UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

 

FORM 10-Q

 

(Mark one)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2017

 

OR

 

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

 

20-8444387

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

 

1365 Palisade Ave, Fort Lee, New Jersey

 

07024

(Address of principal executive offices)

 

(Zip Code)

 

(201) 944-8600

(Registrant’s telephone number, including area code)

 

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the 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 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

 

 

(Do not check if a
smaller reporting company)

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not 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  ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 1, 2017 there were 6,874,940 outstanding shares of the issuer’s class of common stock, no par value.

 

 


 

INDEX

 

PAGE

 

 

Part I           Financial Information

 

 

 

 

Item 1.

Financial Statements:

 

 

 

 

 

Unaudited Consolidated Statements of Financial Condition — September 30, 2017 and December 31, 2016

3

 

 

 

 

Unaudited Consolidated Statements of Income - Three Months Ended September 30, 2017 and 2016

4

 

 

 

 

Unaudited Consolidated Statements of Income – Nine Months Ended September 30, 2017 and 2016                        

5

 

 

 

 

Unaudited Consolidated Statements of Comprehensive Income- Three and nine months Ended September 30, 2017 and 2016

6

 

 

 

 

Unaudited Consolidated Statements of Stockholders’ Equity – Nine Months Ended September 30, 2017  and 2016

7

 

 

 

 

Unaudited Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2017 and 2016

8

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

9

 

 

 

Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

 

 

 

Item 3.  

Quantitative and Qualitative Disclosures about Market Risk

34

 

 

 

Item 4.  

Controls and Procedures

34

 

 

 

Part II         Other Information  

 

 

 

 

Item 1.  

Legal Proceedings

35

 

 

 

Item 1A.  

Risk Factors

35

 

 

 

Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

35

 

 

 

Item 3.  

Defaults Upon Senior Securities

35

 

 

 

Item 4.  

Mine Safety Disclosures

35

 

 

 

Item 5.  

Other Information

35

 

 

 

Item 6.  

Exhibits

35

 

 

 

Signatures  

 

37

 

2


 

 

 

 

 

BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except for per share data)

 

 

 

 

 

 

 

 

 

 

    

September 30, 2017

    

December 31, 2016

 

Assets

 

 

 

 

 

 

 

Cash and due from banks

 

$

4,178

 

$

2,628

 

Interest bearing deposits

 

 

99,737

 

 

73,896

 

Federal funds sold

 

 

452

 

 

452

 

Total cash and cash equivalents

 

 

104,367

 

 

76,976

 

Interest bearing time deposits

 

 

1,000

 

 

1,000

 

Securities available for sale

 

 

59,245

 

 

61,589

 

Securities held to maturity (fair value $4,411 and $7,343 at September 30, 2017 and December 31, 2016, respectively)

 

 

4,411

 

 

7,343

 

Restricted investment in bank stock, at cost

 

 

1,455

 

 

1,983

 

Loans receivable

 

 

693,626

 

 

660,571

 

Deferred loan fees and costs, net

 

 

(743)

 

 

(586)

 

Allowance for loan losses

 

 

(7,985)

 

 

(8,287)

 

Net loans

 

 

684,898

 

 

651,698

 

Premises and equipment, net

 

 

13,792

 

 

13,497

 

Accrued interest receivable

 

 

2,642

 

 

2,366

 

Other real estate owned

 

 

456

 

 

614

 

Other assets

 

 

5,616

 

 

5,374

 

Total assets

 

$

877,882

 

$

822,440

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

Noninterest-bearing demand deposits

 

$

142,227

 

$

137,564

 

Savings and interest bearing transaction accounts

 

 

297,265

 

 

287,682

 

Time deposits $250 and under

 

 

223,986

 

 

156,477

 

Time deposits over $250

 

 

112,977

 

 

136,265

 

Total deposits

 

 

776,455

 

 

717,988

 

Borrowed funds - Long Term

 

 

15,050

 

 

25,008

 

Accrued expenses and other liabilities

 

 

2,782

 

 

2,300

 

Total liabilities

 

 

794,287

 

 

745,296

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, no par value, authorized 20,000,000 shares; issued and outstanding 6,832,940 at September 30, 2017 and 6,316,291 at December 31, 2016

 

 

69,442

 

 

61,524

 

Retained earnings

 

 

14,243

 

 

15,813

 

Accumulated other comprehensive loss

 

 

(90)

 

 

(193)

 

Total stockholders’ equity

 

 

83,595

 

 

77,144

 

Total liabilities and stockholders’ equity

 

$

877,882

 

$

822,440

 

 

See accompanying notes to unaudited consolidated financial statements

3


 

BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except for per share data)

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30, 

 

 

    

2017

    

2016

 

INTEREST INCOME

 

 

 

 

 

 

 

Loans, including fees

 

$

7,614

 

$

7,620

 

Securities

 

 

234

 

 

166

 

Federal funds sold and other

 

 

353

 

 

110

 

TOTAL INTEREST INCOME

 

 

8,201

 

 

7,896

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

Savings and interest bearing transaction accounts

 

 

440

 

 

385

 

Time deposits

 

 

1,447

 

 

1,238

 

Borrowed funds

 

 

62

 

 

112

 

TOTAL INTEREST EXPENSE

 

 

1,949

 

 

1,735

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

 

6,252

 

 

6,161

 

Provision for loan losses

 

 

 —

 

 

1,120

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

 

 

6,252

 

 

5,041

 

NON-INTEREST INCOME

 

 

 

 

 

 

 

Fees and service charges

 

 

111

 

 

202

 

TOTAL NON-INTEREST INCOME

 

 

111

 

 

202

 

 

 

 

 

 

 

 

 

NON-INTEREST EXPENSE

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

2,278

 

 

2,075

 

Occupancy and equipment expense

 

 

740

 

 

648

 

FDIC premiums and related expenses

 

 

154

 

 

278

 

Legal fees

 

 

145

 

 

88

 

Other real estate owned expenses

 

 

 8

 

 

 9

 

Professional fees

 

 

249

 

 

382

 

Data processing

 

 

297

 

 

312

 

Other expenses

 

 

359

 

 

449

 

TOTAL NON-INTEREST EXPENSE

 

 

4,230

 

 

4,241

 

Income before provision for income taxes

 

 

2,133

 

 

1,002

 

Income tax expense

 

 

784

 

 

322

 

Net income

 

$

1,349

 

$

680

 

 

 

 

 

 

 

 

 

PER SHARE OF COMMON STOCK

 

 

 

 

 

 

 

Basic

 

$

0.20

 

$

0.11

 

Diluted

 

$

0.20

 

$

0.11

 

 

See accompanying notes to unaudited consolidated financial statements

 

 

 

 

 

 

 

 

 

 

 

 

 

4


 

BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except for per share data )

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 

 

 

    

2017

    

2016

 

INTEREST INCOME

 

 

 

 

 

 

 

Loans, including fees

 

$

22,683

 

$

22,839

 

Securities

 

 

623

 

 

581

 

Federal funds sold and other

 

 

833

 

 

311

 

TOTAL INTEREST INCOME

 

 

24,139

 

 

23,731

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

 

 

 

 

 

 

Savings and interest bearing transaction accounts

 

 

1,320

 

 

1,109

 

Time deposits

 

 

4,090

 

 

3,859

 

Borrowed funds

 

 

222

 

 

328

 

TOTAL INTEREST EXPENSE

 

 

5,632

 

 

5,296

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

 

18,507

 

 

18,435

 

Provision for loan losses

 

 

 —

 

 

1,570

 

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

 

 

18,507

 

 

16,865

 

NON-INTEREST INCOME

 

 

 

 

 

 

 

Fees and service charges

 

 

341

 

 

392

 

TOTAL NON-INTEREST INCOME

 

 

341

 

 

392

 

 

 

 

 

 

 

 

 

NON-INTEREST EXPENSE

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

6,826

 

 

6,268

 

Occupancy and equipment expense

 

 

2,160

 

 

1,996

 

FDIC premiums and related expenses

 

 

595

 

 

817

 

Legal fees

 

 

285

 

 

222

 

Other real estate owned expenses

 

 

19

 

 

81

 

Professional fees

 

 

982

 

 

822

 

Data processing

 

 

933

 

 

884

 

Other expenses

 

 

1,237

 

 

1,562

 

TOTAL NON-INTEREST EXPENSE

 

 

13,037

 

 

12,652

 

Income before provision for income taxes

 

 

5,811

 

 

4,605

 

Income tax expense

 

 

2,111

 

 

1,602

 

Net income

 

$

3,700

 

$

3,003

 

 

 

 

 

 

 

 

 

PER SHARE OF COMMON STOCK

 

 

 

 

 

 

 

Basic

 

$

0.57

 

$

0.48

 

Diluted

 

$

0.57

 

$

0.48

 

 

See accompanying notes to unaudited consolidated financial statements

 

 

 

 

 

 

 

 

 

5


 

 

BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

 

 

 

 

 

 

 

 

 

 

    

For the Three Months Ended September 30, 

 

 

    

2017

    

2016

 

Net income

 

$

1,349

 

$

680

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

Unrealized holding gains on securities available for sale, net of deferred income tax expense of $2 and $5, respectively

 

 

(3)

 

 

7  

 

Comprehensive income

 

$

1,346

 

$

687

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 

 

 

    

2017

    

2016

 

 

 

 

 

 

 

 

 

Net income

 

$

3,700

 

$

3,003

 

Other comprehensive income

 

 

 

 

 

 

 

Unrealized holding gains on securities available for sale, net of deferred income tax expense of $66 and $186, respectively

 

 

103

 

 

296

 

Comprehensive income

 

$

3,803

 

$

3,299

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements

 

 

6


 

BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

Accumulated

    

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

Common

 

Retained

 

Comprehensive

 

 

 

 

 

 

Stock

 

Earnings

 

(Loss)

 

Total

 

Balance at January 1, 2016

 

 

60,509

 

 

12,940

 

 

(296)

 

 

73,153

 

Exercise of stock options

 

 

580

 

 

 —

 

 

 —

 

 

580

 

Stock based compensation

 

 

204

 

 

 —

 

 

 —

 

 

204

 

Dividends on common stock ($0.18 per share)

 

 

 —

 

 

(1,129)

 

 

 —

 

 

(1,129)

 

Net income

 

 

 —

 

 

3,003

 

 

 —

 

 

3,003

 

Total other comprehensive income

 

 

 —

 

 

 —

 

 

296

 

 

296

 

Balance at September 30, 2016

 

$

61,293

 

$

14,814

 

$

 —

 

$

76,107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2017

 

 

61,524

 

 

15,813

 

 

(193)

 

 

77,144

 

Exercise of stock options

 

 

2,361

 

 

 —

 

 

 —

 

 

2,361

 

Stock based compensation

 

 

289

 

 

 —

 

 

 —

 

 

289

 

5% Stock dividend (319,294 shares)

 

 

5,270

 

 

(5,270)

 

 

 —

 

 

 —

 

Dividends in lieu of fractional shares of stock dividend

 

 

(2)

 

 

 —

 

 

 —

 

 

(2)

 

Net income

 

 

 —

 

 

3,700

 

 

 —

 

 

3,700

 

Total other comprehensive income

 

 

 —

 

 

 —

 

 

103

 

 

103

 

Balance at September 30, 2017

 

$

69,442

 

$

14,243

 

$

(90)

 

$

83,595

 

 

See accompanying notes to unaudited consolidated financial statements

7


 

BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

 

 

 

 

 

 

    

For the Nine Months Ended September 30, 

 

 

    

2017

    

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

3,700

 

$

3,003

 

Adjustments to reconcile net income to net cash provided by Operating activities:

 

 

 

 

 

 

 

Provision for loan losses

 

 

 —

 

 

1,570

 

Amortization (accretion) of securities premiums

 

 

144

 

 

(52)

 

Deferred tax benefit

 

 

(458)

 

 

(458)

 

Depreciation and amortization

 

 

467

 

 

478

 

Stock based compensation

 

 

289

 

 

204

 

Accretion of net loan origination fees and costs

 

 

157

 

 

118

 

Gain on sale of other real estate owned

 

 

(18)

 

 

 —

 

Write down of other real estate owned

 

 

 —

 

 

56

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Increase in accrued interest receivable

 

 

(276)

 

 

(71)

 

Decrease in other assets

 

 

150

 

 

265

 

Increase (decrease)  in accrued interest payable and other liabilities

 

 

483

 

 

(421)

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

4,638

 

 

4,692

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of securities available for sale

 

 

(15,064)

 

 

(37,000)

 

Purchases of securities held to maturity

 

 

(8,501)

 

 

(5,096)

 

Proceeds from maturities of securities held to maturity

 

 

11,433

 

 

5,829

 

Proceeds from calls, maturities and other principal payments of securities available for sale

 

 

17,432

 

 

40,505

 

Purchase of restricted investment in bank stock

 

 

(56)

 

 

(706)

 

Proceeds from calls of restricted investment of bank stock

 

 

584

 

 

445

 

Proceeds from sale of other real estate owned

 

 

176

 

 

 —

 

Net increase in loans

 

 

(33,357)

 

 

(16,572)

 

Purchases of premises and equipment

 

 

(762)

 

 

(2,927)

 

NET CASH USED IN INVESTING ACTIVITIES

 

 

(28,115)

 

 

(15,522)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Net increase in deposits

 

 

58,467

 

 

24,500

 

Net (decrease) increase in borrowed funds

 

 

(9,958)

 

 

5,119

 

Dividends paid

 

 

(2)

 

 

(1,129)

 

Proceeds from exercise of options

 

 

2,361

 

 

580

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

50,868

 

 

29,070

 

Increase in cash and cash equivalents

 

 

27,391

 

 

18,240

 

Cash and cash equivalents at beginning of year

 

 

76,976

 

 

74,189

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

104,367

 

$

92,429

 

Supplemental information:

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

Interest

 

$

5,717

 

$

5,406

 

Taxes

 

$

1,714

 

$

2,259

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing transactions:

 

 

 

 

 

 

 

Loans transferred to other real estate owned

 

$

 —

 

$

158

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited consolidated financial statements

 

 

 

 

 

 

 

 

8


 

BANCORP OF NEW JERSEY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1.  Significant Accounting Policies

 

Basis of Financial Statement Presentation

 

The accompanying unaudited consolidated financial statements include the accounts of Bancorp of New Jersey, Inc. (together with its consolidated subsidiaries, the “Company”), and its direct wholly-owned subsidiary, Bank of New Jersey (the “Bank”) and the Bank’s wholly-owned subsidiaries, BONJ-New York Corp., BONJ-New Jersey Investment Company, BONJ-Delaware Investment Company and BONJ REIT Inc.  All significant inter-company accounts and transactions have been eliminated in consolidation.

 

The Company was incorporated under the laws of the State of New Jersey to serve as a holding company for the Bank and to acquire all the capital stock of the Bank (referred to herein as the “holding company reorganization”).

 

The Company’s class of common stock has no par value and the Bank’s class of common stock has a par value of $10 per share.

 

The financial information in this quarterly report has been prepared in accordance with accounting principles generally accepted in the United States of America (“USGAAP”); these financial statements have not been audited. Certain information and footnote disclosures required under USGAAP have been condensed or omitted, as permitted by rules and regulations of the Securities and Exchange Commission.

 

These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the related notes for the year ended December 31, 2016, which are included in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission. In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred between September 30, 2017, and the date these consolidated financial statements were issued.

 

Organization

 

The Company is a New Jersey corporation and bank holding company registered with the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”).  The Bank is a community bank which provides a full range of banking services to individuals and corporate customers primarily in New Jersey.  Both the Company and the Bank are subject to competition from other financial institutions.  The Bank is regulated by state and federal agencies and is subject to periodic examinations by those regulatory authorities.  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.  The Bank has sought to offer an alternative, community-oriented style of banking in an area, that is presently dominated by larger, statewide and national institutions.  The Bank continues to focus on establishing and retaining customer relationships by offering a broad range of traditional financial services and products, competitively-priced and delivered in a responsive manner to small businesses, professionals and individuals in its market area.  As a community bank, the Bank endeavors to provide superior customer service that is highly personalized, efficient and responsive to local needs.  To better serve its customers and expand its market reach, the Bank provides for the delivery of certain of its financial products and services to its local customers and to a broader market through the use of mail, telephone and internet banking.  The Bank seeks 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.

 

9


 

Note 2.  Benefit Plans and Stock-Based Compensation

 

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 September 30, 2017, stock options to purchase 221,645 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 67,988 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 September 30, 2017 and $77 thousand in unrecognized compensation expense. For the three and nine months ended September 30, 2017, $14 thousand and $48 thousand, respectively, were recorded as expense for NQOs that have been issued through the 2006 Stock Option Plan. For the three and nine months ended September 30, 2016, $19 thousand was recorded as expense for NQOs that have been issued through the 2006 Stock Option Plan.

 

During the nine months ended September 30, 2017 options to purchase 15,750 and 882 shares of common stock at a price of $10.95 and $10.64 per share respectively, were exercised for a total price of $182 thousand and 6,164 options were forfeited.

 

The aggregate intrinsic value of a stock option 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 that date.  This amount changes based on the changes in the market value in the Company’s stock.The aggregate intrinsic value of options outstanding as of September 30, 2017 under the 2006 Stock Option Plan was approximately $506 thousand.

 

 

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 September 30, 2017, stock options to purchase 404,599 shares, net of forfeitures, have been issued to non-employee directors of the Company under the 2007 Director Plan, of which, options to purchase 126,500 shares were outstanding. There are no shares available for grants under the 2007 Non-Qualified Stock Option Plan as the plan has expired.

 

Under the 2007 Director Plan, there were no unvested options at September 30, 2017 and no unrecognized compensation expense. In connection with the 2007 Director Plan, no share based compensation expense was recognized for the three and nine months ended September 30, 2017.

 

During the nine months ended September 30, 2017 options to purchase 199,000 shares of common stock at a price of $10.95 were exercised for a total price of $2.18 million and no options were forfeited.

 

The aggregate intrinsic value of a stock option 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

10


 

the option holders had they exercised their options on that date.  This amount changes based on the changes in the market value in the Company’s stock.The aggregate intrinsic value of options outstanding as of September 30, 2017 under the 2007 Director Plan was approximately $911 thousand.

 

2011 Equity Incentive Plan

 

During 2011, the shareholders of the Company approved the Bancorp of New Jersey, Inc. 2011 Equity Incentive Plan (the “2011 Plan”).  This plan authorizes the issuance of up to 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 September 30, 2017, there were 156,941 shares, net of forfeitures, issued to employees and directors of  the Company under the 2011 Plan.

 

During the nine months ended September 30, 2017, 31,500 shares of restricted common stock were issued under the 2011 Plan and 4,200 shares of restricted common stock were forfeited. For the three and nine months ended September 30, 2017, $86 thousand and $207 thousand, respectively, were recorded as expense for restricted stock that has been issued through the 2011 Plan. F or the three and nine months ended September 30, 2016 $70 thousand and $204 thousand, respectively, were recorded as expense for restricted stock that has been issued through the 2011 Plan. At September 30, 2017, there were a total of 43,050 shares of unvested restricted stock and approximately $410 thousand in unrecognized compensation expense realted to the unvested restrcted stock.  

 

During 2016, the Company granted 31,500 Non-Qualified Stock Options (NQO) 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 immedialty, with the remaining NQOs vesting over a two year period.

 

In July 2017, the Company granted 14,700 Non-Qualified Stock Options (NQO) 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.

 

No NQOs were exercised or forfeited during the first nine months of 2017 under the 2011 Plan.

 

Under the 2011 Plan, there were 25,200 unvested options at September 30, 2017 and $108 thousand in unrecognized compensation expense. For the three and nine months ended September 30, 2017, $19 thousand and $33 thousand were recorded as expense for NQOs that have been issued through the 2011 Plan.

 

The aggregate intrinsic value of  a stock option 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 that date.  This amount changes based on the changes in the market value in the Company’s stock. The aggregate intrinsic value of NQOs outstanding as of September 30, 2017 under the 2011 Plan was approximately $251 thousand. 

 

Note 3.  Earnings Per Share.

 

Basic earnings per share is calculated by dividing the net income for a period by the weighted average number of common shares outstanding during that period.

 

Diluted earnings per share is calculated by dividing the net income for a period by the weighted average number of outstanding common shares and dilutive common share equivalents outstanding during that period. Outstanding “common share equivalents” include options and warrants to purchase the Company’s common stock.

11


 

 

The following table shows earnings per share for the three month periods presented:

 

 

 

 

 

 

 

 

 

 

    

For the three months ended

 

 

 

September 30, 

 

(In thousands except per share data)

    

2017

    

2016

 

Net income applicable to common stock

 

$

1,349

 

$

680

 

Weighted average number of common shares outstanding - basic

 

 

6,614

 

 

6,298

 

Basic earnings per share

 

$

0.20

 

$

0.11

 

 

 

 

 

 

 

 

 

Net income applicable to common stock

 

$

1,349

 

$

680

 

Weighted average number of common shares outstanding

 

 

6,614

 

 

6,298

 

Effect of dilutive options

 

 

53

 

 

 3

 

Weighted average number of common shares outstanding- diluted

 

 

6,667

 

 

6,301

 

Diluted earnings per share

 

$

0.20

 

$

0.11

 

 

Incentive stock options to purchase 15,750 shares of common stock at a weighted average price of $10.95 and non-qualified options to purchase 224,938 shares of common stock at a weighted average price of $11.24 were included in the computation of diluted earnings per share for the three months ended September 30, 2017.

 

Incentive stock options to purchase 16,500 shares of common stock at a weighted average price of $9.09 were included in the computation of diluted earnings per share for the three months ended September 30, 2016. Incentive stock options to purchase 35,000 shares of common stock at a weighted average price of $11.50, non-qualified options to purchase 331,334 shares of common stock at a weighted average price of $11.50 and non-qualified options to purchase 92,700 shares of common stock at a weighted average price of $11.19 were not included in the computation of diluted earnings per share for the three months ended September 30, 2016, because they were anti-dilutive.

 

The following table shows earnings per share for the nine month periods presented:

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended

 

 

 

September 30, 

 

(In thousands except per share data)

    

2017

    

2016

 

Net income applicable to common stock

 

$

3,700

 

$

3,003

 

Weighted average number of common shares outstanding - basic

 

 

6,442

 

 

6,261

 

Basic earnings per share

 

$

0.57

 

$

0.48

 

 

 

 

 

 

 

 

 

Net income applicable to common stock

 

$

3,700

 

$

3,003

 

Weighted average number of common shares outstanding

 

 

6,442

 

 

6,261

 

Effect of dilutive options

 

 

41

 

 

 3

 

Weighted average number of common shares and common share equivalents- diluted

 

 

6,483

 

 

6,264

 

Diluted earnings per share

 

$

0.57

 

$

0.48

 

Incentive stock options to purchase 15,750 shares of common stock at a weighted average price of $10.95 and non-qualified options to purchase 224,938 shares of common stock at a weighted average price of $11.24 were included in the computation of diluted earnings per share for the nine months ended September 30, 2017.

Incentive stock options to purchase 16,500 shares of common stock at a weighted average price of $9.09 were included in the computation of diluted earnings per share for the nine months ended September 30, 2016.  Incentive stock options to purchase 35,000 shares of common stock at a weighted average price of $11.50, non-qualified options to purchase 331,334 shares of common stock at a weighted average price of $11.50 and non-qualified options to purchase 92,700 shares of common stock at a weighted average price of $11.19 were not included in the computation of diluted earnings per share for the nine months ended September 30, 2016, because they were anti-dilutive.

 

 

 

 

 

12


 

Note 4.  Securities Available for Sale and Held to Maturity Securities

 

A summary of securities held to maturity and securities available for sale at September 30, 2017 and December 31, 2016 is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Gross

    

Gross

    

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

September 30, 2017

 

Cost

 

Gains

 

Losses

 

Value

 

Securities Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

$

4,411

 

$

 —

 

$

 —

 

$

4,411

 

Total securities held to maturity

 

 

4,411

 

 

 —

 

 

 —

 

 

4,411

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury obligations

 

 

6,315

 

 

 —

 

 

(74)

 

 

6,241

 

Government sponsored enterprise obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

    Agency backed

 

 

38,457

 

 

33

 

 

(113)

 

 

38,377

 

    Mortgage backed

 

 

14,620

 

 

 7

 

 

 —

 

 

14,627

 

Total securities available for sale

 

 

59,392

 

 

40

 

 

(187)

 

 

59,245

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

63,803

 

$

40

 

$

(187)

 

$

63,656

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Gross

    

Gross

    

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

December 31, 2016

 

Cost

 

Gains

 

Losses

 

Value

 

Securities Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of states and political subdivisions

 

$

7,343

 

$

 

$

 

$

7,343

 

Total securities held to maturity

 

 

7,343

 

 

 —

 

 

 —

 

 

7,343

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury obligations

 

 

6,400

 

 

 

 

(132)

 

 

6,268

 

Government sponsored enterprise obligations

 

 

55,506

 

 

 6

 

 

(191)

 

 

55,321

 

Total securities available for sale

 

 

61,906

 

 

 6

 

 

(323)

 

 

61,589

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

69,249

 

$

 6

 

$

(323)

 

$

68,932

 

 

The unrealized losses, categorized by the length of time of continuous loss position, and the fair value of related securities available for sale are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

More than 12 Months

 

Total

 

 

   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 

September 30, 2017

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

 

Securities Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury obligation

 

 

6,241

 

 

(74)

 

 

 —

 

 

 —

 

 

6,241

 

 

(74)

 

Government Sponsored Enterprise obligations

 

 

13,451

 

 

(60)

 

 

14,997

 

 

(53)

 

 

28,448

 

 

(113)

 

Total securities available for sale

 

 

19,692

 

 

(134)

 

 

14,997

 

 

(53)

 

 

34,689

 

 

(187)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities

 

$

19,692

 

$

(134)

 

$

14,997

 

$

(53)

 

$

34,689

 

$

(187)

 

 

 

13


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

More than 12 Months

 

Total

 

 

   

Fair

   

Unrealized

   

Fair

   

Unrealized

   

Fair

   

Unrealized

 

December 31, 2016

 

Value

 

Losses

 

Value

 

Losses

 

Value

 

Losses

 

Securities Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury obligation

 

 

 —

 

 

 —

 

 

6,268

 

 

(132)

 

 

6,268

 

 

(132)

 

Government Sponsored Enterprise obligations

 

 

34,473

 

 

(158)

 

 

6,966

 

 

(33)

 

 

41,439

 

 

(191)

 

Total securities available for sale

 

 

34,473

 

 

(158)

 

 

13,234

 

 

(165)

 

 

47,707

 

 

(323)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total securities

 

$

34,473

 

$

(158)

 

$

13,234

 

$

(165)

 

$

47,707

 

$

(323)

 

 

The amortized cost and fair value of securities held to maturity and securities available for sale at September 30, 2017 by contractual maturity are shown below.  Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities Held to Maturity

 

Securities Available for Sale

 

 

    

Amortized

    

Fair

    

Amortized

    

Fair

 

 

 

Cost

 

Value

 

Cost

 

Value

 

One year or less

 

$

4,411

 

$

4,411

 

$

15,011

 

$

14,969

 

After one to five years

 

 

 —

 

 

 —

 

 

29,761

 

 

29,649

 

Greater than five years

 

 

 —

 

 

 —

 

 

14,620

 

 

14,627

 

Total

 

$

4,411

 

$

4,411

 

$

59,392

 

$

59,245

 

 

Management evaluates securities for other-than-temporary-impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  In determining OTTI management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than amortized cost; (2) the financial condition and near term prospects of the issuer; (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery.  The assessment of whether an other-than-temporary-impairment decline exists involves a high degree of subjectivity and judgment and is based on information available to management at a point in time.  An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

 

When OTTI for debt securities occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis. If an entity intends to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis, the OTTI would be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at statement of financial condition date.  If the Company does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the OTTI would be separated into the amount representing the credit loss and the amount related to all other factors.  The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings.  The amount of the total OTTI related to other factors would be recognized in other comprehensive income, net of applicable tax benefit.  The previous amortized cost basis less the OTTI recognized in earnings would become the new amortized cost basis of the investment.

 

At September 30, 2017, the Company’s available for sale securities portfolio consisted of fifteen securities, of which three were in an unrealized loss position for more than twelve months, seven were in a loss position for less than twelve months and five had unrealized gains. No OTTI charges were recorded for the three or nine months ended September 30, 2017. The Company does not intend to sell these securities and it is not likely that the Company will be required to sell these securities. Unrealized losses primarily relate to interest rate fluctuations and not credit concerns.

 

Securities with an amortized cost of $25.2 million and a fair value of $25.1 million, were pledged to secure public funds on deposit at September 30, 2017. Securities with an amortized cost of $11.1 milion and a fair value of $11.1 million were pledged to secure borrowings with the Federal Home Loan Bank of New York (“FHLBNY”) as of September 30, 2017. Securities with an amortized cost of $37.4 million and a fair value of $37.2 million, were pledged to secure public funds on deposit at December 31, 2016. In addition, securities with an amortized cost of $11.2 million and a fair value of $11.1 million were pledged to secure borrowings with FHLBNY as of December 31, 2016.

 

14


 

During the three and nine months ended September 30, 2017 and 2016, the Company did not sell securities from its available for sale or held to maturity portfolios.     

 

Note 5.  Loans.

 

The components of the loan portfolio at September 30, 2017 and December 31, 2016 are summarized as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

    

September 30, 2017

    

December 31, 2016

 

Commercial real estate

 

$

548,369

 

$

492,296

 

Residential mortgages

 

 

67,045

 

 

78,961

 

Commercial and industrial

 

 

24,292

 

 

30,259

 

Home equity

 

 

53,595

 

 

58,399

 

Consumer

 

 

325

 

 

656

 

 

 

$

693,626

 

$

660,571

 

 

The Company grants loans primarily to residents and businesses within its New Jersey local trading area.  Its borrowers’ abilities to repay their obligations are dependent upon various factors, including the borrowers’ income and net worth, cash flows generated by the underlying collateral, value of the underlying collateral and priority of the 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 activity in the allowance for loan losses and recorded investment in loan receivables as of and for the periods indicated are as follows (in thousands):

 

For the three months ended and as of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Commercial

    

Residential

    

Commercial

    

 

    

 

    

 

    

 

 

September 30, 2017

 

Real Estate

 

Mortgages

 

& Industrial

 

Home Equity

 

Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

5,455

 

$

381

 

$

599

 

$

343

 

$

 3

 

$

1,212

 

$

7,993

 

Charge-offs

 

 

 —

 

 

(1)

 

 

 —

 

 

(9)

 

 

 —

 

 

 —

 

 

(10)

 

Recoveries

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 2

 

 

 —

 

 

 2

 

Provision

 

 

191

 

 

(12)

 

 

(91)

 

 

76

 

 

52

 

 

(216)

 

 

 —

 

Ending balance

 

$

5,646

 

$

368

 

$

508

 

$

410

 

$

57

 

$

996

 

$

7,985

 

Ending balance: individually evaluated for impairment

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

Ending balance: collectively evaluated for impairment

 

$

5,646

 

$

368

 

$

508

 

$

410

 

$

57

 

$

996

 

$

7,985

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

548,369

 

$

67,045

 

$

24,292

 

$

53,595

 

$

325

 

$

 —

 

$

693,626

 

Ending balance: individually evaluated for impairment

 

$

9,885

 

$

9,284

 

$

3,138

 

$

3,112

 

$

 —

 

$

 —

 

$

25,419

 

Ending balance: collectively evaluated for impairment

 

$

538,484

 

$

57,761

 

$

21,154

 

$

50,483

 

$

325

 

$

 —

 

$

668,207

 

 

15


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Commercial

    

Residential

    

Commercial

    

    

    

    

    

    

    

    

 

September 30, 2016

 

Real Estate

 

Mortgages

 

& Industrial

 

Home Equity

 

Consumer

 

Unallocated

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

5,866

 

$

294

 

$

1,100

 

$

524

 

$

17

 

$

425

 

$

8,226

 

Charge-offs

 

 

 —

 

 

 —

 

 

(1,026)

 

 

 —

 

 

(1)

 

 

 —

 

 

(1,027)

 

Recoveries

 

 

 —

 

 

 

 

 —

 

 

 —

 

 

 1

 

 

 

 

 1

 

Provision

 

 

143

 

 

396

 

 

1,049

 

 

(51)

 

 

 8

 

 

(425)

 

 

1,120

 

Ending balance

 

$

6,009

 

$

690

 

$

1,123

 

$

473

 

$

25

 

$

 —

 

$

8,320

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

5,925

 

$

554

 

$

809

 

$

425

 

$

 6

 

$

568

 

$

8,287

 

Ending balance: individually evaluated for impairment

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

Ending balance: collectively evaluated for impairment

 

$

5,925

 

$

554

 

$

809

 

$

425

 

$

 6

 

$

568

 

$

8,287

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan receivables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

 

$

492,296

 

$

78,961

 

$

30,259

 

$

58,399

 

$

656

 

$

 —

 

$

660,571

 

Ending balance: individually evaluated for impairment

 

$

10,485

 

$

9,731

 

$

3,257

 

$

4,543

 

$

 —

 

$

 —

 

$

28,016

 

Ending balance: collectively evaluated for impairment

 

$

481,811

 

$

69,230

 

$

27,002

 

$

53,856

 

$

656

 

$

 —

 

$

632,555

 

 

The following tables present the activity in the allowance for loan losses for the periods indicated (in thousands):

 

For the nine months ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

Residential

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2017

    

Real Estate

    

Mortgages

    

& Industrial

    

Home Equity

    

Consumer

    

Unallocated

    

Total

 

Allowance for loan losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

5,925

 

$

554

 

$

809

 

$

425

 

$

 6

 

$

568

 

$

8,287

 

Charge-offs

 

 

 

 

(48)

 

 

 —

 

 

(162)

 

 

(96)

 

 

 

 

(306)

 

Recoveries

 

 

 

 

 1

 

 

 —

 

 

 

 

 3

 

 

 

 

 4

 

Provisions

 

 

(279)

 

 

(139)

 

 

(301)

 

 

147

 

 

144

 

 

428

 

 

 —

 

Ending balance

 

$

5,646

 

$

368

 

$

508

 

$

410

 

$

57

 

$

996

 

$

7,985

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

Residential

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

    

Real Estate

    

Mortgages

    

& Industrial

    

Home Equity

    

Consumer

    

Unallocated

    

Total

 

Allowance for loan losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

5,566

 

$

572

 

$

1,066

 

$

573

 

$

39

 

$

204

 

$

8,020

 

Charge-offs

 

 

 —

 

 

(90)

 

 

(1,026)

 

 

(155)

 

 

(1)

 

 

 

 

(1,272)

 

Recoveries

 

 

 —

 

 

 

 

 1

 

 

 

 

 1

 

 

 

 

 2

 

Provisions

 

 

443

 

 

208

 

 

1,082

 

 

55

 

 

(14)

 

 

(204)

 

 

1,570

 

Ending balance

 

$

6,009

 

$

690

 

$

1,123

 

$

473

 

$

25

 

$

 —

 

$

8,320

 

 

16


 

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 table presents the classes of the loan portfolio summarized by the past due status as of September 30, 2017 and December 31, 2016, (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

30-59 Days

    

60-89 Days

    

90+ Days

    

Total Past

    

    

    

Total Loans

    

Nonaccrual

 

September 30, 2017

 

Past Due

 

Past Due

 

Past Due

 

Due

 

Current

 

Receivables

 

Loans

 

Commercial real estate

 

$

211

 

$

 —

 

$

1,663

 

$

1,874

 

$

546,495

 

$

548,369

 

$

1,663

 

Residential mortgages

 

 

1,215

 

 

 —

 

 

10,290

 

 

11,505

 

 

55,540

 

 

67,045

 

 

9,001

 

Commercial and industrial

 

 

34

 

 

 —

 

 

3,138

 

 

3,172

 

 

21,120

 

 

24,292

 

 

3,138

 

Home equity

 

 

2,110

 

 

160

 

 

3,057

 

 

5,327

 

 

48,268

 

 

53,595

 

 

3,057

 

Consumer

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

325

 

 

325

 

 

 —

 

 

 

$

3,570

 

$

160

 

$

18,148

 

$

21,878

 

$

671,748

 

$

693,626

 

$

16,859

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

30-59 Days

    

60-89 Days

    

Greater than

    

Total Past

    

    

    

Total Loans

    

Nonaccrual

 

December 31, 2016

 

Past Due

 

Past Due

 

90 Days

 

Due

 

Current

 

Receivables

 

Loans

 

Commercial real estate

 

$

2,744

 

$

 —

 

$

5,992

 

$

8,736

 

$

483,560

 

$

492,296

 

$

5,992

 

Residential mortgages

 

 

 —

 

 

 —

 

 

3,907

 

 

3,907

 

 

75,054

 

 

78,961

 

 

3,907

 

Commercial and industrial

 

 

 —

 

 

 —

 

 

3,257

 

 

3,257

 

 

27,002

 

 

30,259

 

 

3,257

 

Home equity

 

 

1,590

 

 

 —

 

 

5,597

 

 

7,187

 

 

51,212

 

 

58,399

 

 

5,597

 

Consumer

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

656

 

 

656

 

 

 —

 

 

 

$

4,334

 

$

 —

 

$

18,753

 

$

23,087

 

$

637,484

 

$

660,571

 

$

18,753

 

 

At September 30, 2017, the Company had three loans that were delinquent ninety days or greater and accruing interest. At December 31, 2016, the Company had no loans greater than ninety days delinquent and accruing interest.

 

If nonaccrual loans had been current in accordance with their original terms and had been outstanding throughout the three and nine month periods ended September 30, 2017, the gross interest income would have been $174 thousand and $458 thousand, respectively. If nonaccrual loans had been current in accordance with their original terms and had been outstanding throughout the three and nine month periods ended September 30, 2016, the gross interest income would have been $62 thousand and $148 thousand, respectively. There was no interest income recognized on these loans during the three and nine months ended September 30, 2017 and 2016.

 

The following table presents 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 September 30, 2017 and December 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Commercial

    

Residential

    

Commercial

    

 

 

    

 

 

    

 

 

 

September 30, 2017

 

Real Estate

 

Mortgages

 

& Industrial

 

Home Equity

 

Consumer

 

Total

 

Pass

 

$

536,734

 

$

56,635

 

$

20,859

 

$

50,483

 

$

325

 

$

665,036

 

Special Mention

 

 

1,750

 

 

1,126

 

 

295

 

 

 —

 

 

 —

 

 

3,171

 

Substandard

 

 

9,885

 

 

9,284

 

 

3,138

 

 

3,112

 

 

 —

 

 

25,419

 

Doubtful

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

$

548,369

 

$

67,045

 

$

24,292

 

$

53,595

 

$

325

 

$

693,626

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Commercial

    

Residential

    

Commercial

    

 

 

    

 

 

    

 

 

 

December 31, 2016

 

Real Estate

 

Mortgages

 

& Industrial

 

Home Equity

 

Consumer

 

Total

 

Pass

 

$

481,211

 

$

67,204

 

$

26,681

 

$

53,856

 

$

656

 

$

629,608

 

Special Mention

 

 

600

 

 

2,026

 

 

321

 

 

 —

 

 

 —

 

 

2,947

 

Substandard

 

 

10,485

 

 

9,731

 

 

3,257

 

 

4,543

 

 

 —

 

 

28,016

 

Doubtful

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

$

492,296

 

$

78,961

 

$

30,259

 

$

58,399

 

$

656

 

$

660,571

 

 

A loan is considered impaired when based on current information and events, it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.  The following

17


 

table provides information about the Company’s impaired loans at September 30, 2017 and December 31, 2016 (in thousands): 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Unpaid

    

 

 

 

 

Recorded

 

Principal

 

Related

 

September 30, 2017

 

Investment

 

Balance

 

Allowance

 

Commercial real estate

 

$

9,885

 

$

9,909

 

$

 —

 

Residential mortgages

 

 

9,284

 

 

10,647

 

 

 —

 

Commercial and industrial

 

 

3,138

 

 

3,148

 

 

 —

 

Home equity

 

 

3,112

 

 

3,427

 

 

 —

 

Total impaired loans

 

$

25,419

 

$

27,131

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Unpaid

    

 

 

 

 

Recorded

 

Principal

 

Related

 

December 31, 2016

 

Investment

 

Balance

 

Allowance

 

Commercial real estate

 

$

10,485

 

$

10,509

 

$

 —

 

Residential mortgages

 

 

9,731

 

 

10,804

 

 

 —

 

Commercial and industrial

 

 

3,257

 

 

3,257

 

 

 —

 

Home equity

 

 

4,543

 

 

4,675

 

 

 —

 

Total impaired loans

 

$

28,016

 

$

29,245

 

$

 —

 

 

The following tables provide information about the Company’s impaired loans for the three and nine month ended September 30, 2017 and 2016  (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Three Months Ended

 

 

 

September 30, 2017

 

September 30, 2016

 

 

    

Average

    

Interest

    

Average

    

Interest

 

 

 

Recorded

 

Income

 

Recorded

 

Income

 

 

 

Investment

 

Received

 

Investment

 

Received

 

Commercial real estate

 

$

9,890

 

$

 

$

972

 

$

 

Residential mortgages

 

 

9,222

 

 

 

 

4,104

 

 

 —

 

Commercial and industrial

 

 

3,138

 

 

 

 

 —

 

 

 

Home equity

 

 

3,232

 

 

 

 

3,846

 

 

 —

 

Total impaired loans

 

$

25,482

 

$

 —

 

$

8,922

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

Nine Months Ended

 

 

 

September 30, 2017

 

September 30, 2016

 

 

    

Average

    

Interest

    

Average

    

Interest

 

 

 

Recorded

 

Income

 

Recorded

 

Income

 

 

 

Investment

 

Received

 

Investment

 

Received

 

Commercial real estate

 

$

9,901

 

$

 

$

904

 

$

 

Residential mortgages

 

 

9,448

 

 

 

 

4,278

 

 

 —

 

Commercial

 

 

3,197

 

 

 

 

 —

 

 

 

Home equity

 

 

3,384

 

 

 

 

3,194

 

 

 —

 

Total impaired loans

 

$

25,930

 

$

 —

 

$

8,376

 

$

 —

 

 

 

Troubled debt restructured loans (“TDRs”) are loans where the contractual terms of the loan have been modified for a borrower experiencing financial difficulties.  These modifications could include a reduction in the interest rate of the loan, payment extensions, forgiveness of principal or a combination of these concessions.

 

18


 

The following table summarizes information in regards to TDRs by loan portfolio class as of september 30, 2017 and December 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Accrual

    

Number of

    

Nonaccrual

    

Number of

    

 

 

September 30, 2017

 

Status

 

Loans

 

Status

 

Loans

 

Total

 

Commercial real estate

 

$

 —

 

 —

 

$

338

 

 1

 

$

338

 

Residential mortgages

 

 

760

 

 3

 

 

7,429

 

 9

 

 

8,189

 

Home equity

 

 

102

 

 2

 

 

2,614

 

 6

 

 

2,716

 

 

 

$

862

 

 5

 

$

10,381

 

16

 

$

11,243

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Accrual

    

Number of

    

Nonaccrual

    

Number of

    

 

 

December 31, 2016

 

Status

 

Loans

 

Status

 

Loans

 

Total

 

Commercial real estate

 

$

 —

 

 —

 

$

338

 

 1

 

$

338

 

Residential mortgages

 

 

521

 

 2

 

 

3,477

 

 5

 

 

3,998

 

Home equity

 

 

103

 

 2

 

 

3,441

 

 7

 

 

3,544

 

 

 

$

624

 

 4

 

$

7,256

 

13

 

$

7,880

 

 

 

For the nine months ended September 30, 2017 there were four new TDRs that occurred. For the nine months ended September 30, 2016, there were four new TDRs that occurred.

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

 

    

Post-

 

 

 

 

 

Pre-Modification

 

Modification

 

 

 

 

 

Outstanding

 

Outstanding

 

 

 

Number of

 

Recorded

 

Recorded

 

2017

 

Loans

 

Investments

 

Investments

 

Residential mortgages

 

 4

 

$

3,695

 

$

3,695

 

 

 

 4

 

$

3,695

 

$

3,695

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

    

 

    

Post-

 

 

 

 

 

Pre-Modification

 

Modification

 

 

 

 

 

Outstanding

 

Outstanding

 

 

 

Number of

 

Recorded

 

Recorded

 

2016

 

Loans

 

Investments

 

Investments

 

Residential mortgages

 

 1

 

$

52

 

$

52

 

Home equity

 

 3

 

 

1,380

 

 

1,380

 

 

 

 4

 

$

1,432

 

$

1,432

 

 

During the three and nine months ended September 30, 2017, the Company had no loans meeting the definition of a TDR that were placed on default status.

 

The Company may obtain physical possession of real estate collateralizing loans via foreclosure or an in-substance repossession into other real estate owned. During the three and nine months ended September 30, 2017, the Company had no foreclosed residential real estate properties. In addition, as of September 30, 2017, the Company had loans with a carrying value of $3.2 million collateralized by real estate property for which formal foreclosure proceedings were in process.

 

Note 6. Guarantees

 

The Company does not issue any guarantees that would require liability recognition or disclosure, other than the Company’s standby letters of credit.  Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.  Generally, all letters of credit, when issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral and/or personal guarantees supporting these commitments.  As of September 30, 2017, the Company had $3.5 million of letters of credit outstanding.  Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees

19


 

would be sufficient to cover the potential amount of future payment required under the corresponding guarantees.  Management believes that the current amount of the liability as of September 30, 2017 for guarantees under standby letters of credit issued is not material.

 

Note 7. Borrowed Funds

 

Borrowings may consist of long-term and short-term debt fixed rate advances from the FHLBNY as well as short term borrowings through lines of credit with other financial institutions.  Information concerning borrowings at September 30, 2017 and December 31, 2016, is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

Original

 

 

 

September 30, 2017

    

Amount

    

Rate

    

Term (years)

    

Maturity

 

Fixed Rate Amortizing Note

 

 

1,877

 

1.50

%  

5

 

June  2019

 

Fixed Rate Amortizing Note

 

 

2,942

 

1.51

%  

5

 

July  2019

 

Fixed Rate Amortizing Note

 

 

2,864

 

1.51

%  

5

 

August  2019

 

Fixed Rate Amortizing Note

 

 

2,943

 

2.02

%  

7

 

August  2021

 

Fixed Rate Amortizing Note

 

 

4,424

 

1.48

%  

5

 

October  2019

 

 

 

$

15,050

 

1.60

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

 

 

 

 

    

 

 

    

 

    

Original

    

 

 

December 31, 2016

 

Amount

 

Rate

 

Term (years)

 

Maturity

 

Fixed Rate Medium Note

 

$

5,000

 

0.98

%  

 1

 

April  2017

 

Fixed Rate Amortizing Note

 

 

2,630

 

1.50

%  

 5

 

June  2019

 

Fixed Rate Amortizing Note

 

 

4,070

 

1.51

%  

 5

 

July  2019

 

Fixed Rate Amortizing Note

 

 

3,916

 

1.51

%  

 5

 

August  2019

 

Fixed Rate Amortizing Note

 

 

3,469

 

2.02

%  

 7

 

August  2021

 

Fixed Rate Amortizing Note

 

 

5,923

 

1.48

%  

 5

 

October  2019

 

 

 

$

25,008

 

1.47

%  

 

 

 

 

 

 

The Company has a $5.0 million line of credit with the Atlantic Community Bankers Bank. In addition, the Bank has a $16 million overnight line of credit facility available with Zions First National Bank, a $12.0 million overnight line of credit 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 FHLBNY.  The FHLBNY relationship provides additional borrowing capacity.  There were no outstanding borrowings on any of the lines of credit at September 30, 2017 and December 31, 2016.

 

Note 8. Capital Resources

 

A significant measure of the strength of a financial institution is its capital base.

 

The banking regulators have established guidelines for leverage capital requirements, expressed in terms of Tier 1 or core capital as a percentage of average assets, to measure the soundness of a financial institution. In addition, banking regulators have established risk-based capital guidelines for U.S. banking organizations.

 

Under the final capital rules that became effective on January 1, 2015, there is a requirement for a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. The implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and is being phased in over a four-year period, increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019.

 

The aforementioned capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of Common Equity Tier 1 capital to Risk Weighted Assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

 

20


 

The following table summarizes the Bank’s risk-based capital and leverage ratios at September 30, 2017, the applicable minimum ratios, the applicable minimum required based on the phase-in provisions and the minimum required to be considered well capitalized:

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

 

    

To Be Well

 

 

 

 

 

Minimum Required

 

Minimum Capital

 

Capitalized Under

 

 

 

 

 

For Capital

 

With Phase-in

 

Prompt Corrective

 

 

 

September 30, 2017

 

Adequacy Purposes

 

Buffer Schedule

 

Action Regulations

 

 

 

 

 

 

 

 

 

 

 

Risk-Based Capital:

 

 

 

 

 

 

 

 

 

Common Equity Tier 1 Capital

 

11.33

%  

4.50

%  

5.750

%  

6.50

%

Tier 1 Capital Ratio

 

11.33

%  

6.00

%  

7.250

%  

8.00

%

Total Capital Ratio

 

12.45

%  

8.00

%  

9.250

%  

10.00

%

Leverage Ratio

 

9.63

%  

4.00

%  

N/A

 

5.00

%

 

Under a policy of the Federal Reserve applicable to holding companies with less than $1 billion in assets, the Company is not subject to capital requirements on a consolidated basis.  

 

Note 9. Fair Value Measurements

 

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 described below:

 

·

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 (that is, supported with little or no market activity).

 

The level of an asset or liability within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement of that asset or liability.

 

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2017 and December 31, 2016, respectively, are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

 

 

 

 

 

Quoted Prices in

 

 

 

 

 

 

 

 

 

 

 

 

Active Markets

 

Significant Other

 

 

 

 

 

 

September 30, 

 

for Identical

 

Observable

 

Significant

 

Description

 

2017

 

Assets

 

Inputs

 

Unobservable Inputs

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury obligations

 

$

6,241

 

$

 —

 

$

6,241

 

$

 —

 

Government sponsored enterprise obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

    Agency backed

 

 

38,377

 

 

 

 

 

38,377

 

 

 

 

    Mortgage backed

 

 

14,627

 

 

 —

 

 

14,627

 

 

 —

 

Total securities available for sale

 

$

59,245

 

$

 —

 

$

59,245

 

$

 —

 

 

21


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

 

 

 

 

 

Quoted Prices in

 

 

 

 

 

 

 

 

 

 

 

 

Active Markets

 

Significant Other

 

 

 

 

 

 

December 31, 

 

for Identical

 

Observable

 

Significant

 

Description

 

2016

 

Assets

 

Inputs

 

Unobservable Inputs

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury obligations

 

$

6,268

 

$

 

$

6,268

 

$

 —

 

Government sponsored enterprise obligations

 

 

55,321

 

 

 

 

55,321

 

 

 

Total securities available for sale

 

$

61,589

 

$

 —

 

$

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 September 30, 2017 and December 31, 2016, respectively, follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

 

 

 

 

 

Quoted Prices in

 

 

 

 

 

 

 

 

 

September 30, 

 

Active Markets for

 

Significant Other

 

Significant

 

Description

 

2017

 

Identical Assets

 

Observable Inputs

 

Unobservable Inputs

 

Impaired loans

 

$

541

 

$

 —

 

$

 —

 

$

541

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate owned

 

$

456

 

$

 —

 

$

 —

 

$

456

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

 

 

 

 

Quoted Prices in

 

 

 

 

 

 

 

 

 

December 31, 

 

Active Markets for

 

Significant Other

 

Significant

 

Description

 

2016

 

Identical Assets

 

Observable Inputs

 

Unobservable Inputs

 

Impaired loans

 

$

 —

 

$

 

$

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate owned

 

$

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):

 

 

 

 

 

 

 

 

 

 

 

 

 

    

      Fair Value      

    

Valuation

    

Unobservable 

    

Range

 

September 30, 2017

 

Estimate

 

Techniques

 

Input

 

(Weighted Average)

 

Impaired loans

 

$

541

 

Appraisal of Collateral (1)

 

Appraisal Adjustments (2)

 

2.7% - 17.5% (13.0%)

 

 

 

 

 

 

 

 

Liquidation Expenses (2)

 

0.0% - 5.1% (3.6%)

 

 

 

 

 

 

 

 

 

 

 

 

Other real estate owned

 

$

456

 

Appraisal of Collateral (1)

 

Appraisal Adjustments (2)

 

11.5%

 

 

 

 

 

 

 

 

Liquidation Expenses (2)

 

10.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      Fair Value      

    

Valuation

    

Unobservable 

    

Range

 

December 31, 2016

 

Estimate

 

Techniques

 

Input

 

(Weighted Average)

 

Other real estate owned

 

$

614

 

Appraisal of Collateral (1)

 

Appraisal Adjustments (2)

 

11.5% - 48.40% (21.8)%

 

 

 

 

 

 

 

 

Liquidation Expenses (2)

 

8.9% - 10.3% (9.3)%

 

 

(1)

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

 

(2)

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.

 

Other real estate owned assets are adjusted to fair value less estimated selling costs upon transfer of the loans to other real estate owned, establishing a new cost basis.  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.

22


 

 

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 transactions 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 and assumptions are set forth below for the Company’s financial instruments at September 30, 2017 and December 31, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

 

 

 

 

 

 

 

 

Quoted Prices in

 

 

 

 

Significant

 

 

 

September 30, 2017

 

Active Markets for

 

Significant Other

 

Unobservable

 

 

 

Carrying amount

 

Estimated Fair Value

 

Identical Assets

 

Observable Inputs

 

Inputs

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

104,367

 

$

104,367

 

$

104,367

 

$

 

$

 

Interest bearing time deposits

 

 

1,000

 

 

1,000

 

 

 

 

1,000

 

 

 

Securities available for sale

 

 

59,245

 

 

59,245

 

 

 

 

59,245

 

 

 

Securities held to maturity

 

 

4,411

 

 

4,411

 

 

 

 

4,411

 

 

 

Restricted investment in bank stock

 

 

1,455

 

 

1,455

 

 

 

 

1,455

 

 

 

Net loans

 

 

684,898

 

 

681,837

 

 

 

 

 

 

681,837

 

Accrued interest receivable

 

 

2,642

 

 

2,642

 

 

 

 

2,642

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

776,455

 

 

782,401

 

 

439,492

 

 

342,909

 

 

 

Borrowed funds

 

 

15,050

 

 

15,017

 

 

 

 

15,017

 

 

 

Accrued interest payable

 

 

631

 

 

631

 

 

 

 

631

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

 

    

 

 

    

    

 

    

Quoted Prices in

    

 

 

    

Significant

 

 

 

December 31, 2016

 

Active Markets for

 

Significant Other

 

Unobservable

 

 

 

Carrying amount

 

Estimated Fair Value

 

Identical Assets

 

Observable Inputs

 

Inputs

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

76,976

 

$

76,976

 

$

76,976

 

$

 

$

 

Interest bearing time deposits

 

 

1,000

 

 

1,000

 

 

 

 

1,000

 

 

 

Securities available for sale

 

 

61,589

 

 

61,589

 

 

 

 

61,589

 

 

 

Securities held to maturity

 

 

7,343

 

 

7,343

 

 

 

 

7,343

 

 

 

Restricted investment in bank stock

 

 

1,983

 

 

1,983

 

 

 

 

1,983

 

 

 

Net loans

 

 

651,698

 

 

659,084

 

 

 

 

 

 

659,084

 

Accrued interest receivable

 

 

2,366

 

 

2,366

 

 

 

 

2,366

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

717,988

 

 

722,711

 

 

425,246

 

 

297,465

 

 

 

Borrowed funds

 

 

25,008

 

 

24,933

 

 

 

 

24,933

 

 

 

Accrued interest payable

 

 

516

 

 

516

 

 

 

 

516

 

 

 

 

23


 

 

 

Cash and Cash Equivalents and Interest Bearing Time Deposits

 

The carrying amounts reported in the statement of financial condition for cash and cash equivalents approximate those assets’ fair values.

 

Securities

 

The fair value of securities available for sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by obtaining market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.  For certain securities which are not traded in active markets or are subject to transfer restrictions, valuations are adjusted to reflect illiquiditiy and/or non-transferability, and such adjustments are generally based on available market evidence (Level 3).  In the absence of such evidence, management’s best estimate is used.  Management’s best estimate consists of both internal and external support on certain Level 3 investments.  Internal cash flow models using a present value formula that includes assumptions market participants would use along with indicative exit pricing obtained from broker/dealers (where available) were used to support fair values of certain Level 3 investments.

 

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 date of statement of financial condition that reflect the interest rate-risk inherent in the loans.  Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal.  Generally, for variable rate loans that re-price frequently and with no significant change in credit risk, fair values approximate carrying values.

 

Impaired loans

 

Impaired loans are those for which the Company has measured impairment generally based on the fair value of the loan’s collateral or discounted cash flows based upon the expected proceeds.  Fair value is generally based upon independent third-party appraisals of the collateral.  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, establishing a new cost basis.  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

24


 

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 September 30, 2017 and December 31, 2016 based on pertinent market data and relevant information on the financial instrument.  These estimates do not include any premium or discount that could result from an offer to sell at one time the Company’s entire holdings of a particular financial instrument or category thereof.  Since no market exists for a substantial portion of the Company’s financial instruments, fair value estimates were necessarily based on judgments regarding future expected loss experience, current economic conditions, risk assessment of various financial instruments, and other factors.  Given the innately subjective nature of these estimates, the uncertainties surrounding them and the matter of significant judgment that must be applied, these fair value estimates cannot be calculated with precision.  Modifications in such assumptions could meaningfully alter these estimates.

 

Since these fair value approximations were made solely for on and off balance sheet financial instruments at September 30, 2017 and December 31, 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 10. Accumulated Other Comprehensive Income

 

There were no reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2017 and 2016.

 

 

 

Note 11. Recent Accounting Pronouncements

 

This note 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 consolidated 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.

25


 

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 that the new standard will result 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 consolidated financial statements.

 

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, and early adoption is permitted. The Company is presently evaluating the potential impact of the adoption of this accounting pronouncement to its consolidated financial statements.

 

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.

 

26


 

ITEM 2

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

 

You should read this discussion and analysis in conjunction with the unaudited interim consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, and with our audited consolidated financial statements for the year ended December 31, 2016 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented in our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the Securities and Exchange Commission.

 

Statements Regarding Forward Looking Information

 

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 “would,” “should,” “could,” “may,” or similar expressions.  The U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, provide a safe harbor in regard to the inclusion of forward-looking statements in this document and documents incorporated by reference.

 

You should note that many factors, some of which are discussed elsewhere in this document could affect the future financial results of Bancorp of New Jersey, Inc. and its subsidiaries and could cause those results to differ materially from those expressed in the forward-looking statements contained in this document.  These factors include, but are not limited to, the items set forth under Item 1A – Risk Factors in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, as well as the following:

 

·

Economic conditions affecting the financial industry;

·

Changes in interest rates and shape of the yield curve;

·

Credit risk associated with our lending activities;

·

Risks relating to our market area, significant real estate collateral and the real estate market;

·

Legislative and regulatory changes and our ability to comply with the significant laws and regulations impacting the banking and financial services industry;

·

Operating, legal and regulatory compliance risk;

·

Regulatory capital requirements and our ability to raise and maintain capital;

·

Our ability to prevent, detect and respond to any cyberattacks in order to protect our information assets and supporting infrastructure including information of our customers;

·

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.

 

Bancorp of New Jersey, Inc., referred to as “we” or the “Company,” cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, all of which change over time, and we assume no duty to update forward-looking statements, except as may be required by applicable law or regulation, and except as required by applicable law or regulation, we do not undertake, and specifically disclaim any obligation, to publicly release any revisions to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. We caution readers not to place undue reliance on any forward-looking statements.  These statements speak only as of the date made, and we advise readers that various factors, including those described above, could affect our financial performance and could cause actual results or circumstances for future periods to differ materially from those anticipated or projected.

 

Critical Accounting Policies, Judgments and Estimates

 

Our consolidated 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 Part I, Item 1 of this report.  Certain of these policies require numerous estimates and

27


 

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 consolidated results of operations.

 

Allowance for Loan Losses

 

The allowance for loan losses (“ALLL”) represents our best estimate of losses known and inherent in our loan portfolio that are both probable and reasonable to estimate. In determining the amount of the ALLL, we consider the losses inherent in our loan portfolio and changes in the nature and volume of our loan activities, along with general economic and real estate market conditions. We utilize a segmented approach which identifies: (1) impaired loans for which specific reserves are established; (2) classified loans for which the general valuation allowance for the respective loan type is deemed to be inadequate; and (3) performing loans for which a general valuation allowance is established. We maintain a loan review system which provides for a systematic review of the loan portfolio and the identification of impaired loans. The review of residential real estate and home equity consumer loans, as well as other more complex loans, is triggered by identified evaluation factors, including delinquency status, size of loan, type of collateral and the financial condition of the borrower. Specific reserves are established for impaired loans based on a review of such information and/or appraisals of the underlying collateral. General reserves are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions and management’s judgment.

 

Although specific and general reserves are established in accordance with management’s best estimates, actual losses are dependent upon future events, and as such, further provisions for loan losses may be necessary in order to maintain the allowance for loan losses at an adequate level.  For example, our evaluation of the allowance includes consideration of current economic conditions, and a change in economic conditions could reduce the ability of borrowers to make timely repayments of their loans. This could result in increased delinquencies and increased non-performing loans, and thus a need to make additional provisions for loan losses. Any provision reduces our net income. While the allowance is increased by the provision for loan losses, it is decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. A change in economic conditions could adversely affect the value of properties collateralizing real estate loans, resulting in increased charges against the allowance and reduced recoveries, and require additional provisions for loan losses. Furthermore, growth or a change in the composition of our loan portfolio could require additional provisions for loan losses.

 

Deferred Income Taxes

 

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.

 

The Company uses currently enacted tax rates to value deferred tax assets and liabilities. The Trump Administration and the U.S. Congress are in the process of evaluating possible tax changes which may include a reduction in U.S. corporate income tax rates. If corporate tax rates were reduced, Management expects the Company would record an initial charge against earnings to lower the carrying amount of the net deferred tax asset, and then would record a lower tax provision going forward on an ongoing basis.

28


 

Results of Operations

 

Three and Nine Months Ended September 30, 2017 compared to Three and Nine Months Ended September 30, 2016

 

Our results of operations depend primarily on net interest income, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities.  Interest-earning assets consist principally of loans and investment securities, while interest-bearing liabilities consist primarily of deposits.  Net income is also affected by the provision for loan losses and the level of non-interest income, as well as by non-interest expenses, including salaries and employee benefits, occupancy and equipment expense, and other expenses, and income tax expense.

 

Net Income

 

Net income for the third quarter of 2017 was $1.3 million compared to $680 thousand for the third quarter of 2016, an increase of $669 thousand, or 98.4%. Net income for the nine months ended September 30, 2017 was approximately $3.7 million or $0.57 per diluted share, compared to $3.0 million or $0.48 per diluted share, for the nine months ended September 30, 2016, an increase of 23.2%. The increase in net income for the three and nine month periods ended September 30, 2017 compared to the same periods in 2016 was primarily due to the provision for loan losses recognized by the Company in 2016, while the Company did not recognize any provisions in 2017 .

 

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.  For the three month period ended September 30, 2017, net interest income increased by $91 thousand or 1.5% versus the same period last year. Interest income increased by $305 thousand for the three months ended September 30, 2017 as compared to the corresponding period last year. This increase in interest income was primarily due to growth in cash balances. Yield on total loans slightly decreased to 4.44% during the three months ended September 30, 2017 from 4.61% in the three months ended September 30, 2016. Total interest expense increased by $214 thousand in the third quarter of 2017 to $1.9 million compared to $1.7 million in the prior year. The increase in interest expense was due to higher average deposit balances coupled with higher interest rates. Interest on borrowed funds decreased by $50 thousand due to declining balances of borrowed funds. During the third quarter of 2017 average time deposits increased to $337.8 million from $307.0 million in the comparable quarter of 2016. Average other interest bearing deposits increased to $264.3 million in the current quarter from $230.4 million in the second quarter of 2016. Average borrowed funds decreased to $15.7 million in the current quarter from $33.9 million in the same quarter last year.

 

For the nine months ended September 30, 2017, net interest income was constant at $18.5 million compared to the nine months ended September 30, 2016.  A decrease in interest income from loans of $156 thousand was offset by an increase in interest income from Federal Funds and other interest earning deposits and securities of $522 thousand and $42 thousand, respectively.  Total interest expense increased by $336 thousand for the nine months ended September 30, 2017 from the nine months ended September 30, 2016.

 

 

 

 

 

 

 

 

 

 

 

29


 

The following tables set forth average balance sheets, averages yields and costs, and certain other information for the periods indicated. All averages are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30, 

 

 

 

2017

 

2016

 

 

    

Average

    

 

 

    

Average

    

Average

    

 

 

    

Average

    

 

 

Balance

 

Interest

 

Yield/Cost

 

Balance

 

Interest

 

Yield/Cost

 

Interest-Earning Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

679,670

 

 

7,614

 

4.44

$

657,839

 

 

7,620

 

4.61

Securities (1)

 

 

65,001

 

 

247

 

1.51

 

 

66,667

 

 

175

 

1.04

 

Federal Funds Sold

 

 

1,355

 

 

 4

 

1.17

 

 

1,035

 

 

 4

 

1.92

 

Interest-earning cash accounts

 

 

107,660

 

 

349

 

1.29

 

 

88,277

 

 

106

 

0.48

 

Total interest-earning Assets

 

 

853,686

 

 

8,214

 

3.82

 

813,818

 

 

7,905

 

3.86

Non-interest earning Assets

 

 

22,896

 

 

 

 

 

 

 

22,087

 

 

 

 

 

 

Allowance for Loan Losses

 

 

(7,994)

 

 

 

 

 

 

 

(8,447)

 

 

 

 

 

 

Total Assets

 

$

868,588

 

 

 

 

 

 

$

827,458

 

 

 

 

 

 

Interest-Bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand Deposits

 

$

31,896

 

$

17

 

0.21

$

37,671

 

$

20

 

0.21

Savings Deposits

 

 

110,572

 

 

255

 

0.91

 

 

98,972

 

 

230

 

0.92

 

Money Market Deposits

 

 

153,688

 

 

168

 

0.43

 

 

131,467

 

 

135

 

0.41

 

Time Deposits

 

 

337,751

 

 

1,447

 

1.70

 

 

307,034

 

 

1,238

 

1.60

 

Borrowed Funds

 

 

15,664

 

 

62

 

1.57

 

 

33,894

 

 

112

 

1.31

 

Total Interest Bearing Liabilities

 

 

649,571

 

 

1,949

 

1.19

 

609,038

 

 

1,735

 

1.13

Non-Interest Bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand Deposits

 

 

134,907

 

 

 

 

 

 

 

139,690

 

 

 

 

 

 

Other Liabilities

 

 

2,966

 

 

 

 

 

 

 

2,723

 

 

 

 

 

 

Total Non-Interest Bearing Liabilities

 

 

137,873

 

 

 

 

 

 

 

142,413

 

 

 

 

 

 

Stockholders’ Equity

 

 

81,144

 

 

 

 

 

 

 

76,007

 

 

 

 

 

 

Total Liabilities and Stockholders' Equity

 

$

868,588

 

 

 

 

 

 

$

827,458

 

 

 

 

 

 

Net Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Tax Equivalent Basis)

 

 

 

 

$

6,265

 

 

 

 

 

 

$

6,170

 

 

 

Tax Equivalent Basis adjustment

 

 

 

 

 

(13)

 

 

 

 

 

 

 

(9)

 

 

 

Net Interest Income

 

 

 

 

$

6,252

 

 

 

 

 

 

$

6,161

 

 

 

Net Interest Rate Spread

 

 

 

 

 

 

 

2.63

 

 

 

 

 

 

2.73

Net Interest Margin

 

 

 

 

 

 

 

2.91

 

 

 

 

 

 

3.02

Ratio of Interest-Earning Assets to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-Bearing Liabilities

 

 

1.31

 

 

 

 

 

 

 

1.34

 

 

 

 

 

 

 

(1)

Yield is calculated on a tax effective basis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 

 

 

2017

 

2016

 

 

    

Average

    

 

 

    

Average

    

Average

    

 

 

    

Average

    

 

 

Balance

 

Interest

 

Yield/Cost

 

Balance

 

Interest

 

Yield/Cost

 

Interest-Earning Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans

 

$

676,175

 

 

22,683

 

4.49

$

652,409

 

 

22,838

 

4.68

Securities (1)

 

 

66,541

 

 

669

 

1.34

 

 

67,002

 

 

608

 

1.21

 

Federal Funds Sold

 

 

1,262

 

 

13

 

1.38

 

 

1,109

 

 

13

 

1.57

 

Interest-earning cash accounts

 

 

110,528

 

 

820

 

0.99

 

 

86,082

 

 

299

 

0.46

 

Total interest-earning Assets

 

 

854,506

 

 

24,185

 

3.78

 

806,602

 

 

23,758

 

3.93

Non-interest earning Assets

 

 

22,444

 

 

 

 

 

 

 

20,961

 

 

 

 

 

 

Allowance for Loan Losses

 

 

(8,158)

 

 

 

 

 

 

 

(8,227)

 

 

 

 

 

 

Total Assets

 

$

868,792

 

 

 

 

 

 

$

819,336

 

 

 

 

 

 

Interest-Bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand Deposits

 

$

32,069

 

$

51

 

0.21

$

35,921

 

$

58

 

0.22

Savings Deposits

 

 

114,046

 

 

789

 

0.92

 

 

94,771

 

 

650

 

0.92

 

Money Market Deposits

 

 

150,052

 

 

480

 

0.43

 

 

129,963

 

 

401

 

0.41

 

Time Deposits

 

 

332,587

 

 

4,090

 

1.64

 

 

320,890

 

 

3,859

 

1.61

 

Borrowed Funds

 

 

19,500

 

 

222

 

1.52

 

 

31,305

 

 

328

 

1.40

 

Total Interest Bearing Liabilities

 

 

648,254

 

 

5,632

 

1.16

 

612,850

 

 

5,296

 

1.15

Non-Interest Bearing Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand Deposits

 

 

138,073

 

 

 

 

 

 

 

128,732

 

 

 

 

 

 

Other Liabilities

 

 

2,955

 

 

 

 

 

 

 

2,785

 

 

 

 

 

 

Total Non-Interest Bearing Liabilities

 

 

141,028

 

 

 

 

 

 

 

131,517

 

 

 

 

 

 

Stockholders’ Equity

 

 

79,510

 

 

 

 

 

 

 

74,969

 

 

 

 

 

 

Total Liabilities and Stockholders' Equity

 

$

868,792

 

 

 

 

 

 

$

819,336

 

 

 

 

 

 

Net Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Tax Equivalent Basis)

 

 

 

 

$

18,553

 

 

 

 

 

 

$

18,462

 

 

 

Tax Equivalent Basis adjustment

 

 

 

 

 

(46)

 

 

 

 

 

 

 

(27)

 

 

 

Net Interest Income

 

 

 

 

$

18,507

 

 

 

 

 

 

$

18,435

 

 

 

Net Interest Rate Spread

 

 

 

 

 

 

 

2.62

 

 

 

 

 

 

2.78

Net Interest Margin

 

 

 

 

 

 

 

2.90

 

 

 

 

 

 

3.06

Ratio of Interest-Earning Assets to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-Bearing Liabilities

 

 

1.32

 

 

 

 

 

 

 

1.32

 

 

 

 

 

 

 

(1)

Yield is calculated on a tax effective basis.

31


 

Provision for Loan Losses

 

The provision for loan losses represents our determination of the amount necessary to bring our allowance for loan losses to the level that we consider adequate to absorb probable losses inherent in our loan portfolio. See “Allowance for Loan Losses” for additional information about our allowance for loan losses and our methodology for determining the amount of the allowance. The Company recognized no provision for loan losses for the three and nine months ended September 30, 2017 compared to provision of $1.12 million and $1.57 million the three and nine months ended September 30, 2016, respectively. The provisions in 2016 were mainly due to a provision recognized in the third quarter of 2016 related to a single credit. The allowance for loan losses to total loans was 1.15% as of the end of the third quarter of 2017.

 

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 three and nine months ended September 30, 2017, non-interest income decreased by $91 thousand and $51 thousand, respectively, compared to the three and nine months ended September 30, 2016.

 

Non-interest Expense

 

Non-interest expense was $4.2 million during the third quarter of 2017, consistent with the third quarter of 2016. During the nine months ended September 30, 2017, non-interest expense was $13.0 million, $385 thousand greater than the same period last year. The increase in non-interest expense in the nine month period primarily reflects an increase in salaries and employee benefits costs associated with health insurance premium increases and a new 401(k) plan with a safe harbor match and an increase in professional fees mainly attributable to non-recurring consulting fees for the completion of loan system enhancements. The change in non-interest expense also reflects non-recurring charges of $220 thousand in the nine months ended September 30, 2016.

   

Income Tax Expense

 

The income tax provision increased $462 thousand to $784 thousand for the three months ended September 30, 2017 from $322 thousand for the quarter ended September 30, 2016. For the nine months ended September 30, 2017, income tax expense was $2.1 million versus $1.6 million for the nine months ended September 2017. The effective tax rate for the three and nine months ended September 30, 2017 was 36.73% and 36.32%, respectively, compared to 32.10% and 34.78% for the corresponding periods in 2016.

 

FINANCIAL CONDITION

 

Total consolidated assets increased by approximately $55.4 million, or 6.74%, from $822.4 million at December 31, 2016 to $877.9 million at September 30, 2017.  Loans receivable, or “total loans,” increased from $660.6 million at December 31, 2016 to $693.6 million at September 30, 2017, an increase of approximately $33.0 million, or 5.00%.  Total cash and cash equivalents increased from $77.0 million at December 31, 2016 to $104.4 million at September 30, 2017, an increase of $27.4 million. The change in cash is mainly due to the increase in deposit account balances, pending redeployment into interest earning assets. Total deposits grew by $58.5 million to $776.5 million at September 30, 2017, from $718.0 million at December 31, 2016, attributable to successful deposit campaigns . Borrowed funds decreased to $15.1 million at September 30, 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 5.1% to reach $684.9 million at September 30, 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.

32


 

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.

 

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.

 

For more information on the loan portfolio, see Note 5 in Notes to the Unaudited Consolidated Financial Statements in Part I, Item 1of this Quarterly Report on Form 10-Q.

 

Loan Quality

 

As mentioned above, our principal assets are our loans.  Inherent in the lending function is the risk of the borrower’s inability to repay a loan under its existing terms.  Risk elements include past due and restructured loans, potential problem loans and loan concentrations.

 

Impaired loans are identified by evaluating factors, including delinquency status, size of loan, type of collateral and the financial condition of the borrower. Non-performing assets include loans that are not accruing interest (nonaccrual loans) as a result of principal or interest being in default for a period of 90 days or more, troubled debt restructured loans and foreclosed assets.  When a loan is classified as nonaccrual, interest accruals discontinue and all past due interest, including interest applicable to prior years, is reversed and charged against current income.  Payments received from the borrower are applied to outstanding principal until such time as management determines that the financial condition of the borrower and other factors warrant returning the loan to accruing status.

 

We attempt to manage overall credit risk through loan diversification and our loan underwriting and approval procedures.  Due diligence begins at the time we begin to discuss the origination of a loan with a borrower.  Documentation, including a borrower’s credit history, materials establishing the value and liquidity of potential collateral, the purpose of the loan, the source and timing of the repayment of the loan, and other factors are analyzed before a loan is submitted for approval.  Loans made are also subject to periodic audit and review.

 

As of September 30, 2017 the Bank had non-accrual loans of $16.9 million, compared to non-accrual loans totaling $18.8 million at year end 2016. The decrease in non-accrual loans reflects payoffs of two credits with outstanding balances totaling $1.3 million associated with a former Director, a sale of one credit totaling $302 thousand and a payment of $300 thousand on a single credit. If the nonaccrual loans had been current in accordance with their original terms and had been outstanding throughout the three and nine months ended September 30, 2017, the gross interest income that would have been recorded in such periods would have been approximately $174 thousand and $458 thousand, respectively.

 

Within its nonaccrual loans at September 30, 2017, the Bank had nine residential mortgage loans, six 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 September 30, 2017, nonaccrual TDR loans had an outstanding balance of $10.3 million and had no specific reserves associated with them. At September 30, 2017, the Bank had accruing loans which met the definition of a TDR totaling $862 thousand.

 

Investment Securities

 

Securities held as available for sale (“AFS”) were $59.2 million at September 30, 2017 compared to $61.6 million at December 31, 2016. During the third quarter of 2017 the Company purchased three Mortgage Backed Securities totaling $15 million at the same time one Agency Backed Security of $5 million matured. Securities held to maturity at September 30, 2017 were $4.4 million compared to $7.3 million at December 31, 2016, a decrease of $2.9 million that is due to maturities.

33


 

Deposits

 

Deposits remain our primary source of funds.  Total deposits increased to $776.5 million at September 30, 2017 from $718 million at December 31, 2016, an increase of $58.5 million, or 8.14%. Time deposits increased by $44.2 million. Savings and interest bearing demand deposits increased by $9.6 million for the first nine months of 2017. Noninterest bearing demand deposit accounts increased by $4.7 million during the first nine months of 2017. 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.

 

Borrowed Funds

 

Borrowings consist of long-term and short-term advances from the FHLBNY.  These advances are secured under terms of a blanket collateral agreement by a pledge of qualifying securities and mortgage loans.  At September 30, 2017 and December 31, 2016, the Bank had outstanding borrowings of $15.1 million and $25.0 million, respectively, with the FHLBNY.

 

Liquidity

 

Our liquidity is a measure of our ability to fund loans, withdrawals or maturities of deposits, and other cash outflows in a cost-effective manner.  Our principal sources of funds are deposits, scheduled amortization and prepayments of loan principal, maturities of investment securities, and funds provided by operations.  While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit flow and loan prepayments are greatly influenced by prevailing interest rates, economic conditions, and competition.  In addition, if warranted, we would be able to access funds through established lines of credit and borrowings.

 

As of September 30, 2017, the Company had a $5 million line of credit with the Atlantic Community Bankers Bank. In addition, the Bank had a $16 million overnight line of credit with Zions First National Bank, a $12 million overnight line of credit with First Tennessee Bank and a $10 million overnight line of credit with Atlantic Community Bankers Bank for the purchase of federal funds in the event that temporary liquidity needs arise.  There were no amounts outstanding under any of the facilities at September 30, 2017.  We are an approved member of the FHLBNY.  The FHLBNY relationship could provide additional sources of liquidity, if required.  At September 30, 2017, the Bank had $15.1 million of borrowed funds and a $40 million letter of credit from the FHLBNY.

 

Our total deposits equaled $776.5 million and $718.0 million, respectively, at September 30, 2017 and December 31, 2016. Cash and cash equivalents increased from $77.0 million on December 31, 2016 to $104.4 million at September 30, 2017. 

 

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.

 

ITEM 3. Quantitative and Qualitative Disclosures about Market/Interest Risk

 

As a smaller reporting company, the Company is not required to provide the information otherwise required by this Item.

 

ITEM 4. Controls and Procedures

 

Evaluation of disclosure controls and procedures.

 

As of September 30, 2017, the Company’s management including the Chief Executive Officer and President (our Principal Executive and Operating Officer) and Senior Vice President and Chief Financial Officer (our Principal Financial and Accounting Officer), evaluated the Company’s disclosure controls and procedures related to the recording,

34


 

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 September 30, 2017, the Company’s Chief Executive Officer and President and the Company’s Senior Vice President and Chief 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.

 

Changes in internal controls over financial reporting.

 

There was no change in our internal control over financial reporting identified during the quarter ended September 30, 2017 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II  OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

The Company and the Bank are periodically parties to or otherwise involved in legal proceedings arising in the normal course of business, 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 pending or threatened proceedings against the Company or the Bank which, if determined adversely, would have a material effect on the business, financial position or results of operations of the Company or the Bank, nor are there any such proceedings known to be contemplated by governmental authorities.

 

Item 1A.  Risk Factors

 

An investment in our common stock involves risks. Stockholders should carefully consider the risks described under Item 1A – Risk Factors in our Annual Report on Form 10-K filed with the Securities and Exchange Commission. As of the date of this Quarterly Report on Form 10-Q, there have been no changes in our risk factors.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds .

 

None

 

Item 3.  Defaults Upon Senior Securities

 

None.

 

Item 4.  Mine Safety Disclosures

 

Not Applicable

 

Item 5.  Other Information

 

None.

Item 6.  Exhibits

The exhibits filed or incorporated by reference as part of this report are listed in the Exhibit Index, which appears at page 36.

35


 

 

 

 

EXHIBIT INDEX

 

Exhibit No.

    

 

    

Description

 

 

 

 

 

 

 

 

 

 

31.1

 

 

 

Rule 13a-14(a) Certification of Principal Executive Officer

31.2

 

 

 

Rule 13a-14(a) Certification of Principal Financial Officer

32

 

 

 

Section 1350 Certifications

101

 

 

 

Interactive Data Files

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

 

 

 

36


 

SIGNATURES

 

Pursuant to the requirements 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.

 

 

Bancorp of New Jersey, Inc.

 

 

 

 

 

 

Date:  November 09, 2017

By:

/s/ Nancy E. Graves

 

 

Nancy E. Graves

 

 

Chief Executive Officer and President

 

 

(Principal Executive and Operating Officer)

 

 

 

 

 

 

 

By:

/s/ Matthew Levinson

 

 

Matthew Levinson

 

 

Senior Vice President and

 

 

Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)

 

 

 

37


Bancorp of New Jersey (AMEX:BKJ)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Bancorp of New Jersey Charts.
Bancorp of New Jersey (AMEX:BKJ)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Bancorp of New Jersey Charts.