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, CPA
Christopher M. Shaari, MD
Anthony Siniscalchi, CPA
Mark J. Sokolich, Esq.
2017
Dear Fellow Shareholder,
We continued to drive positive change for the Company in 2017. Our year-over-
year improvement in several key metrics reflects the experience and dedication
of our leadership team executing a clear strategic plan to grow while leveraging
our investments in risk management and system enhancements. Net income for
2017 was $3.6 million compared to $4.0 million in 2016. Our 2017 performance
was affected by the revaluation of our deferred tax assets as a result of the Tax Cuts
and Jobs Act, which resulted in a $1.4 million charge to income tax expense in the
fourth quarter of 2017. Net income for 2017, adjusted for the impact of the one-
time non-cash charge to income tax expense, was $4.97 million. The Company
expects that future periods will benefit from the new, lower tax rate.
• Total assets increased by nearly 7.9% to $887.4 million
at December 31, 2017, from $822.4 million at
December 31, 2016.
• Total loans were $721.2 million at December 31, 2017,
up $60.6 million, or 9.18% from the December 31, 2016
balance of $660.6 million.
• Total deposits were $788.3 million at December 31, 2017,
up $70.3 million, or 9.79% from the December 31, 2016
balance of $718.0 million.
During the course of the year we paid a 5% stock dividend in August and a
special cash dividend of $0.10 per common share in December. Our stock
performed well, appreciating approximately 42% for the twelve months ended
December 31, 2017, inclusive of the 5% stock dividend.
Looking ahead, the disciplined execution of our strategy positions us well for
continued growth and increased shareholder value in 2018 and beyond. On
behalf of the Board of Directors, we thank our valued shareholders, customers
and dedicated employees. We appreciate your continued support.
Very truly yours,
Gerald A. Calabrese, Jr.
Chairman of the Board
Nancy E. Graves
President and CEO
Executive Management
Matthew Levinson
Senior Vice President
Chief Financial Officer
Ramsey Chong
Senior Vice President
Chief Credit Officer
Officers
Robert Cusick
Senior Vice President
Commercial Lender
Syeda Sheba Ali
Vice President
Credit Department Manager
Michael Gambatese
Vice President
Senior Relationship Manager
Patricia Mendieta
Vice President
Corporate Administration
Gina Solomon
Vice President
Loan Operations Manager
Nancy E. Graves
President and
Chief Executive Officer
Michael J. Trepicchio
Executive Vice President
Chief Lending Officer
Mina Turelli
Executive Vice President
Chief Risk Officer
Katherine M. Kremins
Senior Vice President
Corporate Administration Officer
Lori A. Young
Senior Vice President
Retail Banking & Human Resources
Ronald Urtiaga
Senior Vice President
Commercial Lender
Rosalba Bambara
Vice President
BSA Officer
Michael Leffelholz
Vice President
Commercial Lender
John Messina
Vice President
Information Technology
Jay Albert
Vice President
Controller
Cornelia Brummer
Vice President
Marketing Director
Ross Mazer
Vice President
Commercial Lender
Kinga Mikos
Vice President
Operations
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, 2017
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from to .
Commission file number: 001-34089
Bancorp of New Jersey, Inc.
(Exact name of Registrant as specified in its charter)
New Jersey
(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, a smaller reporting company or
an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth
company’ in Rule 12b-2 of the Exchange Act:
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company Emerging growth
company
If an emerging growth company, indicate by check if the registrant has elected to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) YES NO
The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant as of June 30, 2017 was approximately
$79,744,539 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 02, 2018 was 6,947,690.
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 2018 Annual
Meeting of Shareholders to be held May 24, 2018, 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 corporate office at 750 East Palisade Avenue, Englewood Cliffs, New Jersey, 07632, 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
3
are insured by the FDIC up to applicable limits. The operation of the Company and the Bank are subject to the
supervision and regulation of the FRB, FDIC, and the NJDOBI. The main office of the Bank is located at 1365 Palisade
Avenue, Fort Lee, NJ, 07024 and the telephone number is (201) 944-8600.
Business of the Company
The Company’s primary business is ownership and supervision of the Bank. The Company, through the Bank, conducts
a traditional commercial banking business, accepting deposits from the general public, including individuals, businesses,
non-profit organizations, and governmental units. The Bank makes commercial loans 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 corporate office in
Englewood Cliffs, 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, 2017.
Employees
At December 31, 2017, the Company employed eighty 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.
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
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.
5
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
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.
6
Deposit Insurance
The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC.
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 institution calculates
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.
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
7
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. 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, including stock
repurchases, 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.
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 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
8
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 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:
•
•
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 the measures described
under FDICIA as applicable to undercapitalized institutions.
At December 31, 2017, the Bank met its capital requirements with a ratio of common equity tier 1 capital to risk-
weighted assets of 10.84%; a ratio of tier 1 capital to risk-weighted assets of 10.84%; a ratio of total capital to risk-
weighted assets of 11.95%; and a leverage ratio of 9.59%. 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.
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.
9
As of December 31, 2017, 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, 2017, 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 membership requirements and 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 responsibilities for our external
financial statements on our chief executive officer and chief financial officer, and expanded the disclosure requirements
for our corporate insiders. The requirements are intended to allow stockholders to more easily and efficiently monitor
the performance of companies and directors. The Company and its Board of Directors have, as appropriate, adopted or
modified the Company’s policies and practices in order to comply with these regulatory requirements and to enhance the
Company’s corporate governance practices.
Pursuant to Sarbanes-Oxley, the Company has adopted a Code of Conduct and Ethics applicable to its Board, executives
and employees. This Code of Conduct can be found on the Company’s website at www.bonj.net.
Dodd-Frank Act
The Dodd-Frank Act became law on July 21, 2010. The Dodd-Frank Act implements far-reaching changes across the
financial regulatory landscape.
The Dodd-Frank Act creates the 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
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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 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 imposes a requirement, that our independent auditor attest to and report on
management’s assessment of internal control over financial reporting.
Although a significant number of the rules and regulations mandated by the Dodd-Frank Act have been finalized,
including rules regulating compensation of residential mortgage loan originators and mortgage loan servicing practices,
and defining qualified mortgage loans, many of the new requirements called for have yet to be implemented and will
likely be subject to implementing regulations over the course of several years. Given the uncertainty associated with the
manner in which the provisions of the Dodd-Frank Act will be implemented by the various agencies, the full extent of
the impact such requirements will have on financial institutions’ operations is unclear. The Dodd-Frank Act could
require us to make material expenditures, in particular personnel training costs and additional compliance expenses, or
otherwise adversely affect our business, financial condition, results of operations or cash flow. It could also require us to
change certain of our business practices, adversely affect our ability to pursue business opportunities that we might
otherwise consider pursuing, cause business disruptions and/or have other impacts that are as of yet unknown to us.
Failure to comply with these laws or regulations, even if inadvertent, could result in negative publicity, fines or
additional expenses, any of which could have an adverse effect on our business, financial condition, results of
operations, or cash flow.
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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:
•
•
•
•
•
•
•
•
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. In
addition, the borrower must satisfy certain debt to income ratio requirements. 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.
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.
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. Our regulators generally seek 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, 2017, the Bank had $574 million of commercial real estate loans, which represented 79.58% of the
total loan portfolio. Our commercial real estate loans include loans secured by multifamily, owner-occupied and non-
owner-occupied properties for commercial uses.
Many factors, including 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, 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 the performance and asset quality of our
loan portfolio. 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
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
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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.
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
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.
We have also been active in competing for New Jersey governmental and municipal deposits. At December 31, 2017,
governmental and municipal deposits accounted for $132.2 million in deposits. The newly elected governor of New
Jersey has proposed that the state form and own a bank in which governmental and municipal entities would deposit
excess funds, with the state owned bank then financing small businesses and municipal projects in New Jersey. Although
14
this proposal is in the very early stages, should this proposal be adopted and a state owned bank formed, it could impede
our ability to attract and retain governmental and municipal 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, 2017, we had approximately $59.3 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
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
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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:
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
equity would decline if interest rates increase. For example, we estimate that as of December 31, 2017, a 200 basis point
increase in interest rates would have resulted in our economic value of equity declining by approximately $4.9 million or
4.29%. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Interest Rate
Sensitivity Analysis.”
16
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.
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.
17
• 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.
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;
18
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.
19
ITEM 2. PROPERTIES
The Company, currently, conducts its business through its corporate office located at 750 East Palisade Avenue,
Englewood Cliffs, New Jersey, and its nine branches. 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 East 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
October, 2021
July, 2021
June, 2022
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.
20
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, 2017
Fourth quarter
Third quarter
Second quarter
First quarter
Year Ended December 31, 2016
Fourth quarter
Third quarter
Second quarter
First quarter
Holders
High
Low
$ 18.55 $ 16.19
15.85
14.38
12.10
18.30
16.67
14.67
$ 13.50 $ 10.50
11.03
10.64
9.75
11.84
13.50
12.80
As of March 02, 2018 there were approximately 1,150 shareholders of our common stock, which includes an estimate of
shareholders who hold their shares in street name.
Dividends
In 2017, the Company declared a 5% stock dividend and a cash dividend in the amount of $0.10 per share. The stock
dividend was paid to shareholders on August 1, 2017 and the cash dividend was paid to shareholders on December 27,
2017.
In 2016, the Company declared three 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.
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.
21
Securities Authorized for Issuance under Equity Compensation Plans
The following tables summarize our equity compensation plan information as of December 31, 2017:
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
51,253 $
10.64
2007 Non-Qualified Stock Option Plan for Directors
— $
—
—
—
2011 Equity Incentive Plan
46,200 $
12.72
105,557
Equity compensation plans not approved by security holders
—
—
—
Total
97,453 $
11.63
105,557
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
The Company is not currently 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. 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.
22
Overview and Strategy
Our bank charter was approved in April 2006 and the Bank opened for business on May 10, 2006. Our corporate office
is located at 750 East Palisade Avenue, Englewood Cliffs, NJ 07632 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
23
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 charge-offs 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, 2017 and 2016, respectively, we consider the ALLL of $8.3 million for each period 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, 2017 and 2016, the Company had thirty seven and thirty
eight 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,
2017 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
24
other-than-temporarily impaired at December 31, 2017. At December 31, 2017 and 2016, respectively, we did not have
any other-than-temporarily impaired securities.
RESULTS OF OPERATIONS - Years ended December 31, 2017 and 2016
Our results of operations depend primarily on our net interest income, which is the difference between the interest earned
on our interest-earning assets and the interest paid on interest-bearing liabilities, primarily deposits, which support our
assets. Net interest margin is net interest income expressed as a percentage of average interest earning assets. Net
income is also affected by the amount of non-interest income and non-interest expense, the provision for loan losses and
income tax expense.
Net Income
For the year ended December 31, 2017, net income decreased by $427 thousand, to $3.6 million from $4.0 million for
the year ended December 31, 2016. The decrease in net income for the year ended December 31, 2017 compared to
2016 was due to a $1.4 million deferred tax assets (DTA) re-measurement as a result of the Tax Cut and Jobs Act that
was signed into law on December 22, 2017, and which lowered the corporate tax rate starting in 2018. ASC 740
(Accounting for Income Taxes) requires the recognition of the effect of changes in tax laws or rates in the period in
which the law is enacted. We should recognize the benefit of the reduced tax rates through lower tax expense in 2018
and going forward. The DTA re-measurement expense was partially offset by a lower provision for loan losses in 2017
by approximately $1.2 million and an increase in net interest income of $594 thousand. The increase in net interest
income is reflective of the loan portfolio growth of $61 million or 9.2%, and an increase in cash and cash equivalent of
$15.6 million or 20.3%. The larger provision for loan losses in 2016 was related to a single credit charged-off in the third
quarter of 2016.
On a per share basis, basic and diluted earnings per share for the year ended December 31, 2017 were $0.55 and $0.54
respectively, as compared to basic and diluted earnings per share of $0.64 for the year ended December 31, 2016.
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 increased by $465 thousand for the year ended
December 31, 2017 as compared to December 31, 2016. A slight decrease in yield on total loans to 4.49% in 2017 from
4.63% in 2016, which was a reflection of the low rate environment at the beginning of the year, was offset by an increase
in loan volume. Average total loans increased by $30.9 million in 2017 to $684.4 million from $653.5 million in 2016.
Total interest expense increased by $637 thousand to $7.6 million compared to $7 million in the prior year. Increases in
interest expense on certificates of deposit of $551 thousand and savings and money market deposits of $233 thousand
were partially offset by a decrease of $147 thousand in other borrowed funds. During the year average time deposits
increased by $20 million to $335.3 million from $315.3 million in the prior year and average savings and money market
deposits increased by $29.5 million to $296.3 million from $266.8 million in the prior year. In addition, the average
balance of borrowings decreased from $30.2 million in 2016, to $18.1 million in 2017, a decrease of $12.1 million due to
maturities and principal pay-downs. Average non-interest bearing deposits increased to $136 million in 2017 from
$132.1 million in 2016.
Average Balance Sheets
The following table sets forth certain information relating to our average assets and liabilities for the years ended
December 31, 2017, 2016 and 2015, and reflects the average yield on assets and average cost of liabilities for the periods
indicated. Such yields are derived by dividing income or expense, on a tax-equivalent basis, by the average balance of
assets or liabilities, respectively, for the periods shown. The taxable equivalent adjustment for 2017, 2016, and 2015
was $60, $37, and $37 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 2017, 2016 and 2015.
25
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26
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, 2017 and 2016, 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,
2017 compared with 2016
Increase (Decrease)
Due to Change in Average
Net
Volume Rate
Year ended December 31,
2016 compared with 2015
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
$ 1,296 $ (830) $
(20)
8
81
1,365
131
(3)
568
(134)
(8)
137
77
325
(191)
340
—
—
27
226
44
297
$ 1,025 $ (431) $
466 $
111
5
649
1,231
571 $ (781) $
(29)
(1)
23
564
(107)
27
180
(681)
(210)
(136)
26
203
(117)
14
(8)
206
137
68
104
(1,017)
551
11
(147)
637
(718)
594 $ 1,282 $ (332) $
(9)
23
(23)
(289)
(51)
(349)
5
229
45
(1,306)
(40)
(1,067)
950
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 $400 thousand and $1.6 million for the years ended
December 31, 2017 and 2016, respectively. The larger provision for loan losses in 2016 was related to a single credit
charged-off in the third quarter.
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, 2017, non-interest income decreased by $43 thousand to $448
thousand, from $491 thousand during the year ended December 31, 2016. In the third quarter of the prior year the bank
collected a $102 thousand non-recurring item.
Non-Interest Expenses
Non-interest expense for the year ended December 31, 2017 was $17.8 million compared to $17.2 million for the year
ended December 31, 2016, an increase of $609 thousand, or 3.5%. The increase was primarily due to salaries and
employee benefits, data processing, occupancy and equipment, and legal expenses of $674 thousand, $232 thousand,
$211 thousand and $138 thousand, respectively. These increases were primarily related costs associated with health
insurance premium increases, a new 401K plan with a safe harbor match and the relocation of the corporate office to
Englewood Cliffs.
Income Tax Expense
The income tax provision, which includes both federal and state taxes, for the years ended December 31, 2017 and 2016
was $3.7 million and $2.1 million, respectively, representing an increase of approximately $1.5 million. The increase in
the income tax expense for 2017 as compared to 2016 was due to the new Tax Cut and Jobs Act that was signed into law
27
on December 22, 2017, and which reduces corporate tax rates starting in 2018. ASC 740 requires the recognition of the
effect of changes in tax laws or rates in the period in which the legislation is enacted. The new tax rate of 21%, reduced
from 34% yielded a DTA re-measurement expense of approximately $1.4 million for the year ended December 31, 2017.
The effective tax rate for 2017 was 50.7% compared to 34.8% for 2016.
FINANCIAL CONDITION — Years ended December 31, 2017 and December 31, 2016
Total consolidated assets increased by $65 million, or approximately 7.9%, from $822.4 million at December 31, 2016
to $887.4 million at December 31, 2017. Loans receivable, or “total loans,” increased from $660.6 million at
December 31, 2016 to $721.2 million at December 31, 2017, an increase of approximately $60.6 million, or 9.2%. Total
cash and cash equivalents increased from $77.0 million at December 31, 2016 to $92.6 million at December 31, 2017, an
increase of $15.6 million. The increase in cash is mainly due to increases in deposit account balances, pending
redeployment into interest earning assets. Total deposits grew by $70.3 million to $788.3 million at December 31, 2017,
from $718.0 million at December 31, 2016, attributable to a successful deposit promotion campaigns. Borrowed funds
decreased to $13.4 million at December 31, 2017 from $25.0 million at December 31, 2016.
Loans
Our loan portfolio is the primary component of our assets. Net loans, which exclude net deferred fees and costs and the
allowance for loan losses, increased by 9.3% to reach $712.1 million at December 31, 2017 from $651.7 million at
December 31 2016. Historically, we offered residential mortgage loans. However in light of the increasing regulatory
and compliance burdens associated with these loans, they have become a less significant part of our business strategy.
As a result, we expect our portfolio of residential mortgage loans to continue to decrease in future periods. Our market
area is concentrated in Bergen County, New Jersey, with commercial loans made to borrowers located primarily in New
Jersey and New York. We believe that we will continue to have opportunities for commercial loan growth due in part, to
our experienced staff and relationship focused strategy, and this commercial loan growth should help mitigate the run-off
in the residential portfolio.
Our loan portfolio consists of commercial real estate, commercial & industrial, residential, consumer and home equity
loans. Commercial & industrial loans are made for the purpose of providing working capital primarily for construction,
financing the purchase of income producing properties, purchase of equipment or inventory, as well as for other business
purposes. Real estate loans consist of loans secured by commercial or residential real property and loans for the
construction of commercial or residential investment property. We have a concentration of commercial loans
collateralized by real estate, representing 79.6% of our loan portfolio.
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, 2017,
2016, 2015, 2014 and 2013 (in thousands):
2017
2016
December 31,
2015
2014
2013
Commercial real estate
Residential mortgages
Commercial
Home equity
Consumer
Total Loans
$ 573,941 $ 492,296 $ 460,396 $ 431,727 $ 298,548
53,601
57,634
61,204
1,478
48,698
69,855
63,308
2,805
56,079
75,174
69,631
1,347
66,497
27,237
53,199
317
78,961
30,259
58,399
656
$ 721,191 $ 660,571 $ 645,062 $ 633,958 $ 472,465
28
The following table sets forth the maturity of fixed and adjustable rate loans as of December 31, 2017 (in thousands):
Within
One Year
1 to 5
Years
After 5
Years
Total
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
$ 69,340 $ 44,969 $ 62,732 $ 177,041
51,614
12,895
2,503
235
11,475
8,638
2,417
52
33,368
1,122
86
58
6,771
3,135
—
125
$ 43,927 $ 229,824 $ 123,149
4,748
481
44,694
—
1,483
12,228
5,602
82
8,652
1,633
400
—
396,900
14,883
14,342
50,696
82
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)
generally 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, 2017 the Bank had thirty four non-accrual loans totaling approximately $18.4 million, compared to
thirty non-accrual loans totaling $18.8 million at year end 2016. If the nonaccrual loans had been current in accordance
with their original terms and had been outstanding throughout the year ended December 31, 2017, the gross interest
income that would have been recorded would have been approximately $636 thousand.
Within its nonaccrual loans at December 31, 2017, the Bank had ten residential mortgage loans, eight home equity loans
and one commercial real estate loan that met the definition of a troubled debt restructuring (“TDR”) loan.
TDRs are loans where the contractual terms have been modified for borrowers experiencing financial difficulties. These
modifications could include a reduction in the interest rate of the loan, payment extensions, forgiveness of principal, or a
combination of these concessions. At December 31, 2017, nonaccrual TDR loans had an outstanding balance of $10.8
million and had no specific reserves connected with them. At December 31, 2017, accruing TDR loans had an
outstanding balance of $637 thousand. The modifications to these loans did not involve principal forgiveness.
As of December 31, 2016, the Bank had thirty nonaccrual loans totaling approximately $18.8 million. If interest had
been accrued on these non-accrual loans, the interest income recognized would have been approximately $354 thousand.
Within its nonaccrual loans at December 31, 2016, the Bank had five residential mortgage loans, seven home equity
29
loans and one commercial real estate mortgage that met the definition of a TDR loan. 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, 2017, 2016, 2015,
2014, and 2013:
2017
2016
2015
2014
2013
Nonaccrual loans
Commercial real estate
Residential mortgages
Commercial
Home equity
Total nonaccrual loans
Impaired but accruing
Commercial real estate
Home equity
Total accruing impaired loans
$ 3,344 $ 5,992 $ 842 $ 1,787 $ 1,700
2,608
50
673
5,031
3,907 3,992
3,256 —
5,597 2,522
18,426 18,752 7,356
4,279
—
2,453
8,519
9,052
2,957
3,073
8,210
54
8,264
9,209
55
9,264
—
—
—
—
—
—
Performing troubled debt restructured loans
Commercial real estate
Residential mortgages
Home equity
Total performing impaired and troubled debt restructured loans
—
637
—
637
— —
532
—
104
—
636
—
—
175
60
235
397
3,053
1,060
4,510
Total impaired loans
Other real estate owned
27,327 28,016 7,992
512
415
614
8,754
897
9,541
964
Total impaired loans and other nonperforming assets
$ 27,742 $ 28,630 $ 8,504 $ 9,651 $ 10,505
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 the services 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.
Allowance for Loan Losses
Our ALLL totaled $8.3 million, $8.3 million and $8.0 million, respectively, at December 31, 2017, 2016, and 2015.
30
The following is an analysis of the activity in the allowance for loan losses for the periods indicated (dollars in
thousands):
Balance, January 1
$ 8,287 $ 8,020 $ 7,192 $ 5,775 $ 5,072
2017
2016
2015
2014
2013
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
(49)
(97)
(171)
(90)
—
(158)
(1)
(155)
(1,026)
—
—
—
—
(264)
(60)
(32)
(93)
(72)
(327)
(940)
—
(22)
—
—
(89)
30
1
6
35
2
—
226
2
—
—
4
—
—
4
—
(370)
—
400
(107)
—
810
$ 8,317 $ 8,287 $ 8,020 $ 7,192 $ 5,775
(1,460)
(198)
3,075
(1,303)
—
1,570
(96)
—
924
0.05 %
0.20 %
0.27 %
0.27 %
0.02 %
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) :
2017
2016
Amount
% of
ALLL
% of
Total
Loans
Amount
% of
ALLL
% of
Total
Loans
Balance applicable
Residential and commercial real estate
Commercial
Home equity
Consumer
Unallocated
6.91 %
4.85 %
0.60 %
$ 6,239
575
403
50
7,267
1,050
75.02 % 88.82 % $ 6,479
809
425
6
87.38 % 100.00 % 7,719
568
12.62 %
$ 8,317 100.00 %
78.18 % 86.48 %
4.58 %
9.76 %
8.84 %
5.13 %
0.07 %
0.10 %
93.14 % 100.00 %
6.86 %
$ 8,287 100.00 %
3.78 %
7.36 %
0.04 %
31
2015
% of
2014
% of
2013
% of
Amount
% of
ALLL
Total
Loans Amount
% of
ALLL
Total
Loans Amount ALLL
% of
Total
Loans
Balance applicable to:
Residential and commercial real
estate
Commercial
Home equity
Consumer
$ 6,138
1,066
573
39
76.53 % 78.92 % $ 5,298
13.29 % 10.83 % 1,128
500
24
9.81 %
0.44 %
7.14 %
0.49 %
73.67 % 76.95 % $ 4,032
969
15.68 % 11.86 %
593
6.95 % 10.98 %
26
0.21 %
0.33 %
69.82 % 74.54 %
16.78 % 12.20 %
10.27 % 12.95 %
0.31 %
0.45 %
Unallocated reserves
7,816
204
97.45 % 100.00 % 6,950
242
2.55 %
96.63 % 100.00 % 5,620
155
3.37 %
97.32 % 100.00 %
2.68 %
$ 8,020 100.00 %
$ 7,192 100.00 %
$ 5,775 100.00 %
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 consolidated 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
2017, the portfolio was composed of U.S. Treasury securities, obligations of U.S. Government Agencies and MBS and
obligations of states and political subdivisions. During 2016, 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, 2017, total securities aggregated $59.3 million, of which $53.2 million were classified as AFS and $6.1
million were classified as HTM. The Company had no securities classified as trading.
32
The following table sets forth the carrying value of the Company’s security portfolio as of the December 31, 2017, 2016,
and 2015, respectively (in thousands):
2017
2016
2015
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized Fair
Value
Cost
Available for Sale
Government sponsored enterprise obligations
U.S. Treasury obligations
Total available for sale
Held to Maturity
Obligations of states and political subdivisions
Total held to maturity
Total Investment Securities
$ 47,439 $ 47,072 $ 55,506 $ 55,321 $ 58,720 $ 58,397
6,353
64,750
6,268
61,589
6,512
65,232
6,400
61,906
6,286
53,725
6,162
53,234
6,058
6,058
5,829
5,829
$ 59,783 $ 59,292 $ 69,249 $ 68,932 $ 71,061 $ 70,579
7,343
7,343
5,829
5,829
7,343
7,343
6,058
6,058
The following tables set forth as of December 31, 2017 and 2016, the maturity distribution of the Company’s debt
investment portfolio (in thousands):
2017
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
Greater than five years
Government sponsored enterprise obligations
Total
2016
Securities Held to Maturity Securities Available for Sale Weighted
Average
Amortized
Amortized
Yield
Cost
Cost
Fair
Value
Fair
Value
$ — $
6,058
6,058
— $ 18,047 $
6,058
6,058
—
18,047
—
—
—
—
—
—
15,406
6,286
21,692
17,933
—
17,933
15,303
6,162
21,465
0.93 %
1.50 %
1.07 %
1.61 %
1.10 %
1.46 %
—
—
—
—
13,986
13,986
13,836
13,836
2.06 %
2.06 %
$ 6,058 $
6,058 $ 53,725 $
53,234
1.44 %
Securities Held to Maturity Securities Available for Sale Weighted
Average
Amortized
Amortized
Yield
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
$ — $
7,343
7,343
— $ 22,035 $
7,343
7,343
—
22,035
22,010
—
22,010
0.55 %
0.97 %
0.65 %
—
—
—
—
—
—
33,471
6,400
39,871
33,311
6,268
39,579
1.24 %
1.10 %
1.22 %
Total
$ 7,343 $
7,343 $ 61,906 $
61,589
0.98 %
During 2017 and 2016, the Company did not sell any securities from its portfolio. The decrease in the portfolio is due to
calls and maturities of securities.
33
Deposits
Deposits remain our primary source of funds. Total deposits increased to $788.3 million at December 31, 2017 from
$718.0 million at December 31, 2016, an increase of $70.3 million, or 9.8%. Time deposits, money market deposits and
other interest bearing demand deposits increased by $54.3, $23.3 and $2.6 million, respectively, while noninterest
bearing accounts decreased by $3.9 million, during the year ended December 31, 2017. Total brokered deposits were
$25.4 million and $27.2 million at December 31, 2017 and 2016 respectively. The Bank has sought to increase its core
deposits, while reducing its reliance on potentially volatile municipal deposits and their effects of seasonal fluctuations
related to real estate tax inflows and payments. The Company has no foreign deposits, nor are there any material
customer concentrations of deposits.
The following table sets forth the actual amount of various types of deposits for each of the periods indicated:
December 31,
(dollars in thousands)
2017
2016
2015
Non-interest bearing demand
Interest bearing demand and money markets
Savings
Time deposits
Amount
$ 133,661
200,304
107,279
347,049
Average
Yield/Rate Amount
Average
Yield/Rate Amount
Average
Yield/Rate
$ 137,564
0.39 % 174,396
0.92 % 113,286
1.59 % 292,742
$ 117,919
0.37 % 153,003
0.92 %
79,453
1.59 % 350,364
0.39 %
0.89 %
1.67 %
$ 788,293
$ 717,988
$ 700,739
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, 2017 (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
$ 36,495
19,822
58,896
81,134
97,131
$ 293,478
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,
2016
0.49 %
5.31 %
9.38 %
28.19 %
2017
0.41 %
4.43 %
9.39 %
19.49 %
2015
0.60 %
6.95 %
8.11 %
31.28 %
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
34
influenced by general interest rates, economic conditions, and competition. In addition, if warranted, we would be able
to borrow funds.
As of December 31, 2017, the Company had a $5.0 million line of credit with Atlantic Community 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 Community Bankers
Bank for the purchase of federal funds in the event that temporary liquidity needs arise. There were no amounts
outstanding under any of the facilities at December 31, 2017. We are an approved member of the FHLBNY. The
FHLBNY relationship could provide additional sources of liquidity, if required. At December 31, 2017, we have $13.5
million of borrowed funds and a $40 million Municipal Letter of Credit from the FHLBNY. The amount of credit
available from the FHLBNY is dependent upon the amount of qualifying collateral we pledge. Based on the qualifying
collateral the Bank has pledged to FHLBNY, in the form of loans and securities, the Bank has a remaining borrowing
potential of approximately $62.4 million as of December 31, 2017.
Our total deposits equaled $788.3 million and $718.0 million, respectively, at December 31, 2017 and 2016. The growth
in funds provided by deposit inflows during this period coupled with our borrowed funds and cash position at the end of
2017 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. Through our investment
portfolio, we also attempt to manage our maturity gap, by seeking maturities of investments which coincide with
maturities of deposits. The investment portfolio also includes securities available for sale to provide liquidity for
anticipated loan demand and other liquidity needs. (See “Investment Securities”)
We believe that our current sources of funds provide adequate liquidity for our current cash flow needs.
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 anticipate, 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. Our loan maturity assumptions are based upon actual maturities within the loan portfolio. Equity securities have
35
been included in “Other Assets” as they are not interest rate sensitive. At December 31, 2017, we were within the target
gap range established by ALCO for all terms.
Cumulative Rate Sensitive Balance Sheet
December 31, 2017
(in thousands)
Securities, excluding equity securities
0-3
0-6
Months
Months
$
— $
6,058 $
0-5
0-1
Year
TOTAL
23,992 $ 45,456 $ 13,836 $ 59,292
All
Others
Years
Loans
72,554
109,591
155,244
450,752
270,439
721,191
Federal Funds sold and Interest-Bearing Deposits in Banks
Other Assets
91,991
—
91,991
—
91,991
—
91,991
—
—
14,933
91,991
14,933
TOTAL ASSETS
$ 164,545 $ 207,640 $ 271,227 $ 588,199 $ 299,208 $ 887,407
Transaction / Demand Accounts
Money Market
Savings Deposits
Time Deposits
Borrowed Funds
Other Liabilities
Equity
$
31,449 $ 31,449 $
31,449 $ 31,449 $
168,855
107,279
43,535
168,855
107,279
67,760
168,855
107,279
139,354
168,855
107,279
347,049
— $ 31,449
168,855
—
107,279
—
347,049
—
—
—
—
—
—
—
—
—
—
13,385
—
—
—
136,081
83,309
13,385
136,081
83,309
TOTAL LIABILITIES AND EQUITY
$ 351,118 $ 375,343 $ 446,937 $ 668,017 $ 219,390 $ 887,407
Dollar Gap
Gap / Total Assets
Target Gap Range
RSA / RSL
$ (186,573) $ (167,703) $ (175,710) $ (79,818)
(21.02)%
(8.99) %
+/- 35.00 % +/- 30.00 % +/- 25.00 % +/- 25.00 %
88.05 %
(19.80)%
(18.90)%
60.69 %
55.32 %
46.86 %
(Rate Sensitive Assets to Rate Sensitive Liabilities)
Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from
interest rate risk inherent in our lending and deposit taking activities. Thus, we actively monitor and manage our interest
rate risk exposure.
Our profitability is affected by fluctuations in interest rates. A sudden and substantial increase or decrease in interest
rates may adversely impact our earnings to the extent that the interest rates borne by assets and liabilities do not change
at the same speed, to the same extent, or on the same basis. We monitor the impact of changing interest rates on our net
interest income using several tools. One measure of our exposure to differential changes in interest rates between assets
and liabilities is shown in the table above.
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 2017, we believed that available hedging
instruments were not cost-effective, and therefore, focused our efforts on our yield-cost spread through retail growth
opportunities.
36
The following table discloses our financial instruments that are sensitive to change in interest rates, categorized by
expected maturity at December 31, 2017. Market risk sensitive instruments are generally defined as on- and off- balance
sheet financial instruments.
Expected Maturity/Principal Repayment
December 31, 2017
(Dollars in thousands)
Avg. Int.
Rate
2018
2019
2020
2021
2022
There-
After
Total
Fair Value
Interest Rate Sensitive Assets:
Loans
Securities net of equity securities
4.49 % $ 155,244 $ 65,899 $ 44,535 $ 71,345 $ 113,729 $ 270,439 $ 721,191 $ 713,016
59,292
1.41 %
10,400
11,064
13,836
23,992
59,292
—
—
Fed Funds Sold
2.54 %
452
—
—
—
—
—
452
452
Interest-earning cash and time
deposits
Interest Rate Sensitive
Liabilities:
1.00 %
90,540
—
—
—
—
—
90,540
90,540
Interest bearing demand deposits
and money market accounts
0.39 % 200,304
Savings deposits
0.92 % 107,279
—
—
—
—
—
—
—
—
—
200,304
200,304
—
107,279
107,279
Time deposits
1.66 % 139,353
62,356
29,110
40,250
75,980
—
347,049
352,635
Borrowed Funds
1.54 % $
— $ 10,619 $
— $ 2,766 $
— $
— $ 13,385 $
13,307
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.
37
The following table summarizes the Bank’s risk-based capital and leverage ratios at December 31, 2017, 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, 2017 Adequacy Purposes Buffer Schedule
For Capital
To Be Well
10.84 %
10.84 %
11.95 %
9.59 %
4.50 %
6.00 %
8.00 %
4.00 %
5.750 %
7.250 %
9.250 %
N/A
6.50 %
8.00 %
10.00 %
5.00 %
The capital levels detailed above represent the continued effect of our profitability. As we continue to employ our capital
and continue to grow our operations, we expect to remain a “well-capitalized” institution. 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, 2017, the Company had the following contractual obligations as provided in the table below (in
thousands):
Payment due by Period
Total
Less than
1 year
1 to 3
years
4 to 5
years
After 5 Amounts
years
Committed
Minimum annual rental under non-cancelable operating
leases
Remaining contractual maturities of borrowed funds
Remaining contractual maturities of time deposits
Total Contractual Obligations
$
1,396 $
—
139,353
5,329
13,385
347,049
$ 140,749 $ 104,138 $ 120,013 $ 863 $ 365,763
1,017 $ 863 $
2,766
116,230
2,053 $
10,619
91,466
—
—
Additionally, the Bank had certain commitments to extend credit to customers. A summary of commitments to extend
credit at December 31, 2017 is provided as follows (in thousands):
Commercial real estate, construction, and land development secured by land
Home equities
Standby letters of credit and other
$ 47,813
35,155
3,356
$ 86,324
Off-Balance Sheet Arrangements
The Bank’s commitments to extend credit and letters of credit constitute financial instruments with off-balance sheet
risk. See Note 14 of the notes to consolidated financial statements included in this report for additional discussion of
“Off-Balance Sheet” items, which discussion is incorporated in this item by reference.
Impact of Inflation and Changing Prices
The consolidated financial statements of the Company and notes thereto, included in Part II, Item 8 of this annual report,
have been prepared in accordance with accounting principles generally accepted in the United States of America, which
require the measurement of financial position and operating results in terms of historical dollars without considering the
38
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
Interest rate risk management is our primary market risk. See “Item 7 – Management’s Discussion and Analysis of
Financial Condition and Results of Operation – Interest Rate Sensitivity Analysis” herein for a discussion of our
management of our interest rate risk.
39
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 2017 and 2016
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Income for the years ended December 31, 2017 and 2016
Consolidated Statements of Comprehensive Income for the years ended December 31,
2017 and 2016
Consolidated Statements of Stockholders’ Equity for the years ended December 31,
2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2017 and
2016
Notes to Consolidated Financial Statements
Page
41
43
44
45
46
47
48
40
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Bancorp of New Jersey, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Bancorp of New Jersey, Inc. and subsidiary
(collectively the "Company") as of December 31, 2017 and 2016, and the related consolidated statements of income,
comprehensive income, changes in stockholders’ equity, and cash flows, for each of the years then ended, and the related
notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company’s internal
control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated
Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years then
ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2017, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.
Basis for Opinion
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Company's consolidated financial statements and an opinion on the Company’s internal
control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud and whether effective internal control over financial reporting was maintained
in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
41
unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We have served as the Company’s auditor since 2016
/s/ Baker Tilly Virchow Krause, LLP
Iselin, New Jersey
March 16, 2018
42
CONSOLIDATED BALANCE SHEETS
December 31, 2017 and 2016
(Dollars in thousands, except share data)
December 31, 2017 December 31, 2016
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 $6,058 and $7,343 at December 31, 2017
and December 31, 2016, 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 $250 and under
Time deposits over $250
Total deposits
Borrowed funds
Accrued expenses and other liabilities
Total liabilities
Stockholders’ equity:
Common stock, no par value, authorized 20,000,000 shares; issued and
outstanding 6,932,690 at December 31, 2017 and 6,316,291 at
December 31, 2016
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
1,627 $
90,540
452
92,619
1,000
53,234
6,058
1,380
721,191
(798)
(8,317)
712,076
13,725
2,695
415
4,205
887,407 $
133,661 $
307,583
231,224
115,825
788,293
13,385
2,420
804,098
$
$
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
70,182
13,482
(355)
83,309
887,407 $
61,524
15,813
(193)
77,144
822,440
$
See accompanying notes to consolidated financial statements
43
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2017 and 2016
(Dollars in thousands, except per share data)
2017
2016
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
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
$
30,707 $
862
1,065
7
32,641
1,756
5,577
278
7,611
25,030
400
24,630
448
448
9,012
2,966
729
398
70
1,248
1,433
1,975
17,831
7,247
3,673
3,574 $
30,242
751
412
5
31,410
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
$
$
$
0.55 $
0.54 $
0.64
0.64
See accompanying notes to consolidated financial statements
44
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2017 and 2016
(Dollars in Thousands)
Net income
Other comprehensive income
For the Year Ended December 31,
2017
2016
$
3,574 $
4,001
Unrealized holding gains (losses) on securities available for sale, net of
deferred income tax expense of $69 and $62, respectively
Comprehensive income
$
(104)
3,470 $
103
4,104
See accompanying notes to consolidated financial statements
45
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years ended December 31, 2017 and 2016
(Dollars in Thousands)
Balance at January 1, 2016
Exercise of stock options ( 80,300 shares)
Stock based compensation
Dividends on common stock ($0.18 per share)
Net income
Other comprehensive income, net of tax
Balance at December 31, 2016
Exercise of stock options ( 273,381 shares)
Stock based compensation
Dividends on common stock ($0.10 per share)
Net income
5% Stock dividend (319,294 shares)
Dividends in lieu of fractional shares of stock dividend
Reclassification related to adoption of ASU 2018-02
Other comprehensive income, net of tax
Balance at December 31, 2017
Common Retained Comprehensive
Accumulated
Other
Stock
60,509
730
285
—
—
—
61,524
Earnings
12,940
—
—
(1,128)
4,001
—
15,813
2,993
397
—
—
5,270
(2)
—
—
—
—
(693)
3,574
(5,270)
—
58
—
$ 70,182 $ 13,482 $
(Loss)
Total
(296) 73,153
730
285
(1,128)
4,001
103
77,144
—
—
—
—
103
(193)
2,993
—
397
—
(693)
—
3,574
—
—
—
(2)
—
—
(58)
(104)
(104)
(355) $ 83,309
See accompanying notes to consolidated financial statements
46
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2017 and 2016
(Dollars in Thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
$
3,574 $
4,001
For the Year Ended December 31,
2017
2016
Provision for loan losses
Amortization of securities premiums
Deferred taxes
Depreciation
Stock based compensation
Accretion of net loan origination fees and costs
Gain on sale of other real estate owned
Write down of other real estate owned
Changes in operating assets and liabilities:
Increase in accrued interest receivable
Decrease in other assets
Increase (decrease) 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 calls, maturities and other principal payments 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 exercise of stock 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
400
193
1,028
669
397
212
(18)
41
(329)
210
121
6,498
(15,064)
(10,148)
11,433
23,052
(56)
659
176
(60,990)
(897)
(51,835)
70,305
(11,623)
(695)
2,993
60,980
15,643
76,976
92,619 $
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
7,476 $
2,605 $
7,174
2,609
$
$
$
Supplemental disclosure of non-cash investing and financing transactions:
Loans transferred to other real estate owned
$
— $
158
See accompanying notes to consolidated financial statements
47
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 accounting principles generally accepted in the
United States of America (“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.
48
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”).
Investment 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 Consolidated Statements of Income.
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 the Company’s 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.
49
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 commercial 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 general and unallocated components. The general component covers
pools of loans by loan class including commercial loans not considered impaired, as well as smaller balance
homogeneous loans, such as residential real estate, home equity and other consumer loans. These pools of loans
are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for
qualitative factors. These qualitative risk factors include:
1. Lending policies and procedures, including underwriting standards and collection, charge-off, and
recovery practices.
2. National, regional, and local economic and business conditions as well as the condition of various market
segments, including the value of underlying collateral for collateral dependent loans.
3. Nature and volume of the portfolio and terms of loans.
4. Experience, ability, and depth of lending management and staff.
5. Volume and severity of past due, classified and nonaccrual loans as well as and other loan modifications.
6. Quality of the Company’s loan review system, and the degree of oversight by the Company’s Board of
Directors.
50
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. 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.
All or part of the principal balance of a loan is charged-off 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 TDR agreement.
Loans whose terms are modified are classified as TDRs if the Company grants such borrowers concessions and it
is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a TDR 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 TDR are restored to accrual status if principal and interest payments, under the
modified terms, are current for six consecutive months after modification.
The Company’s methodology for the determination of the allowance for loan losses includes further segregation
of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources,
guarantors and value of collateral, if appropriate, are evaluated annually for commercial loans or when credit
deficiencies arise, such as delinquent loan payments, for commercial and consumer loans. Credit quality risk
ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans classified as
51
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. Management believes the level of the
allowance for loan losses was adequate to absorb losses inherent in the loan portfolio as of December 31, 2017.
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
Accounting Standards Codification (“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 $397 thousand and $285 thousand during 2017 and
2016, respectively. At December 31, 2017, the Company had $132 thousand of unrecognized compensation
expense related to stock options. At December 31, 2017, the Company had $324 thousand of unrecognized
compensation expense related to unvested restricted stock.
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
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.
52
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 Statements of Income and which are reported directly as a separate component of
stockholders’ equity.
Advertising
The Company expenses advertising costs as incurred. Advertising expenses totaled $216 thousand and $308
thousand for 2017 and 2016, 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 $1.28 million and Atlantic Community Bankers Bank, (“ACBB”) of $100 thousand respectively as
of December 31, 2017. Federal law requires a member institution of the FHLB to hold stock according to a
predetermined formula.
Management believes no impairment charge is necessary related to the FHLB or ACBB restricted stock as of
December 31, 2017.
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
(“FRBNY”). At December 31, 2017 and 2016, these reserve balances amounted to $3.8 million and $5.9 million,
respectively, and are reflected in interest bearing deposits in banks.
53
NOTE 2. Securities
A summary of securities held to maturity and securities available for sale at December 31, 2017 and 2016 is as
follows (in thousands):
2017
Securities Held to Maturity:
Obligations of states and political
subdivisions
Total securities held to maturity
Securities Available for Sale:
U.S. Treasury securities
Government sponsored enterprise
obligations
Agency backed
Mortgage backed
Total securities available for sale
2016
Securities Held to Maturity:
Obligations of states and political
subdivisions
Total securities held to maturity
Securities Available for Sale:
U.S. Treasury securities
Government sponsored enterprise
obligations
Total securities available for sale
Gross
Amortized Unrealized Unrealized
Gains
Gross
Losses
Cost
Fair
Value
$
6,058 $
6,058
— $
—
— $
—
6,058
6,058
6,286
—
(124)
6,162
33,453
13,986
53,725
—
—
—
(218)
(149)
(491)
33,235
13,837
53,234
$ 59,783 $
— $
(491) $
59,292
Gross
Amortized Unrealized Unrealized
Gains
Gross
Losses
Cost
Fair
Value
$
7,343 $
7,343
— $
—
— $
—
7,343
7,343
6,400
—
(132)
6,268
55,506
61,906
6
6
(191)
(323)
55,321
61,589
$ 69,249 $
6 $
(323) $
68,932
For the year ended December 31, 2017 and 2016, the Company did not sell any securities from its available for
sale portfolio and therefore no loss or gain was recognized. The Company did not sell any securities from its held
to maturity portfolio in 2017 or 2016.
54
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, 2017 and 2016 are as follows (in thousands):
2017
Securities Available for Sale:
U.S. Treasury securities
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
—
—
6,162
(124) 6,162
(124)
23,691
23,691
(201) 23,381
(166) 47,072
(367)
(201) 29,543
(290) 53,234
(491)
Total securities
$ 23,691 $
(201) $ 29,543 $
(290) $ 53,234 $
(491)
2016
Securities Available for Sale:
U.S. Treasury securities
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
—
—
6,268
(132)
6,268
(132)
34,473
34,473
(158)
6,966
(33) 41,439
(191)
(158) 13,234
(165) 47,707
(323)
Total securities
$ 34,473 $
(158) $ 13,234 $
(165) $ 47,707 $
(323)
Unrealized losses at December 31, 2017 consisted of losses on twelve investments in government sponsored
enterprise obligations, and two in U. S. Treasury securities, all of which were caused by interest rate increases.
Nine of the investments with unrealized losses at December 31, 2017 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, 2017.
The following table sets forth as of December 31, 2017, 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
Greater than five years
Total
$
Amortized
Cost
6,058 $
—
—
6,058 $
$
Fair
Value
Amortized
Cost
6,058 $ 18,047 $
—
—
21,692
13,986
6,058 $ 53,725 $
Fair
Value
17,933
21,465
13,836
53,234
Actual maturities may differ from contractual maturities due to the borrowers’ ability to call or prepay their
obligations.
55
NOTE 3. Loans and Allowance for Loan Losses
Loans at December 31, 2017 and 2016, are summarized as follows (in thousands):
Commercial real estate
Residential mortgages
Commercial and industrial
Home equity
Consumer
December 31, 2017 December 31, 2016
492,296
$
78,961
30,259
58,399
656
660,571
573,941 $
66,497
27,237
53,199
317
721,191 $
$
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, 2017 (in thousands):
Commercial Residential Commercial
Real Estate Mortgages & Industrial Home Equity Consumer Unallocated
Total
Allowance for loan losses:
Beginning Balance
Charge-offs
Recoveries
Provision
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
$
$
$
$
5,925 $
—
30
(88)
5,867 $
554 $
(49)
—
(133)
372 $
809 $
(90)
1
(145)
575 $
425 $
(171)
—
149
403 $
6 $
(97)
6
135
50 $
568 $
—
—
482
1,050 $
8,287
(407)
37
400
8,317
— $
— $
— $
— $
— $
— $
—
5,867 $
372 $
575 $
403 $
50 $
1,050 $
8,317
Loan receivables:
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
$ 573,941 $ 66,497 $ 27,237 $
53,199 $
317 $
— $ 721,191
$ 11,554 $
8,966 $
2,957 $
3,214 $
— $
— $ 26,691
$ 562,387 $ 57,531 $ 24,280 $
49,985 $
317 $
— $ 694,500
56
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 Commercial
Real Estate Mortgages & Industrial Home Equity Consumer Unallocated
Total
Allowance for loan losses:
Beginning Balance
Charge-offs
Recoveries
Provision
Ending balance
Ending balance: individually
evaluated for impairment
Ending balance: collectively
evaluated for impairment
$
$
$
$
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
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, 2017 and 2016 (in thousands):
2017
Commercial real estate
Residential mortgages
Commercial and industrial
Home equity
Consumer
2016
Commercial real estate
Residential mortgages
Commercial and industrial
Home equity
Consumer
Total Past
Due
30-59 Days 60-89 Days 90+ Days
Past Due Past Due
Past Due
209 $
$
Loans
3,344
9,052
2,957
3,073
—
$ 4,495 $ 1,774 $ 18,426 $ 24,695 $ 696,496 $ 721,191 $ 18,426
3,344 $ 3,553 $ 570,388 $ 573,941 $
9,052
2,957
3,073
—
66,497
27,237
53,199
317
54,008
24,255
47,528
317
— $
974
25
775
—
12,489
2,982
5,671
—
2,463
—
1,823
—
Total Loans Nonaccrual
Receivables
Current
30-59 Days 60-89 Days Greater than Total Past
Past Due Past Due
$ 2,744 $
Due
90 Days
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 $
Total Loans Nonaccrual
Receivables
57
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, 2017 and 2016 (in thousands):
2017
Pass
Special Mention
Substandard
Doubtful
2016
Pass
Special Mention
Substandard
Doubtful
Commercial Residential
Mortgages
Real Estate
Commercial
& Industrial Home Equity Consumer
Total
$
$
562,387 $
—
11,554
—
573,941 $
56,407 $
1,124
8,966
—
66,497 $
24,051 $
229
2,957
—
27,237 $
49,985 $
—
3,214
—
53,199 $
317 $ 693,147
1,353
26,691
—
317 $ 721,191
—
—
—
Commercial Residential
Mortgages
Real Estate
$ 481,211 $
Commercial
& Industrial Home Equity Consumer
26,681 $ 53,856 $
600
10,485
—
$ 492,296 $
67,204 $
2,026
9,731
—
78,961 $
321
3,257
—
—
4,543
—
30,259 $ 58,399 $
Total
656 $ 629,608
2,947
—
28,016
—
—
—
656 $ 660,571
As of December 31, 2017 and 2016 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, 2017 and 2016 (in thousands):
Unpaid
2017
Commercial real estate
Residential mortgages
Commercial and industrial
Home equity
Total impaired loans
2016
Commercial real estate
Residential mortgages
Commercial and industrial
Home equity
Total impaired loans
Recorded
Investment
Principal
Balance
$
$
11,554 $ 11,578 $
8,966
2,957
3,214
26,691 $ 28,431 $
10,287
3,057
3,509
Related
Allowance
—
—
—
—
—
Unpaid
Recorded
Investment
Principal
Balance
$
10,485 $ 10,509 $
9,731
3,257
4,543
10,804
3,257
4,675
$ 28,016 $ 29,245 $
Related
Allowance
—
—
—
—
—
Year Ended
December 31, 2017
Year Ended
December 31, 2016
Average Interest Average Interest
Income
Recorded
Investment Received
Investment Received
Income Recorded
Impaired loans with no specific reserves:
Commercial real estate
Residential mortgages
Commercial and industrial
Home equity
Consumer
10,232
9,360
3,149
3,205
—
$ 25,946 $
15,031
4,429
3,256
4,834
—
—
—
—
—
—
— $ 27,550 $
—
—
—
—
—
—
58
If interest had been accrued on these non-accrual loans, the interest income recognized would have been
approximately $636 thousand and $354 thousand for the years ended December 31, 2017 and 2016 respectively.
The following table presents TDR loans (all of which are classified as impaired loans) as of December 31, 2017
and 2016 (in thousands):
2017
Commercial real estate
Residential mortgages
Home equity
2016
Commercial real estate
Residential mortgages
Home equity
Accrual Number of Nonaccrual Number of
Status
$ —
637
—
$ 637
Loans
Status
Loans
Total
338
— $
7,446
3
—
2,959
3 $ 10,743
338
1 $
8,083
10
8
2,959
19 $ 11,380
Accrual Number of Nonaccrual Number of
Status
$ —
521
103
$ 624
Loans
Status
Loans
Total
— $
2
2
4 $
338
3,477
3,441
7,256
338
1 $
3,998
5
7
3,544
13 $ 7,880
The following table summarizes information in regards to troubled debt restructurings that occurred during the
year ended December 31, 2017 and 2016 (in thousands):
Post-
2017
Residential mortgages
Home equity
2016
Residential mortgages
Home equity
Number of
Loans
Outstanding
Recorded
Investments
Pre-Modification Modification
Outstanding
Recorded
Investments
3,695
320
4,015
3,695 $
320
4,015 $
4 $
1
5 $
Post-
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 $
The following table displays the nature of modifications during the year ended December 31, 2017 (in thousands):
2017
Pre-modification outstanding recorded
investment:
Residential mortgages
Home equity
Rate
Term
Interest Only Payment
Combination
Total
Modification Modification Modification Modification Modification Modifications
$
$
— $
—
— $
3,695 $
320
4,015 $
— $
—
— $
— $
—
— $
— $
—
— $
3,695
320
4,015
During the years ended December 31, 2017 and 2016, the Company had no loans meeting the definition of a TDR
which were placed on default status.
59
The Company may obtain physical possession of real estate collateralizing loans via foreclosure or an in-
substance repossession into other real estate owned. As of December 31, 2017 and 2016, the Company has no
foreclosed residential real estate properties. In addition, as of December 31, 2017 and 2016, the Company had
loans with a carrying value of $2.6 million and $1.7 million respectively, collateralized by residential real estate
property for which formal foreclosure proceedings were in process.
NOTE 4. Premises and Equipment
At December 31, 2017 and 2016, premises and equipment consists of the following (in thousands):
Land
Building
Furniture and fixtures
Equipment
Less accumulated depreciation and amortization
Total premises and equipment, net
2017
2016
$ 4,828 $ 4,828
10,038
1,131
2,223
18,220
4,723
$ 13,725 $ 13,497
10,468
1,309
2,512
19,117
5,392
Depreciation expense amounted to $669 thousand and $665 thousand for the years ended December 31, 2017 and
2016, respectively.
NOTE 5. Deposits
At December 31, 2017 and 2016, 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
2017
2016
$ 43,535 $ 59,889
92,044
51,818
31,135
9,976
47,880
$ 347,049 $ 292,742
95,818
62,356
29,110
40,250
75,980
At December 31, 2017 and 2016, 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
2017
2016
$
8,191 $
15,186
7,311
14,898
2,063
25,440
4,991
27,200
At December 31, 2017 and 2016, deposits of certain municipalities and local government agencies were
collateralized by a Municipal Letter of Credit from FHLB in the amount of $40 million and $30 million and
securities with a fair value of $20.0 million and $37.2 million, respectively.
60
NOTE 6. Borrowed Funds
Borrowings may consist of fixed rate advances from the FHLB as well as short term borrowings through lines of
credit with other financial institutions. Information concerning long-term borrowings at December 31, 2017 and
2016 is as follows (in thousands):
2017
Original
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Amount
1,624
2,563
2,511
2,766
3,921
$ 13,385
Term (years) Maturity
June 2019
5
5
July 2019
5 August 2019
7 August 2021
5 October 2019
Rate
1.50 %
1.51 %
1.51 %
2.02 %
1.48 %
1.61 %
2016
Original
Amount
Rate
Fixed Rate Medium Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
Fixed Rate Amortizing Note
$
5,000
2,630
4,070
3,916
3,469
5,923
$ 25,008
Maturity
Term (years)
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 %
1.47 %
At December 31, 2017 and 2016, loans with a carrying value of approximately $149.3 million and $86.2 million
and securities with a fair value of $11.0 million and $11.1 million, respectively, were pledged to secure advances
from FHLB.
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, 2017
and December 31, 2016.
NOTE 7. Income Taxes
The current and deferred amounts of the provision for income taxes expense (benefit) for the years ended
December 31, 2017 and 2016 is as follows (in thousands):
Current tax expense:
Federal
State
Deferred income tax benefit:
Federal
Re-measurement of deferred taxes due to Tax Cuts and Jobs Act
State
2017
2016
$
2,259
268
$
2,455
162
(218)
1,393
(29)
3,673
$
(383)
—
(100)
2,134
$
61
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, 2017 and 2016 are as follows (in thousands):
Deferred tax assets:
Start up expenses
Allowance for loan losses
Accrued expenses
Stock compensation plans
Unrealized losses on securities available for sale
Other
Total
Deferred tax liabilities:
Deferred loan costs
Prepaid expenses
Depreciation
Total
Net deferred tax asset
2017
2016
$
82 $
2,488
224
129
135
728
3,786
(52)
(133)
(191)
(376)
152
3,541
299
451
124
605
5,172
(83)
(120)
(424)
(627)
$ 3,410 $ 4,545
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 2017 and 2016, 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 Sheets.
The Tax Cut and Jobs Act that was signed into law on December 22, 2017 resulted in re-measurement of the
Company’s deferred tax assets and liabilities at the new 21% federal tax rate compared to a 34% federal tax rate
in 2016. The impact of the re-measurement is recorded as a component of income tax expense in the Consolidated
Statements of Income for the year ended December 31, 2017.
Deferred tax assets related to securities available for sale losses that were revalued as of December 31, 2017
created a “stranded tax effect” in Accumulated Other Comprehensive Income (AOCI) due to the enactment of the
Tax Cuts and Jobs Act. The issue arose due to the nature of U.S GAAP recognition of the effect on tax rate
changes on the deferred tax assets related to securities available for sale. As mentioned above, the entirety of the
revaluation was recorded as an adjustment to income tax provision. There was no corresponding impact to AOCI.
In January 2018, the FASB issued ASU 2018-02 (see Note 18). The company early adopted the provisions of the
ASU 2018-02 and recorded a one-time reclassification of $58 thousand from AOCI to retained earnings for
stranded tax effects resulting from the newly enacted corporate tax rate. The amount of the reclassificaiton was
the difference between the 34% historical corporate tax rate and the newly enacted 21% corporate tax rate. See
Statement of Changes in Stockholders’ Equity for details of the reclassification.
62
A reconciliation between the amount of the effective income tax expense and the income tax expense that would
have been provided at the federal statutory rate of 34% is shown below (in thousands):
Federal income tax expense at statutory rate
Increase (decrease) in taxes resulting from:
State taxes, net of federal income tax expense
Tax exempt income
Stock-based compensation
Meals and entertainment
Re-measurement of deferred taxes due to Tax Cuts and Jobs Act
Other
Effective Income Tax
2017
2016
$ 2,464 $ 2,086
158
(20)
(317)
4
1,393
(9)
41
(13)
21
10
—
(11)
$ 3,673 $ 2,134
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, 2017 and December 31, 2016, 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, 2017 (in thousands):
Year ending December 31,
2018
2019
2020
2021
2022
Thereafter
$ 1,396
1,174
879
648
369
863
$ 5,329
NOTE 9. Related-party Transactions
The Company has made, and expects to continue to make, loans in the future to its directors and executive
officers and their family members, and to firms, corporations, and other entities in which they and their family
members maintain interests. All such loans require the prior approval of the Company’s Board of Directors. None
of those loans were nonaccrual, past due, or restructures at December 31, 2017 while five of such loans were
nonaccrual at December 31, 2016. The borrower of these five loans is no longer a related party, effective January
13, 2017 and the reduction in total related-party loan balances is reflected in the table below. Related party
deposit balances were $34.9 million and $55.5 million at December 31, 2017 and 2016, respectively.
63
The following table represents a summary of related-party loan activity during the years ended December 31,
2017 and 2016 (in thousands):
Outstanding loans at beginning of the year
Advances
Repayments
Former director
Outstanding loans at end of the year
2017
2016
$ 22,994 $ 26,791
4,098
(7,895)
—
$ 17,246 $ 22,994
7,039
(5,314)
(7,473)
Two of the Company’s directors have acted as the Company’s legal counsel on several loan closings. During
2017 and 2016 the total cost of such work has been reimbursed by the respective loan customers and totals $119
thousand and $158 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 $15
thousand and $7 thousand for the years ended December 31, 2017 and 2016, 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 the Company’s directors is the president.
Gross insurance premiums paid to carriers through this agency was approximately $220 thousand for the years
ended December 31, 2017 and 2016, respectively.
The Bank rents office space from entities related to two of the Company’s directors. The total amount of rent
expense to these entities was $226 thousand and $443 thousand for the years ended December 31, 2017 and 2016,
respectively.
The Audit Committee of the Board of Directors or the disinterested directors have reviewed all transactions and
relationships with the directors and 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:
(In thousands except per share data)
Net income available to common stockholders
Weighted average number of common shares outstanding - basic
Basic earnings per share
Net income available to common stockholders
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,
2017
3,574 $
6,556
0.55 $
2016
4,001
6,274
0.64
3,574 $
6,556
16
6,572
4,001
6,274
—
6,274
0.64
$
0.54 $
Non-qualified options to purchase 97,453 shares of common stock at a weighted average price of $11.62 were
included in the computation of diluted earnings per share for the year ended December 31, 2017.
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.
64
NOTE 11. Stockholders’ Equity and Dividend Restrictions
In 2017, the Company declared a 5% stock dividend and a cash dividend in the amount of $0.10 per share. The
stock dividend was paid to shareholders on August 1, 2017 and the cash dividend was paid to shareholders on
December 27, 2017.
In 2016, the Company declared three 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.
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.
NOTE 12. Benefit Plans
Stock option and restricted share information, and the related activity, for the periods presented have been
adjusted for a 5% stock dividend declared on June 26, 2017.
2006 Stock Option Plan
During 2006, the Bank’s stockholders approved the 2006 Stock Option Plan. At the time of the holding company
reorganization, the 2006 Stock Option Plan was assumed by the Company. The plan allows the Company to grant
options to directors and employees of the Company to purchase up to 251,983 shares of the Company’s common
stock. At December 31, 2017, stock options to purchase 220,659 shares, net of forfeitures have been issued to
directors and employees of the Company under the 2006 Stock Option Plan, of which options to purchase 51,253
shares were outstanding. There are no shares available for grants under the 2006 Stock Options Plan as the plan
has expired.
During 2016, the Company granted 67,158 Non-Qualified Stock Options (“NQO”) to employees of the Company.
The fair value of the NQOs granted was $2.63 per NQO on the date of grant. The fair value of the NQOs was
determined using the Black-Scholes option pricing model. The following assumptions were used in determining
the fair value of the NQOs granted: expected dividend yield of 2.149%, risk free interest rate of 1.57%, expected
volatility of 26.54% and expected lives of 10 years. One third of the NQOs granted vest each on February 1,
2017, February 1, 2018 and February 1, 2019.
Under the 2006 Stock Option Plan, there were 34,545 unvested options at December 31, 2017 and 59,283
unvested options at December 31, 2016. At December 31, 2017 there was $49 thousand of unrecognized
compensation expense related to unvested options. For the three months and year ended December 31, 2017, $1
thousand and $49 thousand, respectively was recorded as expense for options that have been issued through the
2006 Plan. For the three months and year ended December 31, 2016, $29 thousand and $48 thousand, respectively
was recorded as expense for options that have been issued through the 2006 Plan.
65
During the year ended December 31, 2017 options to purchase 31,500 shares and 881 shares of common stock at
a price of $10.95 and $10.64, respectively, per share were exercised for a total price of $354 thousand.
A summary of stock option activity under the 2006 Stock Option Plan during the years ended December 31, 2016
and 2017 are presented below:
Weighted
Average
Remaining
Number of Exercise Price Intrinsic Value Contractual
Weighted
Average
Aggregate
Outstanding at December 31, 2015
Granted
Forfeited
Exercised
Shares
167,685 $
67,158
(59,745)
(84,315)
per Share
(1)
Term
9.73
10.64
10.73
8.66
Outstanding at December 31, 2016
90,783 $
10.74 $
191,552
6.56
Exercisable at December 31, 2016
31,500 $
10.85 $
60,000
0.92
Weighted
Average
Remaining
Number of Exercise Price Intrinsic Value Contractual
Weighted
Average
Aggregate
Outstanding at December 31, 2016
Forfeited
Exercised
Shares
90,783 $
(7,149)
(32,381)
per Share
(1)
Term
10.74
10.64
10.94
Outstanding at December 31, 2017
51,253 $
10.63 $
390,035
8.56
Exercisable at December 31, 2017
16,708 $
10.63 $
127,148
8.56
(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, 2017. This
amount changes based on the changes in the market value in the Company’s common stock.
2007 Director Plan
During 2007, the Bank’s stockholders approved the 2007 Non-Qualified Stock Option Plan for Directors (the
“2007 Director Plan”). At the time of the holding company reorganization, the 2007 Director Plan was assumed
by the Company. This plan provides for 504,000 options to purchase shares of the Company’s common stock to
be issued to non-employee directors of the Company. At December 31, 2017, stock options to purchase 404,600
shares, net of forfeitures, have been issued to non-employee directors of the Company under the 2007 Director
Plan. No options to purchase shares were outstanding at December 31, 2017. There are no shares available for
grants under the 2007 Non-Qualified Stock Option Plan as the plan has expired.
Under the 2007 Directors Stock Option Plan, there were no unvested options and no unrecognized compensation
expense at December 31, 2017 and 2016. In connection with the 2007 Director Plan, no share based compensation
expense was recognized for the three months and year ended December 31, 2017.
During the year ended December 31, 2017 options to purchase 241,000 shares of common stock at a price of
$10.95 per share were exercised for a total price of $2.64 million.
66
A summary of stock option activity under the 2007 Non-Qualified Stock Option Plan for Directors during the
years ended December 31, 2016 and 2017 are presented below:
Weighted
Average
Aggregate
Weighted
Average
Remaining
Number of Exercise Price Intrinsic Value Contractual Life
Outstanding at December 31, 2015
Forfeited
Outstanding at December 31, 2016
Shares
347,901 $
(22,401)
325,500 $
10.95
10.95
10.95 $
620,000
per Share
(1)
(Years)
Exercisable at December 31, 2016
325,500 $
10.95 $
620,000
0.81
0.81
Weighted
Average
Aggregate
Weighted
Average
Remaining
Exercise Price Intrinsic Value Contractual Life
(1)
per Share
(Years)
Outstanding at December 31, 2016
Expired
Exercised
Outstanding at December 31, 2017
Number of
Shares
325,500 $
(84,500)
(241,000)
10.95
10.95
10.95
— $
— $
Exercisable at December 31, 2017
— $
— $
—
—
—
—
—
—
—
—
(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, 2017. This
amount changes based on the changes in the market value in the Company’s common stock.
2011 Equity Incentive Plan
During 2011, the stockholders of the Company approved the Bancorp of New Jersey, Inc. 2011 Equity Incentive
Plan (the “2011 Plan”). The 2011 Plan authorizes the issuance of up to 262,500 shares of the Company’s
common stock, subject to adjustment in certain circumstances described in the 2011 Plan, pursuant to awards of
incentive stock options or non-qualified stock options, stock appreciation rights, restricted stock, restricted stock
units or performance awards. Employees, directors, consultants, and other service providers of the Company and
its affiliates (primarily the Bank) are eligible to receive awards under the 2011 Plan, provided, that only
employees are eligible to receive incentive stock options. At December 31, 2017, there were 156,943 shares, net
of forfeitures, issued to employees and directors of the Company under the 2011 Plan.
The following is a summary of the non-vested restricted stock awards granted under the 2011 Plan:
Outstanding, beginning of year
Forfeited
Vested
Outstanding, end of year
2016
Weighted
Average
Number
Grant Date
of Shares Fair Value
50,663 $ 12.37
12.29
(4,463)
(16,800)
12.38
29,400 $ 12.38
67
Outstanding, beginning of year
Granted
Forfeited
Vested
Outstanding, end of year
2017
Weighted
Average
Number
Grant Date
of Shares Fair Value
29,400 $ 12.38
14.28
31,500
12.38
(4,200)
(24,150)
13.21
32,550 $ 13.61
Approximately $324 thousand remains to be expensed over the next 24 months related to the unvested restricted
stock. For the years ended December 31, 2017, and 2016, $287 thousand and $188 thousand, respectively, was
recorded as compensation expense for restricted stock that had been issued through the 2011 Plan.
During 2016, the Company granted 31,500 NQOs to an executive of the Company. The fair value of the 31,500
NQOs granted was $2.78 per NQO on the date of grant. The fair value of the NQOs was determined using the
Black-Scholes option pricing model. The following assumptions were used in determining the fair value of the
NQOs granted: expected dividend yield of 2.137%, risk free interest rate of 1.87%, expected volatility of 27.0%
and expected lives of 10 years. One third of the NQOs granted vested immediately, with the remaining NQOs
vesting over a two year period.
In July 2017, the Company granted 14,700 NQOs to employees of the Company. The fair value of the NQOs
granted was $6.95 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 0.00%, risk free interest rate of 2.31%, expected volatility of 26.81% and
expected lives of 10 years. One third of the NQOs granted vest each on February 1, 2018, February 1, 2019 and
February 1, 2020.
Under the 2011 Plan, there were 25,200 unvested options at December 31, 2017 and 20,000 unvested options at
December 31, 2016. At December 31, 2017 there was $83 thousand of unrecognized compensation expense
related to unvested options. For the three months and year ended December 31, 2017, $24 thousand and $57
thousand, respectively were recorded as expense for options that have been issued through the 2011 Plan. For the
three months and year ended December 31, 2016, $7 thousand and $49 thousand, respectively were recorded as
expense for options that have been issued through the 2011 Plan.
No options were exercised under the 2011 Plan during the years ended December 31, 2017 and 2016.
68
A summary of stock option activity under the 2011 Plan during the years ended December 31, 2016 and 2017 are
presented below:
Weighted
Average
Remaining
Number of Exercise Price Intrinsic Value Contractual
Weighted
Average
Aggregate
Outstanding at December 31, 2015
Granted
Outstanding at December 31, 2016
— $
31,500
31,500 $
—
10.70
10.70 $
68,100
9.31
Shares
per Share
(1)
Term
Exercisable at December 31, 2016
10,500 $
10.70 $
22,700
9.31
Weighted
Average
Remaining
Number of Exercise Price Intrinsic Value Contractual
Weighted
Average
Aggregate
Shares
per Share
(1)
Term
Outstanding at December 31, 2016
Granted
Outstanding at December 31, 2017
31,500 $
14,700
46,200 $
10.70
17.05
12.72 $
255,465
8.69
Exercisable at December 31, 2017
21,000 $
10.70 $
158,500
8.31
(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, 2017. This
amount changes based on the changes in the market value in the Company’s common stock.
Defined Contribution Plan
The Company currently offers a Safe Harbor 401(k) Plan (“Plan”) covering eligible employees, wherein
employees can invest eligible pretax and after tax earnings up to the Plan and legal limits. The Company makes
safe harbor matching contributions equal to 100% of the employees’ earnings deferrals that do not exceed 4% of
the employees’ compensation. The Company recorded matching contributions of approximately $216 thousand
and $80 thousand during 2017 and 2016, 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
69
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, 2017
and 2016, management believes that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 2017, 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, 2017 and 2016
compared to the FDIC minimum capital adequacy requirements and the FDIC requirements for classification as a
well-capitalized institution.
Minimum Capital
FDIC requirements
Minimum Capital
Bank actual
With Phase-in Buffer
Adequacy
Amount Ratio Amount Ratio Amount Ratio
For Classification
As Well Capitalized
Amount Ratio
$ 83,664
9.59 % $ 34,888 4.00 % $
N/A
$ 43,610
5.00 %
2017
Leverage (Tier 1) Capital Ratio
Risk-Based Capital:
Common Equity Tier 1 Capital
Tier 1 Capital Ratio
Total Capital Ratio
$ 83,664
$ 83,664
$ 92,265
10.84 % $ 34,746
10.84 % $ 46,327
11.95 % $ 61,770
4.50 % $ 44,397
6.00 % $ 55,979
8.00 % $ 71,421
5.75 % $ 50,188
7.25 % $ 61,770
9.25 % $ 77,212
6.50 %
8.00 %
10.00 %
2016
Leverage (Tier 1) Capital Ratio
Risk-based capital:
$ 77,337
9.02 % $ 33,293 4.00 % $
N/A
$ 41,617
5.00 %
Common Equity Tier 1 Capital
Tier 1 Capital Ration
Total Capital Ratio
$ 77,337
10.98 % $ 31,685
$ 77,337 10.98 % $ 42,247
$ 85,993 12.21 % $ 56,329
4.50 % $ 36,086
6.00 % $ 46,647
8.00 % $ 60,730
6.50 %
5.125 % $ 45,767
8.00 %
6.625 % $ 56,329
8.625 % $ 70,411 10.00 %
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 $83 million and $95.3 million at
December 31, 2017 and 2016.
At December 31, 2017 and 2016, the Company had outstanding letters of credit to customers totaling $3.4 million
and $3.6 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
70
estimated using the fees currently charged to enter into similar agreements, taking into account the remaining
terms of the agreements. At December 31, 2017 and 2016, 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, 2017
and 2016, respectively, the statements of income for the years ended December 31, 2017 and December 31, 2016,
and the statements of cash flows for the years December 31, 2017 and December 31, 2016 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,
2017
2016
$ 83,309 $ 77,144
$ 83,309 $ 77,144
$ 83,309 $ 77,144
$ 83,309 $ 77,144
Statements of Income and Comprehensive Income
Years ended December 31,
(in thousands)
Equity in undistributed earnings of subsidiary bank
Net income
Other comprehensive (loss) income
Comprehensive income
2017
2016
$ 3,574 $ 4,001
4,001
3,574
(162)
103
$ 3,412 $ 4,104
71
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
$ 3,574 $ 4,001
2017
2016
activities:
Equity in undistributed earnings of the subsidiary bank
Net cash provided by operating activities:
(3,574)
—
(4,001)
—
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
695
695
1,128
1,128
(695)
(695)
(1,128)
(1,128)
—
—
— $
—
—
—
$
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, 2017 and December 31, 2016, respectively, are as follows (in thousands):
Description
Securities available for sale:
U.S. Treasury securities
Government sponsored enterprise obligations:
Agency backed
Mortgage backed
Total securities available for sale
$
(Level 1)
Quoted Prices in
Active Markets
for Identical
Assets
December 31,
2017
(Level 2)
(Level 3)
Significant Other
Observable
Inputs
Significant
Unobservable Inputs
$
6,162 $
— $
6,162 $
33,235
13,837
53,234 $
—
— $
33,235
13,837
53,234 $
—
—
—
Description
Securities available for sale:
U.S. Treasury securities
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 $
—
—
—
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, 2017 and December 31, 2016, respectively, is as follows (in thousands):
(Level 1)
(Level 2)
(Level 3)
Quoted Prices in
December 31, Active Markets for Significant Other
Significant
Description
Other real estate owned
Description
Other real estate owned
2017
Identical Assets
Observable Inputs Unobservable Inputs
415
— $
— $
$
415 $
(Level 1)
(Level 2)
(Level 3)
Quoted Prices in
December 31, Active Markets for Significant Other
Significant
2016
Identical Assets
Observable Inputs Unobservable Inputs
614
— $
— $
$
614 $
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring
basis and for which the Company has utilized Level 3 inputs to determine fair value (in thousands):
December 31, 2017
Other real estate owned
December 31, 2016
Other real estate owned
Fair Value
Estimate
$
Fair Value
Estimate
$
Valuation
Techniques
Unobservable
Input
415 Appraisal of Collateral (1) Appraisal Adjustments (2)
Liquidation Expenses (2)
Range
(Weighted Average)
21.8
6.8
Valuation
Techniques
Unobservable
Input
Range
(Weighted Average)
614 Appraisal of Collateral (1) Appraisal Adjustments (2) 11.5% - 48.40% (21.8)%
(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally
include various Level 3 inputs which are not identifiable.
Liquidation Expenses (2) 8.9% - 10.3% (9.3)%
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, 2017 and 2016 (in
thousands):
December 31, 2017
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
92,619 $
1,000
53,234
6,058
92,619 $
1,000
53,234
6,058
92,619 $
—
—
—
— $
1,000
53,234
6,058
—
—
—
—
1,380
712,076
2,695
788,293
13,385
651
1,380
703,901
2,695
793,879
13,307
651
—
—
—
—
—
—
1,380
—
2,695
—
703,901
—
793,879
13,307
651
—
—
—
December 31, 2016
Carrying amount Estimated Fair Value
(Level 3)
(Level 1)
Quoted Prices in
Significant
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
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
659,084
2,366
722,711
24,933
516
—
—
—
—
—
—
1,983
—
2,366
—
659,084
—
722,711
24,933
516
—
—
—
74
The following methods and assumptions were used to estimate the fair values of the Company’s financial instruments at
December 31, 2017 and 2016.
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
75
applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly
maturities of time deposits.
Borrowed Funds
The fair value of borrowed funds is estimated using quoted market prices, if available, or by discounting future cash
flows using current interest rates for similar financial instruments.
Limitation
The preceding fair value estimates were made at December 31, 2017 and 2016 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, 2017 and 2016, no attempt was made to estimate the value of anticipated future business. Furthermore, certain tax
implications related to the realization of the unrealized gains and losses could have a substantial impact on these fair
value estimates and have not been incorporated into the estimates.
NOTE 17. Accumulated Other Comprehensive Income (Loss)
There were no reclassifications out of accumulated comprehensive income due to sale of securities for the years ended
December 31, 2017 and 2016.
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 Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2014-09, Revenue from Contracts with Customers. The amendments in this ASU establish a comprehensive revenue
recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry-
specific guidance such as the real estate, construction and software industries. The revenue standard’s core principle is
built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the
exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to
which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (i) identify the contract
with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price,
(iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as)
the entity satisfies a performance obligation. Public entities will apply the new standard for annual periods beginning
after December 15, 2017, including interim periods therein. Three basic transition methods are available – full
retrospective, retrospective with certain practical expedients, and a cumulative effect approach. Under the third
alternative, an entity would apply the new revenue standard only to contracts that are incomplete under legacy U.S.
GAAP at the date of initial application (e.g. January 1, 2018) and recognize the cumulative effect of the new standard as
an adjustment to the opening balance of retained earnings. That is, prior years would not be restated and additional
disclosures would be required to enable users of the financial statements to understand the impact of adopting the new
standard in the current year compared to prior years that are presented under legacy U.S. GAAP. Early adoption is
prohibited under U.S. GAAP. The implementation of ASU 2014-09 should not have a material impact on the
Company’s consolidated financial position or consolidated results of operations. However, the Company does believe
the new standard will result
76
in new disclosure requirements. The Company is currently in the process of reviewing contracts to assess the impact of
the new guidance on our service offerings that are in the scope of the guidance, included in non-interest income such as
service charges and payments processing fees. The Company is continuing to evaluate the effect of the new guidance on
revenue sources other than financial instruments on its consolidated financial statements.
ASU 2016-1, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities.
In January 2016 the FASB issued ASU 2016-1, Financial Instruments – Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 requires equity investments, with certain
exceptions, to be measured at fair value with changes in fair value recognized in net income, simplifies the impairment
assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to
identify impairment; eliminates the requirement for public business entities to disclose the methods and significant
assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at
amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair
value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive
income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific
credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for
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.
ASU 2018-02, Income Statement – Reporting Comprehensive Income
On February 2, 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic
202). The amendments in this ASU affect any entity that is required to apply the provisions of Topic 220, Income
Statement—Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax
effects are presented in other comprehensive income as required by GAAP. The amendments in this ASU allow a
77
reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting
from the 2017 Tax Reform Act; eliminates the stranded tax effects resulting from the 2017 Tax Reform Act. The
amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim
periods within those fiscal years. Early adoption of the amendments in this update is permitted, including adoption in
any interim period, for public business entities for reporting periods for which financial statements have not yet been
issued. The amendments in this ASU should be applied either in the period of adoption or retrospectively to each period
(or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the 2017 Tax Reform Act is
recognized. BONJ adopted the provision of ASU 2018-02 effective December 31, 2017. The effect of adoption at BONJ
resulted in a reclassification of $58,000 from accumulated other comprehensive loss to retained earnings in the
consolidated statements of stockholders' equity.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-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, 2017, 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.
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, 2017, 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, 2017, our internal control over financial reporting was
effective.
Baker Tilly Virchow Krause, LLP, the independent registered public accounting firm that audited the Company’s
consolidated financial statements included in this Annual Report on Form 10-K, has issued an audit report on the
78
Company’s internal control over financial reporting as of December 31, 2017. The report is included in Item 8 under the
heading “Report of Independent Registered Public Accounting Firm.”
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 2017 Annual
Meeting of Shareholders to be held May 24, 2018.
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 2017 Annual
Meeting of Shareholders to be held May 24, 2018.
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 2017 Annual
Meeting of Shareholders to be held May 24, 2018.
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 2017 Annual
Meeting of Shareholders to be held May 24, 2018.
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 2017 Annual
Meeting of Shareholders to be held May 24, 2018.
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)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Consolidated Balance Sheets as of December 31, 2017 and 2016.
Consolidated Statements of Income for the years ended December 31, 2017 and 2016.
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017
and 2016.
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017 and
2016.
Consolidated Statements of Cash Flows for the years ended December 31, 2017 and 2016.
Notes to Consolidated Financial Statement
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 82.
81
Exhibit
No.
3.1
3.2
4.1
10.8
10.9
10.10
10.11
10.12
10.13
10.14
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) Amended and Restated Employment Agreement dated March 23, 2017, by and among the Registrant, Bank
of New Jersey and Nancy E. Graves
Subsidiaries of the Registrant
(K) Bancorp of New Jersey, Inc. Severance Policy
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
10.15
21
23
31.1
31.2
32
101
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Labels Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
Section 1350 Certifications
Interactive Data Files
* 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 to Registrant’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on March 28, 2017.
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)
82
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 16, 2018
83
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 16, 2018
/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 16, 2018
Director, President & Chief Executive Officer March 16, 2018
March 16, 2018
March 16, 2018
March 16, 2018
March 16, 2018
March 16, 2018
March 16, 2018
March 16, 2018
March 16, 2018
March 16, 2018
Director
Director
Director
Director
Director
Director
Director
Director
Director
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
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 16, 2018,
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 16, 2018
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 16, 2018
/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 16, 2018
/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, 2017 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 16, 2018
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Branch Locations
1365 Palisade Avenue
Fort Lee, NJ 07024
(201) 944-8600
Anna Maria Alberga
VP, Branch Manager
4 Park Street
Harrington Park, NJ 07640
(201) 750-9970
Jakia Sultana
VP, Branch Manager
354 Palisade Avenue
Cliffside Park, NJ 07010
(201) 313-0025
Reina Martinez
VP, Branch Manager
Main Office
1365 Palisade Avenue
Fort Lee, NJ 07024
(201) 944-8600
458 West Street
Fort Lee, NJ 07024
(201) 944-7222
Veronica Fuentes
AVP, Assistant 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
204 Main Street
Fort Lee, NJ 07024
(201) 944-7200
Ryan Petrillo
VP, Branch Manager
320 Haworth Avenue
Haworth, NJ 07641
(201) 387-9910
Jenna Pascale
VP, Branch Manager
585 Chestnut Ridge Road
Woodcliff Lake, NJ 07677
(201) 505-9300
Suzanne Wirth
VP, Branch Manager
Corporate Office
750 East Palisade Avenue
Englewood Cliffs, NJ 07632
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
Investor Relations
The Equity Group Inc.
800 Third Avenue, 36th Fl.
New York, NY 10022
Corporate Secretary
Jodi Ersalesi
Assistant Vice President
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 American Legion Hoboken Post 107: Homeless Veterans Permanent Housing
Project Junior Achievement of New Jersey Thomas Jefferson Middle School J.A. Financial
Literacy Bergen Catholic High School Bergen County Bar Foundation Paterson Charter
School of Science and Technology J.A. Financial Literacy Bergen County Housing, Health
and Human Services Center Fort Lee Rotary Charity Bergen County Volunteer Center
Bergen PAC Bristal at Woodcliff Lake Center for Family Support Center for Food
Action Fort Lee Fire Protective Association Center for Hope and Safety Cliffside Park
/Fairview Baseball Association Community Chest of Englewood Community Resource
Council DARE Diabetes Foundation Elmwood Park Little League Baseball Englewood
Cliffs Fire Department Fairview Department of Welfare Family Touch Forest Friends
Fort Lee Fire Department #4 Foundation for Free Enterprise Giants of Generosity
Greater Pascack Valley Chamber of Commerce (GPVCC) Hackensack Fraternal Order of
Police Lodge 16 Hackensack PBA Local 9 Hackensack River Keeper Harrington Park
Recreation Trust Harrington Park Home and School Association Haworth Home &
School Association Fort Lee National Little League Haworth Municipal Drug Alliance
Haworth Road Runners Healing Space Sexual Violence Resource Center Fort Lee Public
School Ho-Ho-Kus /Saddle River Baseball Association Holy Name Medical Center
iPiggiBank Knights of Columbus Fort Lee Education Foundation Korean Community
Center Love In Action International Ministries Lyndhurst Police Emergency Squad
Fort Lee Regional Chamber of Commerce Mahwah Regional Chamber of Commerce NJ
Citizen Action Education Fund NJ Korean American Chamber of Commerce Northern
Valley PBA 233 Fort Lee Policemen’s Benevolent Association – Local 245 Fort Lee
American Little League NYC PBA Widows and Children’s Fund Park Ridge Volunteer
Fire Department Park Ridge Board of Public Works Fort Lee VFW Project Hearts to
Home Rotary Club of Randolph Saddle River Landmarks Commission Senior Citizens
Outreach St. Rocco Society St. Thomas Armenian Church Table of Hope Veterans of
Foreign War Bergen Leads Fort Lee Academy of Finance Intern Initiative
www.BONJ.net n 2017