory or legislative changes to laws applicable
to the financial industry, may impact the profitability of our business activities and may change certain of our business
practices, including the ability to offer new products, obtain financing, attract deposits, make loans, and achieve
satisfactory interest spreads, and could expose us to additional costs, including increased compliance costs. These changes
also may require us to invest significant management attention and resources to make any necessary changes to operations
in order to comply, and could therefore also materially and adversely affect our business, financial condition and results
of operations.
Our management is actively reviewing the provisions of the Dodd-Frank Act, many of which are to be phased-in over
the next several months and years, and assessing the probable impact on our operations. However, the ultimate effect of
these changes on the financial services industry in general, and us in particular, is uncertain at this time.
19
The laws that regulate our operations are designed for the protection of depositors and the public, not our
shareholders.
The federal and state laws and regulations applicable to our operations give regulatory authorities extensive discretion in
connection with their supervisory and enforcement responsibilities, and generally have been promulgated to protect
depositors and the Deposit Insurance Fund and not for the purpose of protecting shareholders. These laws and
regulations can materially affect our future business. Laws and regulations now affecting us may be changed at any time,
and the interpretation of such laws and regulations by bank regulatory authorities is also subject to change.
We can give no assurance that future changes in laws and regulations or changes in their interpretation will not adversely
affect our business. Legislative and regulatory changes may increase our cost of doing business or otherwise adversely
affect us and create competitive advantages for non-bank competitors.
The potential impact of changes in monetary policy and interest rates may negatively affect our operations.
Our operating results may be significantly affected (favorably or unfavorably) by market rates of interest that, in turn,
are affected by prevailing economic conditions, by the fiscal and monetary policies of the United States government and
by the policies of various regulatory agencies. Our earnings will depend significantly upon our interest rate spread (i.e.,
the difference between the interest rate earned on our loans and investments and the interest raid paid on our deposits
and borrowings). Like many financial institutions, we may be subject to the risk of fluctuations in interest rates, which, if
significant, may have a material adverse effect on our operations.
We cannot predict how changes in technology will impact our business; increased use of technology may expose
us to service interruptions or breaches in security.
The financial services market, including banking services, is increasingly affected by advances in technology, including
developments in:
• Telecommunications;
• Data processing;
• Automation;
•
Internet-based banking, including personal computers, mobile phones and tablets;
• Debit cards and so-called “smart cards”; and
• Remote deposit capture.
Our ability to compete successfully in the future will depend, to a certain extent, on whether we can anticipate and
respond to technological changes. We offer electronic banking services for our consumer and business customers via our
website, www.bonj.net, including Internet banking and electronic bill payment, as well as mobile banking by phone. We
also offer check cards, ATM cards, credit cards, and automatic and ACH transfers. The successful operation and further
development of these and other new technologies will likely require additional capital investments in the future. In
addition, increased use of electronic banking creates opportunities for interruptions in service or security breaches, which
could expose us to claims by customers or other third parties. We cannot assure you that we will have sufficient
resources or access to the necessary proprietary technology to remain competitive in the future, or that we will be able to
maintain a secure electronic environment.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
20
ITEM 2. PROPERTIES
The Company, currently, conducts its business through its main office located at 1365 Palisade Avenue, Fort Lee, New
Jersey, and its nine branches. Our new headquarters location at 750 Palisade Avenue, Englewood Cliffs, New Jersey will
be put in use in 2017. We expect to ultimately also have a branch in our headquarters location. The following table sets
forth certain information regarding the Company’s properties as of the date of this report.
Location
1365 Palisade Avenue
Fort Lee, NJ
204 Main Street
Fort Lee, NJ
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
585 Chestnut Ridge Road
Woodcliff Lake, NJ 07677
750 Palisade Avenue
Englewood Cliffs, NJ 07632
Leased
or Owned
Owned
Leased
Leased
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Date of Lease
Expiration
N/A
March, 2020
August, 2020
February, 2026
N/A
November, 2018
August, 2021
July, 2021
August, 2017
June, 2019
ITEM 3. LEGAL PROCEEDINGS
The Company and the Bank are subject to routine litigation during the normal course of business. Accordingly, the
Company and the Bank may periodically be parties to or otherwise involved in legal proceedings, such as claims to
enforce liens, claims involving the making and servicing of real property loans, and other issues incident to the Bank’s
business. Management does not believe that there are any proceedings pending against the Company or the Bank or
contemplated by governmental authorities, which, if determined adversely, would have a material effect on the business,
financial position or results of operations of the Company or the Bank.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
21
PART II
ITEM 5. 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, 2016
Fourth quarter
Third quarter
Second quarter
First quarter
Year Ended December 31, 2015
Fourth quarter
Third quarter
Second quarter
First quarter
Holders
High
Low
$ 13.50 $ 10.50
11.03
10.64
9.75
11.84
13.50
12.80
$ 11.65 $ 10.66
10.40
10.82
10.30
11.82
11.88
11.88
As of March 23, 2017 there were approximately 1,100 shareholders of our common stock, which includes an estimate of
shareholders who hold their shares in street name.
Dividends
In 2016, the Company declared three quarterly cash dividends in the amount of $0.06 per share. These cash dividends
were paid to shareholders on March 31, 2016, June 30, 2016 and September 30, 2016.
In 2015, the Company declared four quarterly cash dividends. Cash dividends of $0.06 per share were paid to
shareholders on March 31, 2015, June 30, 2015, September 30, 2015 and December 31, 2015.
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.
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.
22
Securities Authorized for Issuance under Equity Compensation Plans
The following tables summarize our equity compensation plan information as of December 31, 2016:
Plan Category
and rights
and rights
Number of shares
of common stock
to be issued upon Weighted-average
exercise of
outstanding
exercise price of
outstanding
options, warrants options, warrants
Number of shares
of common stock
remaining
available for
future issuance
under equity
compensation
plans
Equity Compensation Plans approved by security holders:
2006 Stock Option Plan
86,460 $
11.28
—
2007 Non-Qualified Stock Option Plan for Directors
310,000 $
11.50
94,668
2011 Equity Incentive Plan
30,000 $
11.23
140,532
Equity compensation plans not approved by security holders
—
—
—
Total
426,460 $
11.44
235,200
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.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, the Company is not required to provide the information otherwise required by this Item.
ITEM 7. 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 under
item 1A “Risk factors” herein as well as 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.
23
Overview and Strategy
Our bank charter was approved in April 2006 and the Bank opened for business on May 10, 2006. Our main office is
located at 1365 Palisade Avenue, Fort Lee, NJ 07024 and our current nine branch offices are located at 1365 Palisade
Avenue, Fort Lee, NJ 07024, 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.
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 and consumer loans. In
addition, we provide other customer services and make investments in securities, as permitted by law. We have sought
to offer community-oriented relationship banking in an area that is dominated by larger, statewide and national financial
institutions. Our focus remains on establishing and retaining customer relationships by offering a broad range of
traditional financial services and products, competitively-priced and delivered in a responsive manner to 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:
•
•
•
•
To provide local businesses, professionals, and individuals with banking services responsive to and determined
by the local market;
For Bank management to be accessible to and engaged with our customers, shareholders and communities;
To attract deposits and loans by competitive pricing; and
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) classified loans for which the
general valuation allowance for the respective loan type is deemed to be inadequate; and (2) 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
24
status, size of loan, type of collateral and the financial condition of the borrower. Charge-offs are established for
impaired loans based on a review of such information and/or appraisals of the underlying collateral. General reserves are
based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan
portfolio, current economic conditions and management’s judgment.
Although specific and general reserves are established in accordance with management’s best estimates, actual losses are
dependent upon future events, and as such, further provisions for loan losses may be necessary in order to maintain the
allowance for loan losses at an adequate level. For example, our evaluation of the allowance includes consideration of
current economic conditions, and a change in economic conditions could reduce the ability of borrowers to make timely
repayments of their loans. This could result in increased delinquencies and increased non-performing loans, and thus a
need to make additional provisions for loan losses. Any provision reduces our net income. While the allowance is
increased by the provision for loan losses, it is decreased by charge-offs, net of recoveries. Loans deemed to be
uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the
allowance. A change in economic conditions could adversely affect the value of properties collateralizing real estate
loans, resulting in increased charges against the allowance and reduced recoveries, and require additional provisions for
loan losses. Furthermore, growth or a change in the composition of our loan portfolio could require additional provisions
for loan losses.
At December 31, 2016 and 2015, respectively, we consider the ALLL of $8.3 million and $8.0 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, 2016 and 2015, the Company had thirty eight and
nineteen impaired loans, respectively. All of these loans have been measured for impairment using various measurement
methods, including fair value of collateral.
Periodically, we may need to assess whether there have been any events or economic circumstances to indicate that a
security on which there is an unrealized loss is impaired on an other-than-temporary basis. In any such instance, we
would consider many factors including the severity and duration of the impairment, our intent to sell a debt security prior
to recovery and/or whether it is more likely than not we will have to sell the debt security prior to recovery. Securities
on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value with the
write-down recorded as a realized loss in securities gains (losses). We believe the unrealized losses at December 31,
2016 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
25
other-than-temporarily impaired at December 31, 2016. At December 31, 2016 and 2015, respectively, we did not have
any other-than-temporarily impaired securities.
RESULTS OF OPERATIONS - Years ended December 31, 2016 and 2015
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.
2016 was a transition year for the Company. In April the Board of Directors appointed Nancy E. Graves to serve as a
Director, President and Chief Executive Officer of the Company and the Bank. In addition we augmented our senior
management team, hiring a new Chief Lending Officer, Chief Risk Officer and a Senior Vice President of Retail Banking
and Human Resources to help ensure that we have the foundation, in commercial lending and risk management systems
to support our growth in a safe and sound manner. During 2016, the management team undertook a comprehensive review
of the Company. The resulting initiatives required increased investments in consulting, legal, and risk management
systems, and affected our results of operations for 2016. We believe these efforts will contribute to our future performance
and growth, and that they will help ensure our continued safe and sound operation.
The Company has devoted much of 2016 to enhancing risk management to support our future growth. The large
concentration in CRE requires experienced management and systems to monitor the loan portfolio. The 2016
investments will allow us to manage our current portfolio and our growth.
Net Income
For the year ended December 31, 2016, net income decreased by $807 thousand, to $4 million from $4.8 million for the
year ended December 31, 2015. The decrease in net income for the year ended December 31, 2016 compared to 2015
was due to increases in the provision for loan losses of $646 thousand and other operating expense of $1.7 million,
which were partially offset by decreases in interest expense and income tax expense of $1.1 million and $400 thousand,
respectively. The decrease in interest expense is reflective of promotional higher yield certificate of deposits rolling
over to lower yield products and non-interest bearing deposits. The majority of the increase in the provision for loan
losses is related to a single credit placed on non-accrual status with an accompanying loss in the third quarter of 2016.
On a per share basis, basic and diluted earnings per share for the year ended December 31, 2016 were $0.64 as compared
to basic and diluted earnings per share of $0.79 for the year ended December 31, 2015.
Analysis of Net Interest Income
Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing
liabilities. Net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the
interest rate earned or paid on them. Interest income on total loans decreased by $209 thousand for the year ended
December 31, 2016 as compared to December 31, 2015 due to a decrease in yield on total loans to 4.63% in 2016 from
4.73% in 2015, reflecting the continued low interest rate environment. Average total loans increased by $9.9 million in
2016 to $653.5 million from $643.6 million in 2015. Total interest expense decreased by $1.1 million to $7.0 million
compared to $8 million in the prior year. The decline reflects a decrease in interest expense on certificates of deposit of
$1.3 million partially offset by an increase of $278 thousand in savings and money market deposits, and was
substantially due to maturing higher yielding certificates of deposits being replaced by lower yielding savings, money
market and demand deposits. During the year average time deposits declined by $63.9 million to $315.3 million from
$379.2 million in the prior year. In addition, the average balance of borrowings increased from $29.5 million in 2015, to
$30.2 million in 2016, an increase of $706 thousand. Average non-interest bearing deposits increased to $132.1 million
in 2016 from $99.4 million in 2015.
Average Balance Sheets
The following table sets forth certain information relating to our average assets and liabilities for the years ended
December 31, 2016, 2015 and 2014, and reflect the average yield on assets and average cost of liabilities for the periods
26
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 2016, 2015, and 2014
was $37, $37, and $46 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 2016, 2015 and 2014.
27
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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, 2016 and 2015, respectively (in thousands). Changes due to both
volume and rate have been allocated in proportion to the relationship of the dollar amount change in each.
Year ended December 31,
2016 compared with 2015
Increase (Decrease)
Due to Change in Average
Net
Volume Rate
Year ended December 31,
2015 compared with 2014
Increase (Decrease)
Due to Change in Average
Net
Volume Rate
Interest income:
Loans
Securities
Federal funds sold
Interest bearing deposits in banks
Total interest income
Interest expense:
Demand deposits
Savings deposits
Money market deposits
Time deposits
Borrowed funds
Total interest expense
Change in net interest income
Provision for Loan Losses
$
571 $ (781) $ (210) $ 4,464 $ (892) $ 3,572
(40)
(29)
1
(1)
134
23
3,667
564
(198)
—
126
4,392
158
1
8
(725)
(107)
27
180
(681)
(136)
26
203
(117)
14
206
68
(1,017)
11
(718)
(9)
23
(23)
(289)
(51)
(349)
5
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45
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(40)
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31
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232
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950 $ 3,038 $ (801) $ 2,237
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25
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18
76
$ 1,282 $ (332) $
The provision for loan losses represents our determination of the amount necessary to bring our allowance for loan
losses to the level that we consider adequate to absorb probable losses inherent in our loan portfolio. See “Allowance for
Loan Losses” for additional information about our allowance for loan losses and our methodology for determining the
amount of the allowance. The provision for loan losses was $1.6 million and $924 thousand for the years ended
December 31, 2016 and 2015, respectively. The majority of the increase in the provision is related to a single credit
placed on non-accrual status with an accompanying loss in the third quarter of 2016.
Non-Interest Income
Our non-interest income is comprised primarily of service fees received from deposit accounts and gains (losses) on the
sales of securities. For the year ended December 31, 2016, non-interest income increased by $167 thousand to $491
thousand, from the $324 thousand during the year ended December 31, 2015. The increase in non-interest income was
primarily due to a $102 thousand non-recurring item collected in the third quarter.
Non-Interest Expenses
Non-interest expense for the year ended December 31, 2016 was $17.0 million compared to $15.5 million for the year
ended December 31, 2015, an increase of $1.5 million, or 10.9%. The increase was primarily due to salaries and
employee benefits, data processing, professional fees and other expenses of $704 thousand, $227 thousand, $769
thousand and $246 thousand, respectively. These increases were primarily related to the Company’s efforts to enhance
its risk management structure, including consultant costs, legal expense, retaining experienced staff and the cost of loan
system upgrades.
Income Tax Expense
The income tax provision, which includes both federal and state taxes, for the years ended December 31, 2016 and 2015
was $2.1 million and $2.5 million, respectively, representing a decrease of $400 thousand. The decrease in the income
tax expense for 2016 as compared to 2015 was due to the decrease in pretax income for 2016 as compared to 2015. The
effective tax rate for 2016 was 34.8% compared to 34.5% for 2015.
29
FINANCIAL CONDITION — Years ended December 31, 2016 and December 31, 2015
Total consolidated assets increased by $19.5 million, or approximately 2.43%, from $802.9 million at December 31,
2015 to $822.4 million at December 31, 2016. Loans receivable, or “total loans,” increased from $645.1 million at
December 31, 2015 to $660.5 million at December 31, 2016, an increase of approximately $15 million, or 2.4%. Total
cash and cash equivalents increased from $74.1 million at December 31, 2015 to $76.8 million at December 31, 2016, an
increase of $2.7 million. Total deposits grew by $17.2 million to $718.0 million at December 31, 2016, from $700.7
million at December 31, 2015. Borrowed funds decreased to $25.0 million at December 31, 2016 from $26.5 million at
December 31, 2015.
Loans
Our loan portfolio is the primary component of our assets. Total loans, which exclude net deferred fees and costs and
the allowance for loan losses, increased by 2.4% to reach $651.7 million at December 31, 2016 from $636.7 million at
December 31 2015. Historically, we offered residential mortgage loans. However in light of the increasing regulatory
and compliance burdens associated with these loans, they have become a less significant part of our business strategy.
As a result, we expect our portfolio of residential mortgage loans to continue to decrease in future periods, exclusive of
the results of the presentation reclassification of the Company’s loan portfolio, primarily affecting commercial loans and
residential mortgages made effective as of September 30, 2016. Our market area is concentrated in Bergen County, New
Jersey, with commercial loans made to borrowers located primarily in New Jersey and New York. We believe that we
will continue to have opportunities for commercial loan growth due in part, to our experienced staff and relationship
focused strategy, and this commercial loan growth should help mitigate the run-off in the residential portfolio.
Our loan portfolio consists of commercial loans, commercial and residential real estate loans, consumer loans and home
equity loans. Commercial construction, line of credit and commercial mortgage loans are made for the purpose of
providing working capital primarily for construction, financing the purchase of an income producing property, purchase
of equipment or inventory, as well as for other business purposes. Commercial real estate loans consist of loans secured
by commercial or residential real property and loans for the construction of commercial or residential investment
property. We have a concentration of commercial loans collateralized by real estate.
We have not made any sub-prime loans. We believe that our strategy of customer service, competitive rate structures,
and selective marketing have enabled us to effectively compete as a relationship driven community bank.
The following table sets forth the classification of the Company’s loans by major category as of December 31, 2016,
2015, 2014, 2013 and 2012 (in thousands):
December 31,
2016
2015
2014
2013
2012
Commercial real estate
Residential mortgages
Commercial
Home equity
Consumer
Total Loans
$ 492,296 $ 460,396 $ 431,727 $ 298,548 $ 246,545
54,332
64,900
68,737
1,215
53,601
57,634
61,204
1,478
48,698
69,855
63,308
2,805
56,079
75,174
69,631
1,347
78,961
30,259
58,399
656
$ 660,571 $ 645,062 $ 633,958 $ 472,465 $ 435,729
(1) Reflects the results of a presentation reclassification of the company’s loan portfolio, primarily affecting commercial loans and
residential mortgages made effective during the year ended December, 31 2016.
30
The following table sets forth the maturity of fixed and adjustable rate loans as of December 31, 2016 (in thousands):
Loans with Fixed Rate
Commercial real estate
Residential mortgages
Commercial
Home equity
Consumer
Loans with Adjustable Rate
Commercial real estate
Residential mortgages
Commercial
Home equity
Consumer
Loan Quality
Within
One Year
1 to 5
Years
After 5
Years
Total
$ 85,640 $ 84,935 $
8,810
6,348
1,382
92
15,872
3,842
—
189
5,588 $ 176,163
63,163
12,383
2,339
509
38,481
2,193
957
228
$ 49,183 $ 155,497 $ 111,453
4,463
526
45,780
—
2,569
15,815
8,780
147
8,766
1,535
1,500
—
316,133
15,798
17,876
56,060
147
As mentioned above, our principal assets are our loans. Inherent in the lending function is the risk of the borrower’s
inability to repay a loan under its existing terms. Risk elements include past due and restructured loans, potential
problem loans and loan concentrations.
Impaired loans are identified by evaluating factors, including delinquency status, size of loan, type of collateral and the
financial condition of the borrower. Non-performing assets include loans that are not accruing interest (nonaccrual loans)
as a result of principal or interest being in default for a period of 90 days or more, troubled debt restructured loans and
foreclosed assets. When a loan is classified as nonaccrual, interest accruals discontinue and all past due interest,
including interest applicable to prior years, is reversed and charged against current income. Payments received from the
borrower are applied to outstanding principal until such time as management determines that the financial condition of
the borrower and other factors warrant returning the loan to accruing status.
We attempt to manage overall credit risk through loan diversification and our loan underwriting and approval
procedures. Due diligence begins at the time we begin to discuss the origination of a loan with a borrower.
Documentation, including a borrower’s credit history, materials establishing the value and liquidity of potential
collateral, the purpose of the loan, the source and timing of the repayment of the loan, and other factors are analyzed
before a loan is submitted for approval. Loans made are also subject to periodic audit and review.
As of December 31, 2016 the Bank had thirty non-accrual loans totaling approximately $18.8 million, compared to non-
accrual loans totaling $7.4 million at year end 2015. The increase in non-accrual loans reflects the impact of a credit with
an outstanding balance of $1.4 million being placed on non-accrual during the third quarter, a credit with outstanding
balance of $4.9 million placed on non-accrual in the fourth quarter and $5.1 million of various smaller credits that were
placed on non-accrual status throughout the year. If the nonaccrual loans had been current in accordance with their
original terms and had been outstanding throughout the year ended December 31, 2016, the gross interest income that
would have been recorded would have been approximately $354 thousand.
Within its nonaccrual loans at December 31, 2016, the Bank had five residential mortgage loans, seven home equity
loans and one commercial real estate loan that met the definition of a troubled debt restructuring (“TDR”) loan. TDRs
are loans where the contractual terms have been modified for borrowers experiencing financial difficulties. These
modifications could include a reduction in the interest rate of the loan, payment extensions, forgiveness of principal, or a
combination of these concessions. At December 31, 2016, nonaccrual TDR loans had an outstanding balance of $7.2
million and had no specific reserves connected with them. At December 31, 2016, accruing TDR loans had an
outstanding balance of $624 thousand. The modifications to these loans did not involve principal forgiveness.
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
31
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 the contractual
terms have been modified for borrowers experiencing financial difficulties. These modifications could include a
reduction in the interest rate of the loan, payment extensions, forgiveness of principal or 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 mortgage, one home equity and one commercial real estate TDR loans with cumulative
balances of $ 3.1 million, $859 thousand and $367 thousand respectively, have no specific reserves connected with them.
The modifications to these loans did not involve principal forgiveness.
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, 2016, 2015, 2014,
2013, and 2012:
Nonaccrual loans
Commercial real estate
Residential mortgages
Commercial
Home equity
2016
2015
2014
2013
2012
$ 5,992 $
842 $
1,787 $ 1,700 $
1,704
3,907
4,279
3,256 — —
3,992
2,608
50
2,509
325
5,597
2,522
2,453
673
1,408
Total nonaccrual loans
18,752
7,356
8,519
5,031
5,946
Impaired but accruing
Commercial real estate
Home equity
Total accruing impaired loans
Performing troubled debt restructured loans
Commercial real estate
Residential mortgages
Home equity
9,209
55
9,264
—
—
—
—
—
—
—
—
— — —
175
532
—
60
104
—
397
3,053
1,060
3,557
—
—
Total performing impaired and troubled debt restructured loans
—
636
235
4,510
3,557
Total impaired loans
Other real estate owned
28,016
614
7,992
512
8,754
897
9,541
964
9,503
—
Total impaired loans and other nonperforming assets
$ 28,630 $
8,504 $
9,651 $ 10,505 $
9,503
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 retains an external independent loan review firm. The loan review firm 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 firm also monitors the integrity of
our credit risk rating system. The loan review firm reports directly to the audit committee of our board of directors and
provides the audit committee with reports on asset quality. The loan review firm’s reports are presented to our board of
directors.
32
Allowance for Loan Losses
Our ALLL totaled $8.3 million, $8.0 million and $7.2 million, respectively, at December 31, 2016, 2015, and 2014. The
growth of the allowance is primarily due to the growth and composition of the loan portfolio, including growth in
commercial real estate loans as a percentage of the portfolio.
The following is an analysis of the activity in the allowance for loan losses for the periods indicated (dollars in
thousands):
Balance, January 1
$ 8,020 $ 7,192 $ 5,775 $ 5,072 $ 4,474
2016
2015
2014
2013
2012
Charge-offs:
Residential mortgages
Consumer loans
Home equity
Commercial
Commercial real estate
Recoveries:
Commercial real estate
Commercial
Consumer loans
Net charge-offs
Reclass reserve for unfunded loans
Provision charged to expense
Balance, December 31
Ratio of net charge-offs to average loans
Outstanding
(158)
(1)
(155)
(1,026)
—
—
—
—
(264)
(60)
(32)
(93)
(72)
(327)
(940)
—
(22)
—
—
(89)
(168)
—
(101)
(340)
—
35
2
—
226
2
—
—
4
—
—
4
—
6
3
—
(1,303)
—
1,570
(600)
—
1,198
$ 8,287 $ 8,020 $ 7,192 $ 5,775 $ 5,072
(1,460)
(198)
3,075
(107)
—
810
(96)
—
924
0.20 %
0.01 %
0.27 %
0.02 %
0.15 %
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) :
2016
% of
% of
Total
Loans
2015
% of
% of
Total
Loans
Amount
ALLL
Amount
ALLL
Balance applicable
Residential and commercial real estate
Commercial
Home equity
Consumer
Unallocated
$ 6,479
809
425
6
7,719
568
9.76 %
5.13 %
0.07 %
78.18 % 86.48 % $ 6,138
4.58 % 1,066
573
8.84 %
39
0.10 %
93.14 % 100.00 % 7,816
204
76.53 % 78.92 %
13.29 % 10.83 %
9.81 %
7.14 %
0.49 %
0.44 %
97.45 % 100.00 %
2.55 %
$ 8,020 100.00 %
6.86 %
$ 8,287 100.00 %
33
2014
% of
ALLL
% of
Total
Loans
2013
2012
Amount
% of
ALLL
% of
Total
Loans
Amount
% of
ALLL
% of
Total
Loans
Amount
Balance applicable to:
Residential and commercial real
estate
Commercial
Home equity
Consumer
$ 5,298
1,128
500
24
73.67 %
15.68 %
6.95 %
0.33 %
76.95 % $ 4,032
969
11.86 %
593
10.98 %
26
0.21 %
69.82 %
16.78 %
10.27 %
0.45 %
74.54 % $ 3,472
12.20 % 1,033
383
12.95 %
24
0.31 %
68.46 % 69.05 %
20.37 % 14.89 %
7.55 % 15.78 %
0.28 %
0.47 %
Unallocated reserves
6,950
242
96.63 % 100.00 % 5,620
155
3.37 %
97.32 % 100.00 % 4,912
160
2.68 %
96.85 % 100.00 %
3.15 %
$ 7,192 100.00 %
$ 5,775 100.00 %
$ 5,072 100.00 %
The provision for loan losses represents our determination of the amount necessary to bring the ALLL to a level that we
consider adequate to provide for probable losses inherent in our loan portfolio as of the balance sheet date. We evaluate
the adequacy of the ALLL by performing periodic, systematic reviews of the loan portfolio. While allocations are made
to specific loans and pools of loans, the total allowance is available for any loan losses. Although the ALLL is our best
estimate of the inherent loan losses as of the balance sheet date, the process of determining the adequacy of the ALLL is
judgmental and subject to changes in external conditions. Accordingly, existing levels of the ALLL may ultimately
prove inadequate to absorb actual loan losses. However, we have determined, and believe, that the ALLL is at a level
adequate to absorb the probable loan losses in our loan portfolio as of the balance sheet dates.
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
2016 and 2015, 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 income (loss), which is included in stockholders’
equity. Securities classified as AFS include securities that may be sold in response to changes in interest rates, changes
in prepayment risks, the need to increase regulatory capital, or other similar requirements.
At December 31, 2016, total securities aggregated $68.9 million, of which $61.6 million were classified as AFS and $7.3
million were classified as HTM. The Company had no securities classified as trading.
34
The following table sets forth the carrying value of the Company’s security portfolio as of the December 31, 2016, 2015,
and 2014, respectively (in thousands):
2016
2015
2014
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Available for Sale
Government sponsored enterprise obligations
U.S. Treasury obligations
Total available for sale
Held to Maturity
Obligations of states and political subdivisions
U.S. Treasury obligations
Total held to maturity
Total Investment Securities
$ 55,506 $ 55,321 $ 58,720 $ 58,397 $ 53,000 $ 52,049
6,402
58,451
6,623
59,623
6,353
64,750
6,512
65,232
6,268
61,589
6,400
61,906
7,343
—
7,343
11,923
3,998
15,921
$ 69,249 $ 68,932 $ 71,061 $ 70,579 $ 75,546 $ 74,372
11,923
4,000
15,923
5,829
—
5,829
5,829
—
5,829
7,343
—
7,343
The following tables set forth as of December 31, 2016 and 2015, the maturity distribution of the Company’s debt
investment portfolio (in thousands):
2016
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
Total
2015
Securities Held to Maturity Securities Available for Sale
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Weighted
Average
Yield (1)
$ — $
7,343
7,343
— $ 22,035 $
7,343
7,343
—
22,035
—
—
—
—
—
—
33,471
6,400
39,871
22,010
—
22,010
33,311
6,268
39,579
0.55 %
0.97 %
0.65 %
1.24 %
1.10 %
1.22 %
$ 7,343 $
7,343 $ 61,906 $
61,589
0.98 %
Securities Held to Maturity Securities Available for Sale Weighted
Average
Amortized
Amortized
Yield (1)
Cost
Cost
Fair
Value
Fair
Value
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
$ — $
5,829
5,829
— $ 15,720 $
5,829
5,829
—
15,720
—
—
—
—
—
—
43,000
6,512
49,512
15,708
—
15,708
42,689
6,353
49,042
0.63 %
0.92 %
0.71 %
1.34 %
1.14 %
1.31 %
Total
$ 5,829 $
5,829 $ 65,232 $
64,750
1.13 %
During 2016, the Company did not sell any securities from its portfolio. The decrease in the portfolio is due to calls and
maturities of securities.
During 2015, the Company sold three securities from its AFS portfolio, recognizing a loss of approximately $15
thousand.
35
Deposits
Deposits remain our primary source of funds. Total deposits increased to $718 million at December 31, 2016 from
$700.7 million at December 31, 2015, an increase of $17.2 million, or 2.6%. Time deposits decreased by $57.6 million
while savings and other interest bearing, and noninterest bearing accounts increased by $55.2 and $19.6 million,
respectively, during the year ended December 31, 2016. Total brokered deposits were 27.2 million and $39.8 million at
December 31, 2016 and 2015 respectively. The Company has no foreign deposits, nor are there any material customer
concentrations of deposits. The Company is focused on lowering its overall cost of funds. In 2016 higher cost
promotional CDs ran-off and DDA increased. The focus on increasing DDA accounts through expanding our
relationships and increasing commercial compensating balances has resulted in non-interest bearing demand deposits
accounting for approximately 20% of our deposits. Our Strategic Plan calls for a comprehensive marketing plan to
achieve a change in deposit mix and drive branch traffic.
The following table sets forth the actual amount of various types of deposits for each of the periods indicated:
December 31,
(dollars in thousands)
2016
2015
2014
Non-interest bearing demand
Interest bearing demand and money markets
Savings
Time deposits
Amount
$ 137,564
174,396
113,286
292,742
Average
Yield/Rate Amount
Average
Yield/Rate Amount
Average
Yield/Rate
$ 117,919
0.37 % 153,003
0.92 % 79,453
1.59 % 350,364
$ 89,510
0.39 % 135,604
0.89 %
64,981
1.67 % 358,879
0.43 %
0.84 %
1.64 %
$ 717,988
$ 700,739
$ 648,974
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, 2016 (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
Return on Equity and Assets
$ 50,110
21,000
55,633
74,124
52,330
$ 253,197
The following table summarizes our (i) return on average assets, or net income divided by average total assets, (ii) return
on average equity, or net income divided by average equity,(iii) equity to assets ratio, or average equity divided by
average total assets and (iv) dividend payout ratio, or dividends declared per share divided by net income per share.
Selected Financial Ratios:
Return on Average Assets (ROA)
Return on Average Equity (ROE)
Equity to Total Assets
Dividend Payout Ratio
Liquidity
At or for the year ended December 31,
2015
0.60 %
6.95 %
8.11 %
31.28 %
2016
0.49 %
5.31 %
9.38 %
28.19 %
2014
0.57 %
6.49 %
8.05 %
33.94 %
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
36
influenced by general interest rates, economic conditions, and competition. In addition, if warranted, we would be able
to borrow funds.
As of December 31, 2016, the Company had a $5.0 million line of credit with Atlantic Central Bankers Bank. In
addition, the Bank had a $16.0 million overnight line of credit with Zions First National Bank, a $12.0 million overnight
line of credit with First Tennessee Bank and a $10.0 million overnight line of credit with Atlantic Central Bankers Bank
for the purchase of federal funds in the event that temporary liquidity needs arise. There were no amounts outstanding
under any of the facilities at December 31, 2016. We are an approved member of the FHLBNY. The FHLBNY
relationship could provide additional sources of liquidity, if required. At December 31, 2016, we have $25 million of
borrowed funds from the FHLBNY. The amount of credit available from the FHLBNY is dependent upon the amount of
qualifying collateral we pledge.
Our total deposits equaled $718.0 million and $700.7 million, respectively, at December 31, 2016 and 2015. The growth
in funds provided by deposit inflows during this period coupled with our borrowed funds and cash position at the end of
2016 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 maintaining liquidity. The investment portfolio also
includes securities available for sale to provide liquidity for anticipated loan demand and other liquidity needs. (See
“Investment Securities”)
We believe that our current sources of funds provide adequate liquidity for our current cash flow needs.
Interest Rate Sensitivity Analysis
We manage our assets and liabilities with the objectives of evaluating the interest-rate risk included in certain balance
sheet accounts; determining the level of risk appropriate given our business focus, operating environment, capital and
liquidity requirements; establishing prudent asset concentration guidelines; and managing risk consistent with guidelines
approved by our board of directors. We seek to reduce the vulnerability of our operations to changes in interest rates and
to manage the ratio of interest-rate sensitive assets to interest-rate sensitive liabilities within specified maturities or re-
pricing dates. Our actions in this regard are taken under the guidance of the asset/liability committee of our board of
directors, or “ALCO.” ALCO generally reviews our liquidity, cash flow needs, maturities of investments, deposits and
borrowings, and current market conditions and interest rates.
One of the monitoring tools used by ALCO is an analysis of the extent to which assets and liabilities are interest rate
sensitive and measures our interest rate sensitivity “gap.” An asset or liability is said to be interest rate sensitive within a
specific time period if it will mature or re-price within that time period. A gap is considered positive when the amount
of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative
when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. Accordingly,
during a period of rising rates, a negative gap may result in the yield on assets increasing at a slower rate than the
increase in the cost of interest-bearing liabilities, resulting in a decrease in net interest income. Conversely, during a
period of falling interest rates, an institution with a negative gap would experience a re-pricing of its assets at a slower
rate than its interest-bearing liabilities which, consequently, may result in its net interest income growing.
The following table sets forth the amounts of interest-earning assets and interest-bearing liabilities outstanding at the
periods indicated which we anticipated, based upon certain assumptions, will re-price or mature in each of the future
time periods presented. Except as noted, the amount of assets and liabilities which re-price or mature during a particular
period were determined in accordance with the earlier of the term to re-pricing or the contractual terms of the asset or
liability. Because we have 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
37
“Other Assets” as they are not interest rate sensitive. At December 31, 2016, we were within the target gap range
established by ALCO for all terms.
Cumulative Rate Sensitive Balance Sheet
December 31, 2016
(in thousands)
Securities, excluding equity securities
6,473 $ 19,060 $ 29,353 $ 68,932 $
0-3
Months
$
0-6
Months
0-1
Year
0-5
Years
All
Others
TOTAL
— $ 68,932
Loans
104,972
129,130
178,765
450,901
209,670
660,571
Federal Funds sold and Interest-Bearing Deposits in Banks
Other Assets
75,348
—
75,348
—
75,348
—
75,348
—
—
17,589
75,348
17,589
TOTAL ASSETS
$ 186,793 $ 223,538 $ 283,466 $ 595,181 $ 227,259 $ 822,440
Transaction / Demand Accounts
Money Market
Savings Deposits
Time Deposits
Borrowed Funds
Other Liabilities
Equity
$ 28,806 $ 28,806 $ 28,806 $ 28,806 $
145,591
113,286
59,889
145,591
113,286
86,270
145,591
113,286
151,933
145,591
113,286
292,742
— $ 28,806
145,591
—
113,286
—
292,742
—
—
—
—
5,000
—
—
5,000
—
—
25,008
—
—
—
139,863
77,144
25,008
139,863
77,144
TOTAL LIABILITIES AND EQUITY
$ 347,572 $ 378,953 $ 444,616 $ 605,433 $ 217,007 $ 822,440
Dollar Gap
Gap / Total Assets
Target Gap Range
RSA / RSL
(Rate Sensitive Assets to Rate Sensitive Liabilities)
Market Risk
$ (160,779) $ (155,415) $ (161,150) $ (10,252)
(19.55)%
(1.25)%
+/- 35.00 % +/- 30.00 % +/- 25.00 % +/- 25.00 %
98.31 %
(19.59)%
(18.90)%
58.99 %
63.76 %
53.74 %
Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from
interest rate risk inherent in our lending and deposit taking activities. Thus, we actively monitor and manage our interest
rate risk exposure.
Our profitability is affected by fluctuations in interest rates. A sudden and substantial increase or decrease in interest
rates may adversely impact our earnings to the extent that the interest rates borne by assets and liabilities do not change
at the same speed, to the same extent, or on the same basis. We monitor the impact of changing interest rates on our net
interest income using several tools. One measure of our exposure to differential changes in interest rates between assets
and liabilities is shown in our “Cumulative Rate Sensitive Balance Sheet” under the “Interest Rate Sensitivity Analysis”
caption in this discussion and analysis. 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 2016, we believed that available hedging
instruments were not cost-effective, and therefore, focused our efforts on our yield-cost spread through retail growth
opportunities.
38
The following table discloses our financial instruments that are sensitive to change in interest rates, categorized by
expected maturity at December 31, 2016. Market risk sensitive instruments are generally defined as on- and off- balance
sheet financial instruments.
Expected Maturity/Principal Repayment
December 31, 2016
(Dollars in thousands)
Avg. Int.
Rate
2017
2018
2019
2020
2021
After
Total
Fair Value
There-
Interest Rate Sensitive Assets:
Loans
Securities net of equity securities
4.63 % $ 178,765 $ 80,645 $ 69,288 $ 51,205 $ 70,998 $ 209,670 $ 660,571 $ 659,084
68,932
1.17 %
11,168
10,424
17,987
29,353
68,932
—
—
Fed Funds Sold
2.79 %
452
—
—
—
—
—
452
452
Interest-earning cash and time
deposits
Interest Rate Sensitive Liabilities :
0.44 %
73,896
—
—
—
—
—
73,896
73,896
Interest bearing demand deposits
and money market accounts
0.37 % 174,397
Savings deposits
0.92 % 113,286
—
—
—
—
—
—
—
—
—
174,397
174,397
—
113,286
113,286
Time deposits
1.59 % 151,933
51,818
31,135
9,976
47,880
—
292,742
297,465
Borrowed Funds
1.41 % $
5,000 $
— $ 16,539 $
— $ 3,469 $
— $ 25,008 $
24,933
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, began for
all banking organizations on January 1, 2016 at the 0.625% level, and the required buffer increases by 0.625% on each
subsequent January 1 until it reaches 2.5% on January 1, 2019.
39
The following table summarizes the Bank’s risk-based capital and leverage ratios at December 31, 2016, as well as
regulatory capital category definitions:
Risk-Based Capital :
Common Equity Tier 1 Capital
Tier 1 Capital Ratio
Total Capital Ratio
Leverage Ratio
Minimum Required Minimum Capital Capitalized Under
Prompt Corrective
With Phase-in
Action Regulations
December 31, 2016 Adequacy Purposes Buffer Schedule
For Capital
To Be Well
10.98 %
10.98 %
12.21 %
9.29 %
4.50 %
6.00 %
8.00 %
4.00 %
5.125 %
6.625 %
8.625 %
N/A
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 2016 and 2015, 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 Company’s Strategic Plan calls for us to remain well capitalized at all times. Our capital planning will be guided
based on our loan growth.
As the Company has less than $1.0 billion in consolidated assets, it is not subject to minimum consolidated capital ratio
requirements.
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, 2016, the Company had the following contractual obligations as provided in the table below (in
thousands):
Payment due by Period
Less than
1 year
1 to 3
years
4 to 5
years
After 5
years
Amounts
Committed
Total
Minimum annual rental under non-cancelable operating
leases
Remaining contractual maturities of borrowed funds
Remaining contractual maturities of time deposits
$
1,289 $
5,000
151,933
2,012 $ 1,175 $
16,539
82,953
3,469
57,856
1,134 $
—
—
5,610
25,008
292,742
Total Contractual Obligations
$ 158,222 $ 101,504 $ 62,500 $
1,134 $ 323,360
Additionally, the Bank had certain commitments to extend credit to customers. A summary of commitments to extend
credit at December 31, 2016 is provided as follows (in thousands):
Commercial real estate, construction, and land development secured by land
Home equities
Standby letters of credit and other
$ 58,940
36,383
3,593
$ 98,916
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.
40
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, the Company is not required to provide the information otherwise required by this Item.
41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following audited financial statements are set forth in this Annual Report on Form 10-K on the pages listed in the
Index to Consolidated Financial Statements below.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm 2016
Report of Independent Registered Public Accounting Firm 2015
Consolidated Balance Sheets as of December 31, 2016 and 2015
Consolidated Statements of Income for the years ended December 31, 2016 and 2015
Consolidated Statements of Comprehensive Income for the years ended December 31,
2016 and 2015
Consolidated Statements of Stockholders’ Equity for the years ended December 31,
2016 and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2016 and
2015
Notes to Consolidated Financial Statements
Page
43
44
45
46
47
48
49
50
42
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Bancorp of New Jersey, Inc.
We have audited the accompanying consolidated balance sheet of Bancorp of New Jersey, Inc. and subsidiary
(the “Company”) as of December 31, 2016 and the related consolidated statements of income, comprehensive income,
stockholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Bancorp of New Jersey, Inc. and subsidiary at December 31, 2016, and the results of their
operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in
the United States of America.
/s/ Baker Tilly Virchow Krause, LLP
Iselin, New Jersey
March 30, 2017
43
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Bancorp of New Jersey, Inc.
We have audited the accompanying consolidated balance sheet of Bancorp of New Jersey, Inc. and subsidiary
(the “Company”) as of December 31, 2015 and the related consolidated statement of income, comprehensive income,
stockholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Bancorp of New Jersey, Inc. and subsidiary at December 31, 2015, and the results of their
operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in
the United States of America.
/s/ BDO USA, LLP
New York, New York
March 30, 2016
44
CONSOLIDATED BALANCE SHEETS
December 31, 2016 and 2015
(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 $7,343 and $5,829 at December 31, 2016
and December 31, 2015, respectively)
Restricted investment in bank stock, at cost
Loans receivable
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
LIABILITIES:
Deposits:
Noninterest-bearing demand deposits
Savings and interest bearing transaction accounts
Time deposits under $250
Time deposits $250 and over
Total deposits
Borrowed funds – Long-Term
Accrued expenses and other liabilities
Total liabilities
Stockholders’ equity:
Common stock, no par value, authorized 20,000,000 shares; issued and
outstanding 6,316,291 at December 31, 2016 and 6,240,241 at
December 31, 2015
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31, 2016 December 31, 2015
$
$
$
2,628 $
73,896
452
76,976
1,000
61,589
7,343
1,983
660,571
(586)
(8,287)
651,698
13,497
2,366
614
5,374
822,440 $
137,564 $
287,682
156,477
136,265
717,988
25,008
2,300
745,296
2,238
71,497
454
74,189
1,000
64,750
5,829
2,020
645,062
(381)
(8,020)
636,661
10,500
2,305
512
5,154
802,920
117,919
232,456
192,560
157,804
700,739
26,529
2,499
729,767
61,524
15,813
(193)
77,144
822,440 $
60,509
12,940
(296)
73,153
802,920
$
See accompanying notes to consolidated financial statements
45
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2016 and 2015
(Dollars in thousands, except per share data)
2016
2015
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
$
30,242 $
751
412
5
31,410
30,451
887
182
6
31,526
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
4,808
1,523
5,026
425
6,974
24,436
1,570
22,866
491
—
491
8,338
2,755
868
260
95
1,543
1,201
2,162
17,222
6,135
2,134
4,001 $
$
$
$
0.64 $
0.64 $
0.79
0.79
See accompanying notes to consolidated financial statements
46
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2016 and 2015
(Dollars in Thousands)
Net income
Other comprehensive income
For the Year Ended December 31,
2016
2015
$
4,001 $
4,808
Unrealized holding gains on securities available for sale, net of deferred
income tax expense of $62 and $253, respectively
Less: Reclassification adjustment for loss on sale of securities, net of
income tax benefit of $0 and $6, respectively
Other comprehensive income
Comprehensive income
$
103
—
103
4,104 $
452
(9)
443
5,251
See accompanying notes to consolidated financial statements
47
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years ended December 31, 2016 and 2015
(Dollars in Thousands)
Balance at January 1, 2015
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
Balance at December 31, 2015
Exercise of stock options ( 80,300 shares)
Stock based compensation
Dividends on common stock ($0.18 per share)
Net income
Total other comprehensive income
Balance at December 31, 2016
Common Retained Comprehensive
Accumulated
Other
Stock
50,998
20
211
—
—
Earnings
9,635
—
—
(1,503)
4,808
9,280
—
60,509
—
—
12,940
730
285
—
—
—
—
—
(1,128)
4,001
—
$ 61,524 $ 15,813 $
(Loss)
Total
(739) 59,894
20
211
(1,503)
4,808
—
—
—
—
—
443
(296)
9,280
443
73,153
730
—
285
—
(1,128)
—
4,001
—
103
103
(193) $ 77,144
See accompanying notes to consolidated financial statements
48
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2016 and 2015
(Dollars in Thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by Operating activities:
$
4,001 $
4,808
For the Year Ended December 31,
2016
2015
Provision for loan losses
Amortization of securities premiums
Deferred tax benefit
Depreciation and amortization
Stock based compensation
Accretion (amortization) of net loan origination fees and costs
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:
(Increase) decrease in accrued interest receivable
(Increase) decrease in other assets
(Decrease) increase in accrued interest payable and 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 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
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
CASH AND CASH EQUIVALENTS, END OF YEAR
Supplemental information:
Cash paid during the year for:
Interest
Taxes
1,570
146
(483)
665
285
205
—
—
56
(62)
202
(199)
6,386
(47,000)
(7,343)
5,829
50,180
—
(706)
743
—
(16,970)
(3,662)
(18,929)
17,249
(1,521)
(1,128)
—
730
15,330
2,787
74,189
76,976 $
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
52,129
22,060
74,189
$
$
$
7,174 $
2,609 $
8,083
3,173
Supplemental disclosure of non-cash investing and financing transactions:
Loans transferred to other real estate owned
$
158 $
—
See accompanying notes to consolidated financial statements
49
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. Bancorp of New Jersey is
incorporated under the laws of the State of New Jersey to serve as a holding company for the Bank. All significant
inter-company accounts and transactions have been eliminated in consolidation.
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 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 nine branch offices in addition to its main office.
During the second quarter of 2009, the Bank formed BONJ-New York Corporation. The New York subsidiary
was 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.
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 and the determination of
other-than-temporary impairment on securities. 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 United States Generally Accepted Accounting
Standards (“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.
50
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, which approximate fair value.
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 “FRB”.
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 lossess 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 matruity or available for sale. At the time a security is purchased, a determination is
made as to the approproiate 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 consolidate 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 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 requirment 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 39 years for building costs associated with newly constructed buildings.
Maintenance and repairs are charged to expense in the year incurred.
51
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.
For all classes of loans receivable, the accrual of interest on loans 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 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 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. 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.
52
6. Quality of the Company’s loan review system, and the degree of oversight by the Company’s board of
directors.
7. Existence and effect of any concentrations of credit and changes in the level of such concentrations.
8. Effect of external factors, such as competition and legal and regulatory requirements.
Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best
judgment using relevant information available at the time of the evaluation. Adjustments to the factors are
supported through documentation of changes in conditions in a narrative accompanying the allowance for loan
loss calculation.
An unallocated component is maintained to cover uncertainties that could affect management’s estimate of
probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the
underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
A loan is considered impaired when, based on current information and events, it is probable that the Company
will be unable to collect the scheduled payments of principal or interest when due according to the contractual
terms of the loan agreement. Factors considered by management in determining impairment include payment
status, collateral value and the probability of collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment shortfalls generally are not classified as
impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case
basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the
length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall
in relation to the principal and interest owed. Impairment is measured on a loan by loan basis 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.
53
The Company’s methodology for the determination of the allowance for loan losses includes further segregation
of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources,
guarantors and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit
deficiencies arise, such as delinquent loan payments, for commercial and consumer loans. Credit quality risk
ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans classified as
special mention 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 $285 thousand and $211 thousand during 2016 and
2015, respectively. At December 31, 2016, the Company had $164 thousand of unrecognized compensation
expense related to stock options. At December 31, 2016, the Company had $213 thousand of unrecognized
compensation expense related to unvested restricted stock.
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 reoffered or resold 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.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. There are two components of
the income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for
54
the current period by applying the provisions of the enacted law to the taxable income or excess of deductions and
revenues. 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 consolidated income statement and which are reported directly as a separate component of
stockholders’ equity. The Company includes the required disclosures in the statements of comprehensive income.
Advertising
The Company expenses advertising costs as incurred. Advertising expenses totaled $308 thousand and $289
thousand for 2016 and 2015, respectively and are included in other operating expenses.
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 Company, (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 Company 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
(“FHLB”) of $1.9 million and Atlantic Community Bankers Bank, (“ACBB”) of $100 thousand respectively as
of December 31, 2016 and 2015. Federal law requires a member institution of the FHLB to hold stock according
to a predetermined formula. All restricted stock is recorded at cost as of December 31, 2016 and 2015.
Management believes no impairment charge is necessary related to the FHLB or ACBB restricted stock as of
December 31, 2016.
55
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, 2016 and 2015, these reserve balances amounted to $5.9 million and $3.4 million,
respectively, and are reflected in interest bearing deposits in banks.
NOTE 2. Securities
A summary of securities held to maturity and securities available for sale at December 31, 2016 and 2015 is as
follows (in thousands):
2016
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
Gross
Amortized Unrealized Unrealized
Gross
Cost
Gains
Losses
Fair
Value
$
7,343 $
7,343
— $
—
— $
—
7,343
7,343
6,400
55,506
61,906
—
6
6
(132)
(191)
(323)
6,268
55,321
61,589
$ 69,249 $
6 $
(323) $ 68,932
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
Gross
Amortized Unrealized Unrealized
Gains
Gross
Losses
Cost
Fair
Value
$
5,829 $
5,829
— $
—
— $
—
5,829
5,829
6,512
—
(159)
6,353
58,720
65,232
—
—
(323)
(482)
58,397
64,750
$ 71,061 $
— $
(482) $
70,579
Securities with an amortized cost of $37.4 million and a fair value of $37.2 million, were pledged to secure public
funds on deposit at December 31, 2016. In addition, securities with an amortized cost of $11.2 million and a fair
value of $11.1 million were pledged to secure borrowings with the FHLB as of December 31, 2016. Securities
with an amortized cost of $31.3 million and a fair value of $31.0 million, were pledged to secure public funds on
deposit at December 31, 2015. 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.
For the year ended December 31, 2016, the Company did not sell any securities from its available for sale
portfolio and therefore no loss or gain was recognized. 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 those securities. The Company did not sell any securities from its held to maturity
portfolio in 2016 or 2015.
56
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, 2016 and 2015 are as follows (in thousands):
2016
Securities Available for
Sale:
U.S. Treasury obligation
Government Sponsored
Enterprise obligations
Total securities available
Less than 12 Months
More than 12 Months
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
—
—
6,268
(132)
6,268
(132)
34,473
(158)
6,966
(33)
41,439
(191)
for sale
34,473
(158)
13,234
(165)
47,707
(323)
Total securities
$ 34,473 $
(158) $ 13,234 $
(165) $ 47,707 $
(323)
2015
Securities Available for Sale:
U.S. Treasury obligation
Government Sponsored
Enterprise obligations
Total securities available for
sale
Less than 12 Months More than 12 Months
Unrealized
Losses
Unrealized
Losses
Fair
Value
Fair
Value
Total
Fair
Value
Unrealized
Losses
—
—
6,353
(159)
6,353
(159)
15,707
15,707
(12) 42,690
(311) 58,397
(323)
(12) 49,043
(470) 64,750
(482)
Total securities
$ 15,707 $
(12) $ 49,043 $
(470) $ 64,750 $
(482)
Unrealized losses at December 31, 2016 consisted of losses on eleven investments in government sponsored
enterprise obligations, and two in U. S. Treasury securities, all of which were caused by interest rate increases.
Five of the investments with unrealized losses at December 31, 2016 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, 2016.
The following table sets forth as of December 31, 2016, the maturity distribution of the Company’s held to
maturity and available for sale portfolios (in thousands):
Securities Held to Maturity
Securities Available for Sale
One year or less
After one to five years
Total
$
Amortized
Cost
7,343 $
—
7,343 $
$
Fair
Value
Amortized
Cost
7,343 $ 22,036 $
—
39,870
7,343 $ 61,906 $
Fair
Value
22,010
39,579
61,589
57
NOTE 3. Loans and Allowance for Loan Losses
Loans at December 31, 2016 and 2015, are summarized as follows (in thousands):
Commercial real estate
Residential mortgages (1)
Commercial (1)
Home equity
Consumer
December 31, 2016 December 31, 2015
460,396
$
48,698
69,855
63,308
2,805
645,062
492,296 $
78,961
30,259
58,399
656
660,571 $
$
(1) Reflects the results of presentation reclassification of the company’s loan portfolio affecting commercial loans and residential
mortgages made effective during the year ended December 31, 2016.
The Company grants loans primarily to residents and businesses within its local New Jersey 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 believes its lending policies and procedures adequately manage the potential exposure to such risks and
an allowance for loan losses is provided for management’s best estimate of probable loan losses.
The 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, 2016 (in thousands):
Commercial Residential
Real Estate Mortgages Commercial Home Equity Consumer Unallocated
Total
Allowance for loan losses:
Beginning Balance
Charge-offs
Recoveries
Provision (credit)
$
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
$
$
$
5,566 $
—
35
324
5,925 $
572 $
(158)
—
140
554 $
1,066 $
(1,026)
2
767
809 $
573 $
(155)
—
7
425 $
39 $
(1)
—
(32)
6 $
204 $
—
—
364
568 $
8,020
(1,340)
37
1,570
8,287
— $
— $
— $
— $
— $
— $
—
5,925 $
554 $
809 $
425 $
6 $
568 $
8,287
Loan receivables:
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
$ 492,296 $ 78,961 $ 30,259 $
58,399 $
656 $
— $ 660,571
$ 10,485 $
9,731 $
3,257 $
4,543 $
— $
— $ 28,016
$ 481,811 $ 69,230 $ 27,002 $
53,856 $
656 $
— $ 632,555
58
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 Residential
Real Estate Mortgages Commercial Home Equity Consumer Unallocated
Total
Allowance for loan losses:
Beginning Balance
Charge-offs
Recoveries
Provision (credit)
$
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 $
24 $
242 $
—
73
573 $
—
15
39 $
—
(38)
204 $
7,192
(324)
228
924
8,020
— $
267 $
— $
80 $
— $
— $
347
5,566 $
305 $
1,066 $
493 $
39 $
204 $
7,673
Loan receivables:
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
$ 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 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, 2016 and 2015 (in thousands):
2016
Commercial real estate
Residential mortgages
Commercial
Home equity
Consumer
2015
Commercial real estate
Residential mortgages
Commercial
Home equity
Consumer
30-59 Days 60-89 Days Greater than Total Past
Past Due Past Due
$ 2,744 $
90 Days
Due
Total Loans Nonaccrual
Receivables
Current
Loans
5,992
— $
3,907
—
3,257
—
5,597
—
—
—
— $ 18,753 $ 23,087 $ 637,484 $ 660,571 $ 18,753
5,992 $ 8,736 $ 483,560 $ 492,296 $
3,907
3,257
5,597
—
78,961
30,259
58,399
656
75,054
27,002
51,212
656
3,907
3,257
7,187
—
—
—
1,590
—
$ 4,334 $
Due
90 Days
— $
30-59 Days 60-89 Days Greater than Total Past
Past Due Past Due
402 $
$
428
—
—
—
830 $
Current
842
842 $ 1,244 $ 459,152 $ 460,396 $
3,992
44,278
—
69,855
2,522
60,311
—
2,805
7,356 $ 8,661 $ 636,401 $ 645,062 $ 7,356
—
—
475
—
475 $
48,698
69,855
63,308
2,805
4,420
—
2,997
—
Total Loans Nonaccrual
Receivables
3,992
—
2,522
—
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, 2016 and 2015 (in thousands):
2016
Pass
Special Mention
Substandard
Doubtful
Commercial Residential
Mortgages
Real Estate
Commercial
Home Equity Consumer
Total
$
$
481,211 $
600
10,485
—
492,296 $
67,204 $
2,026
9,731
—
78,961 $
26,681 $
321
3,257
—
30,259 $
53,856 $
—
4,543
—
58,399 $
656 $ 629,608
2,947
28,016
—
656 $ 660,571
—
—
—
59
2015
Pass
Special Mention
Substandard
Doubtful
Commercial Residential
Mortgages
Real Estate
$ 450,193 $
7,644
2,559
—
$ 460,396 $
Commercial
Home Equity Consumer
Total
48,698 $
—
—
—
48,698 $
62,367 $ 57,910 $
3,919
3,569
—
4,400
998
—
69,855 $ 63,308 $
2,805 $ 621,973
15,963
7,126
—
2,805 $ 645,062
—
—
—
As of December 31, 2016 and 2015 the Company had no accruing loans greater than 90 days delinquent.
The following tables provide information about the Company’s impaired loans as of and for the years ended
December 31, 2016 and 2015 (in thousands):
2016
Impaired loans with no specific reserves:
Commercial real estate
Residential mortgages
Commercial
Home equity
Unpaid
Recorded
Investment
Principal
Balance
Related
Allowance
$
10,485 $ 10,509 $
9,731
3,257
4,543
10,804
3,257
4,675
—
—
—
—
—
—
Total impaired loans with no specific reserves
Total impaired loans
$
$
28,016 $ 29,245 $
28,016 $ 29,245 $
2015
Impaired loans with specific reserves:
Residential mortgages
Home equity
Total impaired loans with specific reserves
Impaired loans with no specific reserves:
Commercial real estate
Residential mortgages
Home equity
Total impaired loans with no specific reserves
Total impaired loans
Unpaid
Recorded
Investment
Principal
Balance
Related
Allowance
$
$
3,568 $
278
3,846 $
4,055 $
175
4,230 $
267
80
347
$
$
$
867 $
842 $
1,045
956
2,723
2,348
4,146 $
4,635 $
7,992 $ 8,865 $
—
—
—
—
347
60
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, 2016
Year Ended
December 31, 2015
Average Interest Average Interest
Income
Recorded
Investment Received Investment Received
Income Recorded
$
— $
—
—
—
—
— $
— $
—
—
—
—
3,653
—
208
3,861
15,031
4,429
3,256
4,834
—
27,550
$ 27,550 $
1,024
807
3
2,379
—
4,213
—
—
—
—
—
—
— $ 8,074 $
—
7
—
5
12
—
5
—
—
—
5
17
If interest had been accrued on these non-accrual loans, the interest income recognized would have been
approximately $354 thousand and $267 thousand for the years ended December 31, 2016 and 2015
respectively.
The following table presents TDR loans (all of which are classified as impaired loans) as of December 31, 2016
and 2015 (in thousands):
2016
Commercial real estate
Residential mortgages
Home equity
2015
Commercial real estate
Residential mortgages
Home equity
Accrual Number of Nonaccrual Number of
Status
$ —
521
103
$ 624
Loans
Status
Loans
Total
338
— $
3,477
2
2
3,441
4 $ 7,256
1 $ 338
3,998
5
7
3,544
13 $ 7,880
Accrual Number of Nonaccrual Number of
Status
$ —
532
104
$ 636
Loans
Status
Loans
Total
367
— $
3,468
2
2
859
4 $ 4,694
1 $ 367
4,000
4
1
963
6 $ 5,330
The following table summarizes information in regards to troubled debt restructurings that occurred during the
year ended December 31, 2016 (in thousands):
Post-
2016
Residential mortgages
Home equity
Number of
Loans
Outstanding
Recorded
Investments
Pre-Modification Modification
Outstanding
Recorded
Investments
304
2,631
2,935
2,730
3,273 $
543 $
2 $
6
8 $
There were no new troubled debt restructurings that occurred during the year end December 31, 2015.
61
The following table displays the nature of modifications during the year ended December 31, 2016 (in thousands):
2016
Pre-modification outstanding recorded
investment:
Residential mortgages
Home equity
Rate
Term
Interest Only Payment
Combination
Total
Modification Modification Modification Modification Modification Modifications
$
$
— $
—
— $
543 $
2,730
3,273 $
— $
—
— $
— $
—
— $
— $
—
— $
543
2,730
3,273
During the years ended December 31, 2016 and 2015, the Company had no loans meeting the definition of a TDR
which were placed on default status.
The Company may obtain physical possession of real estate collateralizing loans via foreclosure or an in-
substance repossession. As of December 31, 2016 and 2015, the Company has no foreclosed residential real
estate properties. In addition, as of December 31, 2016 and 2015, we had residential mortgage loans and home
equity loans with a carrying value of $1.7 and $2.3 million respectively, collateralized by residential real estate
property for which formal foreclosure proceedings were in process.
NOTE 4. Premises and Equipment
At December 31, 2016 and 2015, premises and equipment consists of the following (in thousands):
Land
Buildings
Furniture and fixtures
Equipment
Less accumulated depreciation and amortization
Total premises and equipment, net
2016
2015
$ 4,828 $ 4,828
6,906
855
2,003
14,592
4,092
$ 13,497 $ 10,500
10,038
1,131
2,223
18,220
4,723
Depreciation expense amounted to $665 thousand and $615 thousand for the years ended December 31, 2016 and
2015, respectively.
Included in buildings as of December 31, 2016 is construction in progress for the Company’s new headquarters in
the amount of $3.9 million. Total future commitments for the completion of the building are estimated to be $600
thousand. No depreciation was recorded on the building under construction for the year ended December 31,
2016.
NOTE 5. Deposits
At December 31, 2016 and 2015, 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
2016
2015
$ 59,889 $ 80,882
153,638
53,532
26,831
25,585
9,896
$ 292,742 $ 350,364
92,044
51,818
31,135
9,976
47,880
62
At December 31, 2016 and 2015, the Company’s brokered deposits are as follows:
CDARS*
Public Funds Reciprocal
Non-Public Funds Reciprocal
FTN**
Non-Reciprocal Funds
*Certificate of Deposit Account Registry Service
**First Tennessee National Bank
NOTE 6. Borrowed Funds
2016
2015
$ 7,311 $ 6,050
17,125
14,898
4,991
27,200
16,668
39,843
Borrowings may consist of fixed rate advances from the Federal Home Loan Bank of New York (“FHLBNY”) as
well as short term borrowings through lines of credit with other financial institutions. Information concerning
long-term borrowings at December 31, 2016 and 2015 is as follows (in thousands):
2016
Original
Fixed Rate Medium Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Amount
5,000
2,630
4,070
3,916
3,469
5,923
$ 25,008
Rate
Term (years) Maturity
April 2017
1
June 2019
5
5
July 2019
5 August 2019
7 August 2021
5 October 2019
0.98 %
1.50 %
1.51 %
1.51 %
2.02 %
1.48 %
1.83 %
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
2015
Original
Amount Rate Term (years)
Maturity
June 2019
5
1.50 %
$ 3,621
5
1.51 %
5,555
July 2019
5 August 2019
1.51 %
5,299
7 August 2021
2.02 %
4,158
1.48 %
5 October 2019
7,896
1.58 %
$ 26,529
The Company has a $5.0 million line of credit with the Atlantic Community Bankers Bank. In addition, the Bank
has a $16.0 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. Additionally, the Bank is a member of the FHLB. The FHLB relationship provides additional
borrowing capacity. There were no outstanding borrowings on any of the lines of credit at December 31, 2016
and December 31, 2015.
63
NOTE 7. Income Taxes
Income tax expense from operations for the years ended December 31, 2016 and 2015 is as follows (in
thousands):
Current tax expense:
Federal
State
Deferred income tax benefit:
Federal
State
2016
2015
$ 2,455 $
162
2,913
164
(383)
(100)
$ 2,134 $
(425)
(117)
2,535
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, 2016 and 2015 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
2016
2015
$
152 $
3,541
299
451
124
605
5,172
(83)
(120)
(424)
(627)
187
3,392
340
429
186
356
4,890
(100)
(165)
(501)
(766)
$ 4,545 $
4,124
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 2016 and 2015, the Company sustained continued profitability, continued to pay
taxes, and recognized deferred tax benefits. Based upon these and other factors, management believes it is more
likely than not that the Company will realize the benefits of these remaining deferred tax assets. The net deferred
tax asset is included in other assets on the consolidated balance sheet.
Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 34% to
income taxes as a result of the following (in thousands):
Computed “expected” tax expense
Increase (decrease) in taxes resulting from:
State taxes, net of federal income tax expense
Tax exempt income
Stock-based compensation
Meals and entertainment
Other
64
2016
2015
$ 2,086 $
2,497
41
(13)
21
10
(11)
$ 2,134 $
31
(13)
8
10
2
2,535
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.
NOTE 8. Leases
The Company leases 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, for the
years ended December 31, 2016 and December 31, 2015, respectively.
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, 2016 (in thousands):
Year ending December 31,
2017
2018
2019
2020
2021
Thereafter
NOTE 9. Related-party Transactions
$ 1,289
1,083
929
705
470
1,134
$ 5,610
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. Five
of such loans were nonaccrual at December 31, 2016 and none of them were nonaccrual, past due, or restructured
at December 31, 2015. The borrower of these five loans is no longer a related party, effective January 13, 2017.
Related party deposit balances were $55.5 million and $53.6 million at December 31, 2016 and 2015,
respectively.
The following table represents a summary of related-party loan activity during the years ended December 31,
2016 and 2015 (in thousands):
Outstanding loans at beginning of the year
Advances
Repayments
Outstanding loans at end of the year
2016
2015
$ 26,791 $ 36,318
6,606
(16,133)
$ 22,994 $ 26,791
4,098
(7,895)
Two of our directors have acted as the Company’s counsel on several loan closings. During 2016 and 2015 the
total cost of such work has been reimbursed by the respective loan customers and totals $158 thousand and $259
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 $7 thousand and $16
thousand for the years ended December 31, 2016 and 2015, 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 $220 thousand and $230 thousand for the years
ended December 31, 2016 and 2015, 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 $443 thousand and $435 thousand for the years ended December 31, 2016 and 2015,
respectively.
65
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, 2016 and 2015
(in thousands except per share data):
(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
For the year ended
December 31,
2016
4,001 $
6,274
0.64 $
2015
4,808
6,097
0.79
4,001 $
6,274
—
6,274
0.64 $
4,808
6,097
16
6,113
0.79
$
$
$
$
Non-qualified options to purchase 310,000 shares of common stock at a weighted average price of $11.50; and
incentive stock options to purchase 30,000 shares of common stock at a weighted average price of $11.50; non-
qualified stock options to purchase 10,000 shares of common stock at a weighted average price of $11.23; and
28,000 unvested shares of restricted stock were included in the computation of diluted earnings per share for the
year ended December 31, 2016. 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.
NOTE 11. Stockholders’ Equity and Dividend Restrictions
In 2016, the Company declared three quarterly cash dividends in the amount of $0.06 per share. These cash
dividends were paid to shareholders on March 31, 2016, June 30, 2016 and September 30, 2016.
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.
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 for 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.
66
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, 2016 stock
options to purchase 216,960 shares, net of forfeitures have been issued to employees of the Bank under the 2006
Stock Option Plan.
During the year ended December 31, 2016, the Company granted 63,960 Non-Qualified Stock Options (“NQO”)
to employees of the Company. The fair value of the 63,960 NQOs granted was $2.76 per NQO on the date of
grant. The fair value of the NQOs was determined using the Black-Scholes option pricing model. The following
assumptions were used in determining the fair value of the NQOs granted: expected dividend yield of 2.149%,
risk free interest rate of 1.57%, expected volatility of 26.54% and expected lives of 10 years. One third of the
NQO granted, or 21,320 NQOs vest each on February 1, 2017, February 1, 2018 and February 1, 2019.
A summary of stock option activity under the 2006 Stock Option Plan during the years ended December 31, 2015
and 2016 are presented below:
Weighted
Average
Remaining
Number of Exercise Price Intrinsic Value Contractual
Weighted
Average
Aggregate
Outstanding at December 31, 2014
Exercised
Shares
161,900 $
(2,200)
per Share
(1)
Term
10.21
9.09
Outstanding at December 31, 2015
159,700 $
10.22 $
172,788
1.34
Exercisable at December 31, 2015
159,700 $
10.22 $
172,788
1.34
Weighted
Average
Remaining
Number of Exercise Price Intrinsic Value Contractual
Weighted
Average
Aggregate
Outstanding at December 31, 2015
Granted
Forfeited
Exercised
Shares
159,700 $
63,960
(56,900)
(80,300)
per Share
(1)
Term
10.22
11.17
11.27
9.09
Outstanding at December 31, 2016
86,460 $
11.28 $
191,552
6.56
Exercisable at December 31, 2016
30,000 $
11.50 $
60,000
0.92
(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, 2016. 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 56,460 unvested options at December 31, 2016 and no unvested
options at December 31, 2015. At December 31, 2016 there was $125 thousand of unrecognized compensation
expense related to unvested options. For the three months and year ended December 31, 2016, $29 thousand and
$48 thousand, respectively was recorded as expense for options that has been issued through the 2006 Plan.
67
During the year ended December 31, 2016 options to purchase 80,300 shares of common stock at a price of $9.09
per share were exercised for a total price of $730 thousand.
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, 2016, non-qualified options to purchase
385,332 shares, net of forfeitures, of the Company’s stock have been granted to non-employee directors of the
Company.
A summary of stock option activity under the 2007 Non-Qualified Stock Option Plan for Directors during the
years ended December 31, 2015 and 2016 are presented below:
Weighted
Average
Aggregate
Weighted
Average
Remaining
Number of Exercise Price Intrinsic Value Contractual Life
Outstanding at December 31, 2014
Outstanding at December 31, 2015
Shares
331,334 $
331,334 $
11.50
11.50 $
—
per Share
(1)
(Years)
Exercisable at December 31, 2015
331,334 $
11.50 $
—
Weighted
Average
Aggregate
Weighted
Average
Remaining
Number of Exercise Price Intrinsic Value Contractual Life
per Share
(1)
(Years)
Outstanding at December 31, 2015
Forfeited
Outstanding at December 31, 2016
Shares
331,334 $
(21,334)
310,000 $
11.50
11.50
11.50 $
620,000
Exercisable at December 31, 2016
310,000 $
11.50 $
620,000
1.81
1.81
0.81
0.81
(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, 2016. 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, 2016 and 2015.
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. At December 31, 2016, there were 109,468 shares and stock
options, net of forfeitures, issued to employees of the Bank under the 2011 Plan.
68
The following is a summary of the non-vested restricted stock awards granted under the 2011 Plan:
Non-vested restricted stock, beginning of year
Vested
Non-vested restricted stock, end of year
Non-vested restricted stock, beginning of year
Forfeited
Vested
Non-vested restricted stock, end of year
2015
Weighted
Average
Number
Grant Date
of Shares Fair Value
12.99
64,500
(16,250)
12.97
48,250 $ 12.99
2016
Weighted
Average
Number
Grant Date
of Shares Fair Value
12.99
48,250
12.90
(4,250)
(16,000)
13.00
28,000 $ 13.00
Approximately $227 thousand remains to be expensed over the next 15 months. For the years ended December
31, 2016, and 2015, $188 thousand and $211 thousand, respectively, was recorded as compensation expense.
During the year ended December 31, 2016, the Company granted 30,000 NQOs to an executive of the Company.
The fair value of the 30,000 NQOs granted was $2.92 per NQO on the date of grant. The fair value of the NQOs
was determined using the Black-Scholes option pricing model. The following assumptions were used in
determining the fair value of the NQOs granted: expected dividend yield of 2.137%, risk free interest rate of
1.87%, expected volatility of 27.0% and expected lives of 10 years. One third of the NQO granted, or 10,000
NQOs vested immediately, with the remaining 20,000 NQOs vesting over a two year period. No NQOs were
exercised or forfeited during the first nine months of 2016 under the 2011 Plan.
Weighted
Average
Remaining
Number of Exercise Price Intrinsic Value Contractual
Weighted
Average
Aggregate
Outstanding at December 31, 2015
Granted
Outstanding at December 31, 2016
— $
30,000
30,000 $
—
11.23
11.23 $
68,100
9.31
Shares
per Share
(1)
Term
Exercisable at December 31, 2016
10,000 $
11.23 $
22,700
9.31
(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, 2016. This
amount changes based on the changes in the market value in the Company’s common stock.
Under the 2011 Plan, there were 20,000 unvested options at December 31, 2016, with $39 thousand of
unrecognized compensation expense ralted to the unvested options. For the three months and year ended
December 31, 2016, $7 thousand and $49 thousand, respectively was recorded as expense for options that has
been issued through the 2011 Plan.
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
69
employee contributions at the board’s discretion. The Company expensed matching contributions of
approximately $80 thousand and $100 thousand during 2016 and 2015, respectively.
NOTE 13. Regulatory Capital Requirements
The Bank is 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 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 to meet a minimum
Tier 1 leverage ratio, Common equity tier 1 risk-based, capital ratio Tier 1 risk-based 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 risk-weighted 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 Dodd-Frank 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 on January 1, 2015. As of December 31, 2016
and 2015, management believes that the Company and the Bank meet all capital adequacy requirements to which
they are subject.
As of December 31, 2016, 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 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's category.
The following is a summary of the Bank’s actual capital amounts and ratios as of December 31, 2016 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, 2015 reflect the requirements in effect at
that time, as the Basel III requirements became effective on January 1, 2015:
2016
Leverage (Tier 1) Capital Ratio
Risk-Based Capital:
Common Equity Tier 1 Capital
Tier 1 Capital Ratio
Total Capital Ratio
2015
Leverage (Tier 1) Capital Ratio
Risk-based capital:
Common Equity Tier 1 Capital
Tier 1 Capital Ration
Total Capital Ratio
Bank actual
Adequacy
Minimum Capital
For Classification
As Well Capitalized
FDIC requirements
Amount Ratio Amount Ratio Amount Ratio
$ 77,337
9.02 % $ 33,293 4.00 % $ 41,617
5.00 %
$ 77,337
$ 77,337
$ 85,993
10.98 % $ 31,685
10.98 % $ 42,247
12.21 % $ 56,329
4.50 % $ 45,767
6.00 % $ 56,329
8.00 % $ 70,411
6.50 %
8.00 %
10.00 %
$ 73,449
9.02 % $ 32,565 4.00 % $ 40,707
5.00 %
6.50 %
10.95 % $ 30,186 4.50 % $ 43,602
$ 73,449
$ 73,449 10.95 % $ 40,248 6.00 % $ 53,664
8.00 %
$ 81,790 12.19 % $ 53,664 8.00 % $ 67,080 10.00 %
70
Since the Company has less than $1 billion in assets, it is not subject to minimum consolidated capital ratio
requirements.
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 $95.3 million and $102.3 million at
December 31, 2016 and 2015.
Most of the Company’s lending activity is with customers located in Bergen County, New Jersey. At December
31, 2016 and 2015, the Company had outstanding letters of credit to customers totaling $3.6 million and $3.7
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, 2016 and 2015, such amounts were deemed not material.
NOTE 15. Financial Information of Parent Company
The following information represents Bancorp of New Jersey, Inc. only balance sheets as of December 31, 2016
and 2015, respectively, the statements of income for the years ended December 31, 2016 and December 31, 2015,
and the statements of cash flows for the years December 31, 2016 and December 31, 2015 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,
2016
2015
$ 77,144 $ 73,153
$ 77,144 $ 73,153
$ 77,144 $ 73,153
$ 77,144 $ 73,153
71
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
2016
2015
$ 4,001 $ 4,808
4,808
4,001
103
443
$ 4,104 $ 5,251
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
$ 4,001 $ 4,808
2016
2015
activities:
Equity in undistributed earnings of the subsidiary bank
Net cash provided by operating activities:
(4,001)
—
(4,808)
—
Cash flows from investing activities:
Cash dividends received from subsidiary bank
Net cash provided by investing activities
Cash flows from financing activities:
Cash dividends paid
Net cash provided by financing activities
Net change in cash for the period
Net cash at beginning of year
Net cash at end of year
1,128
1,128
1,498
1,498
(1,128)
(1,128)
(1,498)
(1,498)
—
—
— $
—
—
—
$
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:
• 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.
72
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, 2016 and December 31, 2015, respectively, are as follows (in thousands):
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
(Level 1)
Quoted Prices in
Active Markets
for Identical
Assets
December 31,
2016
(Level 2)
(Level 3)
Significant Other
Observable
Inputs
Significant
Unobservable Inputs
$
$
6,268 $
55,321
61,589 $
— $
—
— $
6,268 $
55,321
61,589 $
—
—
—
(Level 1)
Quoted Prices in
Active Markets
for Identical
Assets
December 31,
2015
(Level 2)
(Level 3)
Significant Other
Observable
Inputs
Significant
Unobservable Inputs
$
$
6,353 $
58,397
64,750 $
— $
—
— $
6,353 $
58,397
64,750 $
—
—
—
For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair
value hierarchy used at December 31, 2016 and December 31, 2015, respectively, is as follows (in thousands):
Description
Impaired loans
December 31,
2016
(Level 1)
Quoted Prices in
Active Markets for
Identical Assets
$
— $
(Level 2)
(Level 3)
Significant Other
Observable Inputs
Significant
Unobservable Inputs
—
— $
Other real estate owned $
614 $
Description
Impaired loans
December 31,
2015
(Level 1)
Quoted Prices in
Active Markets for
Identical Assets
$
258 $
— $
— $
614
(Level 2)
(Level 3)
Significant Other
Observable Inputs
Significant
Unobservable Inputs
258
— $
— $
— $
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring
basis and for which the Company has utilized Level 3 inputs to determine fair value (in thousands):
December 31, 2016
Fair Value
Estimate
Other real estate owned
$
614
December 31, 2015
Fair Value
Estimate
Impaired loans
$
258
Valuation
Techniques
Appraisal of
Collateral (1)
Valuation
Techniques
Appraisal of
Collateral (1)
Unobservable
Input
Appraisal
Adjustments (2)
Liquidation
Expenses (2)
Unobservable
Input
Appraisal
Adjustments (2)
Liquidation
Expenses (2)
Range
(Weighted Average)
11.5% - 48.40% (21.8)%
8.9% - 10.3% (9.3)%
Range
(Weighted Average)
0% -1.0% (-0.5)%
0% -48.1% (-33.8)%
(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally
include various Level 3 inputs which are not identifiable.
73
(2) Appraisals may be adjusted for qualitative factors such as economic conditions and estimated liquidation expenses.
The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent
of the appraisal.
Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there
are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value
estimates herein are not necessarily indicative of the amounts the Company could have realized in sales transaction on
the dates indicated. The estimated fair value amounts have been measured as of their respective period end and have not
been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such,
the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than
the amounts reported at each period end.
The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair
value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of
valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s
disclosures and those of other companies may not be meaningful.
Fair value estimates for the Company’s financial instruments are as follows at December 31, 2016 and 2015 (in
thousands):
December 31, 2016
Carrying amount Estimated Fair Value
(Level 1)
(Level 2)
Quoted Prices in
Active Markets for Significant Other
Identical Assets
Observable Inputs
(Level 3)
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
Financial liabilities:
Deposits
Borrowed funds
Accrued interest payable
76,976 $
1,000
61,589
7,343
76,976 $
1,000
61,589
7,343
76,976 $
—
—
—
— $
1,000
61,589
7,343
—
—
—
—
1,983
651,698
2,366
717,988
25,008
516
1,983
659,087
2,366
722,711
24,933
516
—
—
—
1,983
—
2,366
—
659,084
—
425,246
—
—
297,465
24,933
516
—
—
—
December 31, 2015
Carrying amount Estimated Fair Value
(Level 3)
(Level 1)
Significant
Quoted Prices in
Active Markets for Significant Other Unobservable
(Level 2)
Identical Assets
Observable Inputs
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
Financial liabilities:
Deposits
Borrowed funds
Accrued interest payable
74,189 $
1,000
64,750
5,829
74,189 $
1,000
64,750
5,829
74,189 $
—
—
—
— $
1,000
64,750
5,829
—
—
—
—
2,020
636,661
2,305
700,739
26,529
716
2,020
639,525
2,305
702,593
26,517
716
—
—
—
2,020
—
2,305
—
639,525
—
350,375
—
—
352,218
26,517
716
—
—
—
74
The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at
December 31, 2016 and 2015.
Cash and Cash Equivalents and Interest Bearing Time Deposits
The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets’ fair values.
Securities
The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are
determined by obtaining market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level
2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on
quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark
quoted prices. For certain securities which are not traded in active markets or are subject to transfer restrictions,
valuations may be adjusted to reflect illiquidity 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 noninterest checking, passbook savings and money
market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying
amounts). Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that
applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly
maturities of time deposits.
75
Borrowed Funds
The fair value of borrowed funds is estimated using quoted market prices, if available, or by discounting future cash
flows using current interest rates for similar financial instruments.
Limitation
The preceding fair value estimates were made at December 31, 2016 and 2015 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, 2016 and 2015, no attempt was made to estimate the value of anticipated future business. Furthermore, certain tax
implications related to the realization of the unrealized gains and losses could have a substantial impact on these fair
value estimates and have not been incorporated into the estimates.
NOTE 17. Accumulated Other Comprehensive Income (Loss)
There were no reclassifications out of accumulated comprehensive income for the year ended December 31, 2016.
Reclassifications out of accumulated other comprehensive loss for the year ended December 31, 2015 are as follows (in
thousands):
Details About Accumulated Other
Comprehensive Income (Loss) Components
Year ended December 31, 2015
Available for Sale Securities
Realized gains on sale of securities
Total reclassifications
Amount Reclassified from
Accumulated Other
Comprehensive Income Affected Line Item in the Statements
(Loss)
of Income (Loss)
$
$
(15) Gains (losses) on sale of securities
6 Income tax expense
(9) Net of tax
NOTE 18. Recent Accounting Pronouncements
This section provides a summary description of recent accounting standards that have significant implications (elected or
required) within the consolidated financial statements, or that management expects may have a significant impact on
financial statements issued in the near future.
ASU 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
76
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. However, we do believe the new standard will result in new disclosure requirements. We are currently in the
process of reviewing contracts to assess the impact of the new guidance on our service offerings that are in the scope of
the guidance, included in non-interest income such as insurance commission fees, service charges, payments processing
fees, and brokerage services fees. The Company is continuing to evaluate the effect of the new guidance on revenue
sources other than financial instruments on our financial position and consolidated 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 the Company 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.
ASU 2016-13, Financial Instruments – Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 requires entities to
report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current
“incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on
historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced
disclosures to help investors and other financial statement users better understand significant estimates and judgments
used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These
disclosures include qualitative and quantitative requirements that provide additional information about the amounts
recorded in the financial statements. For public business entities that are U.S. Securities and Exchange Commission
filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within
those fiscal years. For all other public business entities, the amendments are effective for fiscal years beginning after
December 15, 2020, including interim periods within those fiscal years. For all other entities, the amendments in this
Update are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years
beginning after December 15, 2021. The Company is currently evaluating the impact the adoption of ASU 2016-13 will
have on its consolidated financial statements and results of operations.
77
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On June 28, 2016, the audit committee of the board of directors of the Company, through a formal proposal process,
engaged Baker Tilly Virchow Krause, LLP (“Baker Tilly”) to serve as its independent registered public accounting firm
for the year ended December 31, 2016. On June 30, 2016, the audit committee of the Company notified BDO USA, LLP
(“BDO”) of its dismissal as the Company’s independent registered public accounting firm.
Prior to engaging Baker Tilly, the Company did not consult with Baker Tilly regarding the application of accounting
principles to a specific completed or contemplated transaction or regarding the type of audit opinions that might be
rendered by Baker Tilly on the Company’s financial statements, and Baker Tilly did not provide any written or oral
advice that was an important factor considered by the Company in reaching a decision as to any such accounting,
auditing or financial reporting issue.
The report of independent registered public accounting firm of BDO regarding the Company’s financial statements for
the fiscal years ended December 31, 2015 and 2014 did not contain any adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting principles.
During the years ended December 31, 2015 and 2014, and during the interim period from the end of the most recently
completed fiscal year through June 28, 2016, the date of termination, there were no disagreements with BDO on any
matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which
disagreements, if not resolved to the satisfaction of BDO would have caused it to make reference to such disagreement
in its reports.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form10-K, the Company’s management including the
Chief Executive Officer and President (and, in such capacity, the Company’s principal executive officer) and the
Company’s Senior Vice President and Chief Financial Officer (the Company’s principal financial and accounting
officer) evaluated the Company’s disclosure controls and procedures related to the recording, processing,
summarization, and reporting of information in the Company’s periodic reports that the Company files with the
Securities and Exchange Commission.
Based on their evaluation as of December 31, 2016, the Company’s principal executive and principal financial officer
have concluded that the Company’s disclosure controls and procedures are effective to ensure that the information
required to be disclosed by the Company in the reports that the Company files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for
the Company.
Our internal control over financial reporting is a process designed by, or under the supervision of, our principal
executive officer and principal financial officer, and effected by our board of directors, management and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. It includes policies and procedures
that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorizations of our management and board of directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
our assets that could have a material effect on the financial statements.
78
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the
effectiveness of our internal control over financial reporting as of December 31, 2016, using the “Internal Control -
Integrated Framework” (2013) set forth by the Committee of Sponsoring Organizations (“COSO”). Based on such
evaluation, management determined that, as of December 31, 2016, our internal control over financial reporting was
effective.
Changes in Internal Controls over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the last fiscal
quarter to which this Annual Report on Form 10-K relates that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial reporting.
Limitations on Effectiveness of Controls
All internal control systems, no matter how well designed and operated, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance that the objectives of the internal control
system will be met. The design of any control system is based, in part, upon the benefits of the control system relative to
its costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision making can be faulty, and that controls can be circumvented
by the individual acts of some persons, by collusion of two or more people or by management override of controls. In
addition, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with
the policies or procedures may deteriorate. In addition, the design of any control system is based in part upon certain
assumptions about the likelihood of future events. Because of inherent limitation in a cost effective control system,
misstatements due to error or fraud may occur and not be detected.
ITEM 9B. OTHER INFORMATION
Not applicable.
79
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Company responds to this Item by incorporating by reference the material responsive to this Item in the Company’s
definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its 2016 Annual
Meeting of Shareholders to be held May 25, 2017.
ITEM 11. EXECUTIVE COMPENSATION
The Company responds to this Item by incorporating by reference the material responsive to this Item in the Company’s
definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its 2016 Annual
Meeting of Shareholders to be held May 25, 2017.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The Company responds to this Item by incorporating by reference the material responsive to this Item in the Company’s
definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its 2016 Annual
Meeting of Shareholders to be held May 25, 2017.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The Company responds to this Item by incorporating by reference the material responsive to this Item in the Company’s
definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its 2016 Annual
Meeting of Shareholders to be held May 25, 2017.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company responds to this Item by incorporating by reference the material responsive to this Item in the Company’s
definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its 2016 Annual
Meeting of Shareholders to be held May 25, 2017.
80
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a) The following portions of the Company’s consolidated financial statements are set forth in Item 8 of
this Annual Report:
(i) Consolidated Balance Sheets as of December 31, 2016 and 2015.
(ii) Consolidated Statements of Income for the years ended December 31, 2016 and 2015.
(iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2016
and 2015.
(iv) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2016 and
2015.
(v) Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015.
(vi) Notes to Consolidated Financial Statement
(vii) Report of Independent Registered Public Accounting Firm
(b) Financial Statement Schedules
All financial statement schedules are omitted as the information, if applicable, is presented in the
consolidated financial statement or notes thereto.
(c) Exhibits
The exhibits filed or incorporated by reference as a part of this report are listed in the Exhibit Index
which appears at page 84.
81
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
BANCORP OF NEW JERSEY, INC.
By: /s/ Nancy E. Graves
Nancy E. Graves
Chief Executive Officer and President
(Principal Executive Officer)
BANCORP OF NEW JERSEY, INC.
By: /s/ Matthew Levinson
Matthew Levinson
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: March 30, 2017
82
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ Gerald A. Calabrese, Jr.
Gerald A. Calabrese, Jr.
Chairman
March 30, 2017
/s/ Albert L. Buzzetti
Albert L. Buzzetti
/s/ Nancy E. Graves
Nancy E. Graves
/s/ Michael Bello
Michael Bello
/s/ Jay Blau
Jay Blau
/s/ Stephen Crevani
Stephen Crevani
/s/ Anthony M. Lo Conte
Anthony M. Lo Conte
/s/ Rosario Luppino
Rosario Luppino
/s/ Joel P. Paritz
Joel P. Paritz
/s/ Christopher M. Shaari
Christopher M. Shaari
/s/ Anthony Siniscalchi
Anthony Siniscalchi
/s/ Mark Sokolich
Mark Sokolich
Vice Chairman
March 30, 2017
Director, President & Chief Executive Officer March 30, 2017
March 30, 2017
March 30, 2017
March 30, 2017
March 30, 2017
March 30, 2017
March 30, 2017
March 30, 2017
March 30, 2017
March 30, 2017
Director
Director
Director
Director
Director
Director
Director
Director
Director
83
Exhibit
No.
Description
(A) Certificate of Incorporation
(B) Amended and Restated Bylaws
(A) Specimen form of stock certificate
(A) 2006 Stock Option Plan*
(A) Form of Stock Option Award Agreement*
(F) 2007 Non-Qualified Stock Option Plan For Directors*
(G) Form of Stock Option Award Agreement*
(H) 2011 Equity Incentive Plan*
(I) Form of Restricted Stock Award Agreement*
(J) Employment Agreement dated April 5, 2016, between Bank of New Jersey and Nancy E. Graves
(F) Change of Control Agreement dated April 5, 2016, between Bank of New Jersey and Nancy E. Graves
(K) Bancorp of New Jersey, Inc. Severance Policy
3.1
3.2
4.1
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
21
23.1
23.2
31.1
31.2
32
101
101.INS
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Labels Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
Subsidiaries of the Registrant
Consent of BDO USA, LLP
Consent of Baker Tilly Virchow Krause, LLP
Rule 13a-14(a) Certification of the Principal Executive Officer
Rule 13a-14(a) Certification of the Principal Financial Officer
Section 1350 Certifications
Interactive Data Files
XBRL Instance Document
* Management contract or compensatory plan, contract or arrangement.
(A)
Incorporated by reference to the exhibit to registrant’s Registration Statement on Form S-4 (Registration No. 333-
141124), filed with the Securities and Exchange Commission on March 7, 2007, as amended by Amendment
No. 1 on Form S-4/A, filed on April 27, 2007, and Amendment No. 2 on Form S-4/A, filed on May 15, 2007.
Incorporated by reference to exhibit 3.1 to registrant’s Current Report on Form 8-K, filed with the Securities and
Exchange Commission on March 30, 2011.
Incorporated by reference to exhibit 10.1 attached to registrant’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on June 6, 2014.
Incorporated by reference to the exhibit to registrant’s Quarterly Report on Form 10-Q, for the quarterly period
ended September 30, 2015, filed with the Securities and Exchange Commission on November 16, 2015.
Incorporated by reference to exhibit 10.1 attached to registrant’s Current Report on Form 8-K, filed with the
Securities and Exchange Commission on December 18, 2015.
Incorporated by reference to “Exhibit A” to the proxy statement/prospectus included in the registrant’s
Registration Statement on Form S-4 (Registration No. 333-141124), filed with the Securities and Exchange
Commission on March 7, 2007, as amended by Amendment No. 1 on Form S-4/A, filed on April 27, 2007, and
Amendment No. 2 on Form S-4/A, filed on May 15, 2007.
Incorporated by reference to exhibit 10.2 to registrant’s Quarterly Report on Form 10-Q, for the quarterly period
ended September 30, 2007, filed with the Securities and Exchange Commission on November 14, 2007.
Incorporate by reference to exhibit 10.1 to registrant’s Current Report on Form 8-K, filed with the Securities and
Exchange Commission on May 27, 2011.
Incorporated by reference to exhibit 10.1 to registrant’s Current Report on Form 8-K, filed with the Securities and
Exchange Commission on March 7, 2013.
Incorporated by reference to Exhibits 10.1 and 10.2 to Registrant’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 8, 2016.
Incorporated by Reference to Exhibit 10.01 to the Registrant’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 28, 2016.
(B)
(C)
(D)
(E)
(F)
(G)
(H)
(I)
(J)
(K)
84
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Bank of New Jersey, a New Jersey state-chartered bank.
BONJ-New York Corp., a New York corporation and subsidiary of the Bank.
BONJ-New Jersey Investment Company, a New Jersey corporation and subsidiary of the Bank
BONJ- Delaware Investment Company, a Delaware corporation and subsidiary of the Bank
BONJ REIT Inc., a New Jersey corporation and subsidiary of the Bank
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
Bancorp of New Jersey, Inc.
Fort Lee, New Jersey
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos.
333-150662, 333-150663 and 333-178744) of Bancorp of New Jersey, Inc. of our report dated March 30, 2016, relating
to the consolidated financial statements of Bancorp of New Jersey, Inc. which appears in this Annual Report on
Form 10-K.
/s/ BDO USA, LLP
New York, New York
March 30, 2017
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.2
Bancorp of New Jersey, Inc.
Fort Lee, New Jersey
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-
150662, 333-150663 and 333-178744) of Bancorp of New Jersey, Inc. of our report dated March 30, 2017, relating to
the consolidated financial statements of Bancorp of New Jersey, Inc. which appears in this Annual Report on
Form 10-K.
/s/ Baker Tilly Virchow Krause, LLP
Iselin, New Jersey
March 30, 2017
Exhibit 31.1
RULE 13a-14(a) CERTIFICATION
OF THE PRINCIPAL EXECUTIVE OFFICER
I, Nancy E. Graves., Chief Executive Officer and President certify that:
1. I have reviewed this annual report on Form 10-K of Bancorp of New Jersey, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of
the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
significant role in the registrant’s internal control over financial reporting.
(b) any fraud, whether or not material, that involves management or other employees who have a
Date: March 30, 2017
/s/ Nancy E. Graves
Nancy E. Graves
Chief Executive Officer and President
(Principal Executive and Operating Officer)
Exhibit 31.2
RULE 13a-14(a) CERTIFICATION
OF THE PRINCIPAL FINANCIAL OFFICER
I, Matthew Levinson, Senior Vice President and Chief Financial Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Bancorp of New Jersey, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of
the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
significant role in the registrant’s internal control over financial reporting.
(b) any fraud, whether or not material, that involves management or other employees who have a
Date: March 30, 2017
/s/ Matthew Levinson
Matthew Levinson
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
SECTION 1350 CERTIFICATIONS
Exhibit 32
In connection with the Annual Report of Bancorp of New Jersey, Inc. (the “Company”) on Form 10-K for the period
ending December 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange
Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ Nancy E. Graves
Nancy E. Graves
President and Chief Executive Officer
(Principal Executive and Operating Officer)
/s/ Matthew Levinson
Matthew Levinson
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
March 30, 2017
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Branch Locations
1365 Palisade Avenue
Fort Lee, NJ 07024
(201) 944-8600
Anna Maria Alberga
VP, Branch Manager
401 Hackensack Avenue
Hackensack, NJ 07601
(201) 968-0008
Jaime Marley
VP, Branch Manager
104 Grand Avenue
Englewood, NJ 07631
(201) 227-0160
Tamara Francis
VP, Retail Regional Manager
Main Office
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Fort Lee, NJ 07024
(201) 944-8600
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Fort Lee, NJ 07024
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AVP, Branch Manager
4 Park Street
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Jakia Sultana
VP, Branch Manager
354 Palisade Avenue
Cliffside Park, NJ 07010
(201) 313-0025
Reina Martinez
VP, Branch Manager
458 West Street
Fort Lee, NJ 07024
(201) 944-7222
Ryan Petrillo
VP, Branch Manager
320 Haworth Avenue
Haworth, NJ 07641
(201) 387-9910
Allison Peterson
VP, Branch Manager
585 Chestnut Ridge Road
Woodcliff Lake, NJ 07677
(201) 505-9300
Suzanne Wirth
AVP, Branch Manager
Independent Auditors
Baker Tilly Virchow Krause, LLP
99 Wood Avenue South, Suite 801
Iselin, NJ 08830
Registrar and Transfer Agent
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Regulatory Counsel
Windels Marx Lane and Mittendorf, LLP
230 Albany Street Plaza
New Brunswick, NJ 08901
Stock Information
Common Stock is traded on NYSE MKT LLC
Exchange under the symbol: BKJ
COMMUNITY n DEDICATION n COMMITMENT
Bank of New Jersey is proud to support our communities through volunteering
our time and resources to local organizations and initiatives.
200 Club Bergen County Bar Foundation Bergen County Volunteer Center Bergen PAC Bicycling
Touring Club of New Jersey Bristal at Woodcliff Lake Center for Family Support Center for Food
Action Center for Hope and Safety Children’s Aid and Family Services Cliffside Park Housing
Authority Cliffside Park /Fairview Baseball Association Cliffside Park Policemen’s Benevolent
Association – Local 96 Community Chest of Englewood Community Resource Council Dean
Michael Clarizio Cancer Foundation DIA Diabetes Foundation Dwight Morrow High School
Ed Lucas Foundation Elmwood Park Little League Baseball Englewood Cliffs Fire Department
Englewood Chamber of Commerce Family Touch Fort Lee Ambulance Corps, Inc. Fort Lee Little
League Fort Lee Fire Protective Association Fort Lee Office of Cultural Affairs Fort Lee Policemen’s
Benevolent Association – Local 245 Fort Lee Public Library Fort Lee Public School Fort Lee
Regional Chamber of Commerce Fort Lee Rotary Charity Greater Pascack Valley Chamber of
Commerce (GPVCC) Hackensack Regional Chamber of Commerce Hackensack River Keeper
Harrington Park Lions Club Harrington Park Recreation Trust Harrington Park Home and School
Association Harrington Park Volunteer Ambulance Corps, Inc. Haworth Cub Scouts Haworth
Municipal Drug Alliance Haworth Road Runners Healing Space Sexual Violence Resource Center
Ho-Ho-Kus /Saddle River Baseball Association Inter Club Facchetti iPiggiBank Jewish Family
Services Junior Achievement of New Jersey Kaplen JCC on the Palisades Knights of Columbus
Korean Community Center Little Falls Football Parents Association Little Falls Athletic Club Little
Ferry Hose Company No. 1 Lyndhurst Police Emergency Squad Mahwah Regional Chamber of
Commerce Milan Club of NJ NJ Citizen Action Education Fund NJ Commercial Real Estate
Alliance Industrial Group NJ Korean American Chamber of Commerce NJ Lions Club NJ Medical
Group Management Association NJ Mission of Honor NJ Special Olympics Northern Highlands
Regional High School Northern Valley Old Tappan PTSO Northern Valley PBA 233 Notre Dame
Academy Palisades Medical Center Foundation Paramus Education Foundation Paramus
Regional Chamber of Commerce Park Ridge DARE Park Ridge Volunteer Fire Department Park
Ridge Board of Public Works Project Graduation Northern Valley Demarest High School Rotary
Club of Randolph, NJ Saddle River Landmarks Commission St. Philothea Society St. Rocco
Society State Troopers Coalition Trooper Scott M. Gonzalez Scholarship Foundation Volunteer
Center of Bergen Woodcliff Lake Education Foundation Wood-Ridge Lions Club
www.BONJ.net n 2016