U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-QSB
(Mark One)
X Quarterly report pursuant to Section 13 or 15 (d) of the Securities
---- Exchange Act of 1934
For the quarterly period ended June 30, 2000
-------------
---- Transition report under Section 13 or 15 (d) of the Exchange Act
For the transition period from to
--------------- -----------------
Commission file number 000-26587
---------
COMMUNITY BANCORP OF NEW JERSEY
-------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3495579
---------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3535 Highway 9 North, Freehold, New Jersey 07728
------------------------------------------------
(Address of principal executive offices)
(732) 863-9000
--------------
(Issuer's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 X No
----- -----
Common Stock, No Par Value-1,918,957 shares outstanding as of August 7, 2000
<PAGE>
INDEX
COMMUNITY BANCORP OF NEW JERSEY
PART I. FINANCIAL INFORMATION PAGE NO.
------- --------------------- --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at June 30, 2000
(Unaudited) and December 31, 1999 3
Consolidated Condensed Statements of Income for the
three and six months ended June 30, 2000 and 1999 4
(Unaudited)
Consolidated Condensed Statement of Changes in
Stockholders' Equity at June 30, 2000 (Unaudited) 5
Consolidated Condensed Statements of Cash Flows for the
three and six months ended June 30, 2000 and 1999
(Unaudited) 6
Notes to Consolidated Condensed Financial Statements
(Unaudited) 7 - 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10 - 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25 - 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - None 26
b. Reports on Form 8-K 26
SIGNATURES 27
2
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30,
2000 December 31,
(Unaudited) 1999
--------- ---------
ASSETS (Dollars in thousands)
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 9,005 $ 4,991
Federal funds sold 10,455 20,275
--------- ---------
Total cash and cash equivalents 19,460 25,266
--------- ---------
Investment securities available-for-sale 22,532 9,424
Investment securities held-to-maturity (fair value of $10,334
at June 30, 2000 and $11,093 at December 31, 1999) 10,497 11,245
Loans receivable 99,672 82,632
Allowance for loan loss (1,375) (1,237)
--------- ---------
Net loans receivable 98,297 81,395
--------- ---------
Premises and equipment, net 4,739 4,631
Accrued interest receivable 930 643
Other assets 479 207
--------- ---------
Total Assets $ 156,934 $ 132,811
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand $ 27,871 $ 22,963
Interest bearing - NOW 23,656 16,490
Savings and money market 51,861 43,492
Certificates of deposit, under $100,000 21,152 19,574
Certificates of deposit, $100,000 and over 12,596 11,509
--------- ---------
Total deposits 137,136 114,028
--------- ---------
Accrued interest payable 820 292
Other liabilities 384 265
--------- ---------
Total liabilities 138,340 114,585
--------- ---------
Stockholders' equity
Common stock - authorized 5,000,000 shares of
no par value; issued and outstanding, net of
treasury shares, 1,918,957 and 1,827,766 shares at
June 30, 2000 and December 31, 1999, respectively 21,662 20,523
Accumulated deficit (2,679) (1,923)
Accumulated other comprehensive income (loss) (26) (11)
Treasury stock, 22,357 shares, at cost (363) (363)
--------- ---------
Total stockholders' equity 18,594 18,226
--------- ---------
Total Liabilities and Stockholder's Equity $ 156,934 $ 132,811
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2000 1999 2000 1999
------ ------ ------ ------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including Fees $1,976 $1,269 $3,698 $2,320
Federal funds sold 149 180 319 318
Investment securities - taxable 480 144 892 337
------ ------ ------ ------
Total interest income 2,605 1,593 4,909 2,975
------ ------ ------ ------
INTEREST EXPENSE
Interest bearing - NOW 70 54 132 105
Savings and money market 491 379 943 710
Certificates of deposit 499 111 952 184
Short-term borrowings -- 1 -- 1
------ ------ ------ ------
Total interest expense 1,060 545 2,027 1,000
------ ------ ------ ------
Net interest income 1,545 1,048 2,882 1,975
Provision for loan losses 80 111 138 222
------ ------ ------ ------
Net interest income after provision
for loan losses 1,465 937 2,744 1,753
------ ------ ------ ------
Non-interest income:
Service fees on deposit accounts 93 51 179 98
Other fees and commissions 172 22 238 33
------ ------ ------ ------
Total non-interest income 265 73 417 131
------ ------ ------ ------
Non-interest expense:
Salaries and wages 597 347 1,117 658
Employee benefits 98 58 184 116
Occupancy expense 93 61 197 108
Depreciation - occupancy, furniture & equipment 124 92 240 168
Other 578 313 1,037 630
------ ------ ------ ------
Total non-interest expense 1,490 871 2,775 1,680
------ ------ ------ ------
Net Income $ 240 $ 139 $ 386 $ 204
====== ====== ====== ======
Per Common Share:
Net income - basic $ 0.12 $0.08 $0.20 $ 0.11
Net income - diluted $ 0.12 $ 0.07 $ 0.20 $ 0.10
Weighted average shares outstanding (in thousands):
Basic 1,919 1,925 1,919 1,930
Diluted 1,929 1,955 1,929 1,961
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Other Total
Common Treasury Accumulated Comprehensive Comprehensive Stockholders'
Stock Stock Deficit Income (Loss) Income Equity
----- ----- ------- ------------- ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1999 $ 20,523 $ (363) $ (1,923) $ (11) $ 18,226
5% stock dividend (91,191 shares) 1,139 -- (1,139) -- --
Cash in lieu of fractional shares -- -- (3) -- (3)
Comprehensive Income:
Net Income -- -- 386 -- $ 386 386
Increase in unrealized holding
losses on securities, net -- -- -- (15) (15) (15)
-------- -------
Total Comprehensive Income -- -- -- -- $ 371
-------- -------- -------- -------- ========
Balance, June 30, 2000 (Unaudited) $ 21,662 $ (363) $ (2,679) $ (26) $ 18,594
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30,
-------------------------
2000 1999
-------- --------
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 386 $ 204
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 240 168
Provision for loan losses 138 222
Accretion of investment discount (70) (1)
Amortization of investment premium 3 --
Increase in accrued interest receivable (287) (137)
Increase in other assets (265) (112)
Increase in accrued interest payable 528 25
Increase in other liabilities 119 125
-------- --------
Net cash provided by operating activities 792 494
-------- --------
Cash flows from investing activities:
Purchases of investment securities held-to-maturity -- (9,995)
Purchases of investment securities available-for-sale (14,315) --
Proceeds from maturities and calls of investment securities 2,000 6,500
Net increase in loans made to customers (17,040) (17,595)
Purchases of premises and equipment (348) (1,036)
-------- --------
Net cash used in investing activities (29,703) (22,126)
-------- --------
Cash flows from financing activities:
Net increase in demand deposits and savings accounts 20,443 9,083
Net increase in certificates of deposit 2,665 7,457
Net increase in short-term borrowings -- 3,000
Stock dividend-cash paid in lieu of fractional shares (3) --
Net proceeds from common stock issued -- 1,014
-------- --------
Net cash provided by financing activities 23,105 20,554
-------- --------
Net decrease in cash and cash equivalents (5,806) (1,078)
Cash and cash equivalents as of beginning of year 25,266 28,566
-------- --------
Cash and cash equivalents as of end of period $ 19,460 $ 27,488
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 1,499 $ 975
Cash paid during the period for income taxes $ 167 $ --
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
COMMUNITY BANCORP OF NEW JERSEY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
NOTE A - BASIS OF PRESENTATION
The consolidated condensed financial statements of Community Bancorp of New
Jersey (the Company) included herein have been prepared without audit pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the financial statement date and the
reported amounts of revenues and expenses during the reporting period. Since
management's judgment involves making estimates concerning the likelihood of
future events, the actual results could differ from those estimates which will
have a positive or negative effect on future period results. The accompanying
consolidated condensed financial statements reflect all adjustments which are,
in the opinion of management, necessary to a fair statement of the results for
the interim periods presented. Such adjustments are of a normal recurring
nature. These consolidated condensed financial statements should be read in
conjunction with the audited financial statements and the notes thereto as of
and for the year ended December 31, 1999. The results for the three months and
six months ended June 30, 2000 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2000.
The consolidated condensed financial statements include the accounts of the
Company and its wholly owned subsidiary, the Community Bank of New Jersey. All
significant inter-company accounts and transactions have been eliminated.
NOTE B - EARNINGS PER SHARE
The Company follows the provisions of SFAS No. 128, Earnings Per Share. SFAS No.
128 eliminates primary and fully diluted earnings per share (EPS) and requires
presentation of basic and diluted EPS in conjunction with the disclosure of the
methodology used in computing such EPS. Basic EPS excludes dilution and is
computed by dividing income available to common shareholders by the weighted
average common shares outstanding during the period. Diluted EPS takes into
account the potential dilution that could occur if securities or other contracts
to issue common stock were exercised and converted into common stock. EPS is
computed based on the weighted average number of shares of common stock
outstanding.
NOTE C - RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities was issued. Subsequent to this statement, SFAS No. 137 and 138 were
issued, which amended the effective date of SFAS No. 133 to be all fiscal
quarters of all fiscal years beginning after June 15, 2000. Based on the
Company's minimal use of derivatives at the current time, management does not
anticipate the adoption of SFAS No. 133 will have a significant impact on
earnings or financial position of the Company. However, the impact from adopting
SFAS No. 133 will depend on the nature and purpose of the derivative instruments
in use by the Company at that time.
NOTE D - STOCK DIVIDEND
On April 5, 2000 the Company's Board of Directors approved a 5% stock dividend
that was paid May 1, 2000 to shareholders of record as of April 17, 2000.
Weighted average shares outstanding and earnings per share were retroactively
adjusted to reflect the stock dividend.
7
<PAGE>
COMMUNITY BANCORP OF NEW JERSEY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Continued
NOTE E - INVESTMENT SECURITIES
The following tables present the book values, fair values and gross unrealized
gains and losses of the Company's investment securities portfolio as of June 30,
2000 and December 31, 1999 (Dollars in thousands).
<TABLE>
<CAPTION>
June 30, 2000 (Unaudited)
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Government and agency securities......... $ 22,548 $ 12 $ (53) $22,507
Other securities.............................. 25 -- -- 25
-------- ---- ----- -------
$ 22,573 $ 12 $ (53) $22,532
======== ==== ===== =======
Securities held-to-maturity:
U.S. Government and agency securities......... $ 9,997 $ -- $(157) $ 9,840
Other securities.............................. 500 -- (6) 494
-------- ---- ----- -------
$ 10,497 $ -- $(163) $10,334
======== ==== ===== =======
<CAPTION>
December 31, 1999
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Securities available-for-sale:
U.S. Government and agency securities......... $ 9,418 $ -- $ (19) $ 9,399
Other securities.............................. 25 -- -- 25
-------- ---- ------ -------
$ 9,443 $ -- $ (19) $ 9,424
======== ===== ===== =======
Securities held-to-maturity:
U.S. Government and agency securities.......... $ 10,745 $ -- $(152) $10,593
Other securities............................... 500 -- -- 500
-------- ---- ------- -------
$ 11,245 $ -- $ (152) $11,093
======== ==== ====== =======
</TABLE>
The following table sets forth as of June 30, 2000 the maturity distribution of
the Company's investment portfolio (Dollars in thousands).
<TABLE>
<CAPTION>
Available-for-sale Held-to-maturity
-------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less...................... $ 14,889 $14,848 $ 4,000 $ 3,945
Due after one year through five years........ 7,659 7,659 5,997 5,895
Due after five years through ten years....... -- -- 500 494
Due after ten years.......................... 25 25 - --
-------- ------- ------- -------
$ 22,573 $22,532 $10,497 $10,334
======== ======= ======= =======
</TABLE>
8
<PAGE>
COMMUNITY BANCORP OF NEW JERSEY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Continued
NOTE F - LOANS RECEIVABLE and ALLOWANCE FOR LOAN LOSSES
The following table summarizes the components of the loan portfolio as of June
30, 2000 and December 31, 1999 (Dollars in thousands).
<TABLE>
<CAPTION>
Loan Portfolio By Type of Loan
--------------------------------------------------------
June 30, 2000
(Unaudited) December 31, 1999
---------------------- -----------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial and industrial loans $16,939 16.99% $15,137 18.32%
Commercial mortgage loans 45,119 45.27% 38,814 46.97%
Residential mortgages 7,252 7.28% 7,254 8.78%
Construction loans 15,668 15.72% 8,895 10.76%
Consumer loans 14,662 14.71% 12,476 15.10%
Other loans 32 0.03% 56 0.07%
------- ------ ------- ------
$99,672 100.00% $82,632 100.00%
======= ====== ======= ======
</TABLE>
The following table represents the activity in the allowance for loan losses for
the six month periods ended June 30, 2000 and 1999 and the year ended December
31, 1999 (Dollars in thousands).
<TABLE>
<CAPTION>
Allowance For Loan Losses
---------------------------------------
Six Months Ended
June 30, Year Ended
(Unaudited) December 31,
2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
Balance - beginning of period $ 1,237 $ 914 $ 914
Charge-offs -- (2) (2)
Recoveries -- -- --
------- ------- -------
Net (charge-offs) recoveries -- (2) (2)
Provision for loan losses 138 222 325
------- ------- -------
Balance - end of period $ 1,375 $ 1,134 $ 1,237
======= ======= =======
Balance of Allowance at period-end as a %
of loans at period-end 1.38% 1.79% 1.50%
======= ======= =======
</TABLE>
9
<PAGE>
COMMUNITY BANCORP OF NEW JERSEY
Management's Discussion and Analysis of Financial Condition and
Results of Operations
This financial review presents management's discussion and analysis of financial
condition and results of operations. It should be read in conjunction with the
consolidated condensed financial statements and the accompanying notes included
elsewhere herein.
FINANCIAL CONDITION
Total assets at June 30, 2000 increased by $24.1 million, or 18.1%, to $156.9
million compared to $132.8 million at December 31, 1999. Total assets averaged
$137.2 million in the first six months of 2000, a $38.3 million, or 38.7%,
increase from the 1999 full year average of $98.9 million. Average loans
increased $24.5 million, or 38.6%, to $87.9 million in the first six months of
2000, from the 1999 full year average of $63.4 million. Average investment
securities increased by $16.7 million, or 134.7%, to $29.1 million; average
Federal funds sold decreased by $4.7 million, or 30.3%, to $10.8 million; the
average of all other assets increased by $2.0 million, or 23.0%, to $10.7
million; and the loan loss reserve average increased $203 thousand, or 18.6%, to
$1.3 million during the first six months of 2000 compared to the full year 1999
averages.
These increases in average assets were funded primarily by a $37.8 million, or
47.4%, increase in average deposits, as the first six months of 2000 average
deposits increased to $117.6 million from the full year 1999 average of $79.8
million.
Lending Activity
----------------
Total loans at June 30, 2000 were $99.7 million, a 20.7%, or $17.1 million
increase from December 31, 1999. The loan portfolio consists primarily of loans
secured by real estate, and, to a lesser extent, commercial, construction and
consumer loans. Changes in the composition of the loan portfolio during the
comparative periods included increases of $6.3 million in commercial mortgage
loans, $6.8 million in construction loans, $2.2 million in consumer loans and
$1.8 million in commercial and industrial loans.
The 20.7% increase in loans at June 30, 2000 compared to December 31, 1999 is
partially attributable to greater penetration of our marketplace and an
improvement in the general economic environment in New Jersey. We opened our
second office in downtown Freehold, New Jersey, in September 1997, our third
office in Howell, New Jersey, in November 1998 our fourth office in Matawan, New
Jersey, in February 1999, and our fifth branch in Manalapan, New Jersey, during
November, 1999. Management believes that the maturation of these branch
locations will continue to provide us with lending opportunities as well as
funding sources for the loans.
Our loans are primarily to businesses and individuals located in Monmouth,
Middlesex, and Ocean Counties, New Jersey. We believe that our strategy of
customer service, competitive rate structures, and selective marketing will
continue to enable us to gain market entry to local loans and deposits. Bank
mergers and consolidations have also contributed to our efforts to attract
10
<PAGE>
borrowers and depositors. We intend to continue to pursue quality loans in all
lending categories within our market area.
Allowance for Loan Losses
-------------------------
The allowance for loan losses was $1.4 million, or 1.38% of total loans, at June
30, 2000 compared to $1.2 million, or 1.50% of total loans, at December 31,
1999. At June 30, 2000 and December 31, 1999, we had no non-performing loans.
We attempt to maintain an allowance for loan losses at a sufficient level to
provide for potential losses in the loan portfolio. Loan losses are charged
directly to the allowance when they occur and any recovery is credited to the
allowance. Risks within the loan portfolio are analyzed on a continuous basis by
our officers, by outside, independent loan review auditors, our Directors Loan
Review Committee and the Board of Directors. A risk system, consisting of
multiple grading categories, is utilized as an analytical tool to assess risk
and set appropriate reserves. Along with the risk system, management further
evaluates risk characteristics of the loan portfolio under current and
anticipated economic conditions and considers such factors as the financial
condition of the borrower, past and expected loss experience, and other factors
we feel deserve recognition in establishing an appropriate reserve. These
estimates are reviewed at least quarterly, and, as adjustments become necessary,
they are realized in the periods in which they become known. Additions to the
allowance are made by provisions charged to expense and the allowance is reduced
by net charge-offs (i.e. - loans judged to be uncollectible and charged against
the reserve, less any recoveries on such loans). Although we attempt to maintain
the allowance at a level deemed adequate, future additions to the allowance may
be necessary based upon changes in market conditions. In addition, various
regulatory agencies periodically review our allowance for loan losses. These
agencies may require us to take additional provisions based on their judgements
about information available to them at the time of their examination.
Investment Securities Activity
------------------------------
Investment securities increased by $12.3 million, or 59.4%, to $33.0 million at
June 30, 2000 compared to $20.7 million at December 31, 1999. During the period
ended June 30, 2000, we utilized our liquidity in excess of loan demand to fund
additional purchases of investment securities available-for-sale amounting to
$14.3 million, which was partially off-set by maturities and calls amounting to
$2.0 million.
Management determines the appropriate classification of securities at the time
of purchase. At June 30, 2000, investment securities of $22.5 million, or 68.2%
of the total investment securities portfolio, were classified as
available-for-sale and investment securities of $10.5 million, or 31.8% of the
total investment securities portfolio, were classified as held-to-maturity. We
had no investment securities classified as trading securities. The investment
portfolio is comprised primarily of U.S. Government and agency securities with
maturities of three years or less and with call features of one year or less. We
currently maintain an investment portfolio of short duration in order to fund
projected increased loan volume and to provide for other liquidity uses as
needed, and secondarily as an additional source of interest income.
11
<PAGE>
Deposits
--------
Deposits are our primary source of funds. Total deposits increased by $23.1
million, or 20.3%, to $137.1 million at June 30, 2000 compared to $114.0 million
at December 31, 1999. The increase in deposits during this period was primarily
due to greater penetration of our marketplace and the continued growth of our
new locations. In the first and fourth quarter of 1999, we opened two new
offices, which have contributed to our deposit growth.
Average total deposits increased by $37.8 million, or 47.4%, to $117.6 million
for the six months ended June 30, 2000 compared to the 1999 full year average of
$79.8 million. Changes in the deposit mix averages for the six months ended June
30, 2000 compared to the 1999 full year averages include a $7.3 million, or
21.0%, increase in savings deposits; a $2.3 million, or 17.4%, increase in NOW
account deposits; a $20.0 million, or 157.5%, increase in time deposits; a $0.4
million, or 14.8%, increase in money market deposits; and a $7.8 million, or
47.6%, increase in non-interest bearing demand deposits. Average certificates of
deposit increased due primarily to the Manalapan branch opening promotions
during the fourth quarter of 1999 and to the acceptance of municipal deposits
starting in December, 1999. For the first six months of 2000, the Manalapan
branch certificates of deposit averaged $9.8 million and certificates of deposit
to municipal agencies averaged $5.7 million.
We emphasize relationships with commercial customers and seek to obtain
transactional accounts, which are frequently kept in non-interest bearing
deposits. We also emphasize the origination of savings deposits, which amounted
to $46.1 million at June 30, 2000, by offering rates higher than our peer group
institutions. Our primary savings product is the stepped rate savings account.
The interest rate is based upon the amount on deposit, and the deposit amount
can be changed. We may modify the interest rate paid without notice, and the
depositor may withdraw their funds on demand. We market this product as an
alternative to time deposits and we believe it has resulted in a higher rate of
core deposits and lower cost of funds than our peer group institutions. Deposits
are obtained primarily from the market areas that we serve. As of June 30, 2000
we did not have any brokered deposits and neither solicited nor offered premiums
for such deposits.
Liquidity
---------
Liquidity is a measurement of our ability to meet present and future funding
obligations and commitments. We adjust our liquidity levels in order to meet
funding needs for deposit outflows, repayment of borrowings, when applicable,
and the funding of loan commitments. We also adjust our liquidity level as
appropriate to meet our asset/liability objectives. Principal sources of
liquidity are deposit generation, access to purchased funds, including
borrowings from other financial institutions, repurchase agreements, maturities
and repayments of loans and investment securities, and net interest income and
fee income. Liquid assets (consisting of cash and Federal funds sold) comprised
12.4% and 19.1% of our total assets at June 30, 2000 and December 31, 1999,
respectively.
As shown in the Consolidated Condensed Statements of Cash Flows, our primary
source of funds at June 30, 2000 was increased deposits, the utilization of
Federal funds sold, and to a lesser extent proceeds from maturities and calls of
investment securities. Deposit increases amounted to $23.1 million for the six
months ended June 30, 2000; Federal funds sold reductions provided
12
<PAGE>
$9.8 million in funding; and proceeds from maturities and calls of investment
securities amounted to $2.0 million. During the first six months of 2000, we
utilized deposit growth and liquid assets as funding sources for increased loans
made to customers amounting to $17.0 million, securities purchases amounting to
$14.3 million and purchases of premises and equipment used primarily for
operations expansion, amounting to $0.3 million.
We also have several additional sources of liquidity, including the
available-for-sale investment securities portfolio, which at June 30, 2000
amounted to $22.5 million. Also, many of our loans are originated pursuant to
underwriting standards which make them readily marketable to other financial
institutions or investors in the secondary market. In addition, in order to meet
liquidity needs on a temporary basis, we have established lines of credit in the
amount of $9.0 million for the purchase of Federal funds with other financial
institutions.
We believe that our liquidity position is sufficient to provide funds to meet
future loan demand or the possible outflow of deposits, in addition to enabling
us to adapt to changing interest rate conditions.
Capital Resources
-----------------
Stockholder's equity increased by $368 thousand at June 30, 2000 compared to
December 31, 1999. The changes in stockholders' equity during the six months
ended June 30, 2000 were comprised of an increase from net income of $386
thousand partially off-set by an increase of $15 thousand in the unrealized
losses, net of taxes, in the available-for-sale investment securities portfolio,
and the payment of $3 thousand of cash in lieu of fractional shares from a stock
dividend.
Our regulators, the Board of Governors of the Federal Reserve System (which
regulates bank holding companies), and the Bank's Federal regulator, the Federal
Deposit Insurance Corporation, have issued guidelines classifying and defining
capital into the following components: (1) Tier I Capital, which includes
tangible stockholders' equity for common stock and certain qualifying preferred
stock, and excludes net unrealized gains or losses on available-for-sale
securities and deferred tax assets that are dependent on projected taxable
income greater than one year in the future, and (2) Tier II Capital (Total
Capital), which includes a portion of the allowance for loan losses and certain
qualifying long-term debt and preferred stock that does not qualify for Tier I
Capital. The risk-based capital guidelines require financial institutions to
apply certain risk factors ranging from 0% to 100%, against assets to determine
total risk-based assets. The minimum Tier I and the combined Tier I and Tier II
capital to risk-weighted assets ratios are 4.0% and 8.0%, respectively. Our
Regulators have also adopted regulations which supplement the risk-based capital
guidelines to include a minimum leverage ratio of Tier I Capital to total assets
of 3.0%. For those institutions with higher levels of risk or that are
experiencing or anticipating significant growth, the minimum leverage ratio will
be proportionately increased by 100 to 200 basis points.
13
<PAGE>
The following table summarizes the risk-based and leverage capital ratios for
the Company and the Bank at June 30, 2000 as well as the regulatory required
minimum and "well capitalized" capital ratios:
<TABLE>
<CAPTION>
June 30, 2000 Regulatory Requirement
--------------------- -----------------------------------
Company Bank Minimum "Well Capitalized"
<S> <C> <C> <C> <C>
Risk-based Capital:
Tier I capital ratio........... 17.00% 17.01% 4.00% 6.00%
Total capital ratio............ 18.25% 18.26% 8.00% 10.00%
Leverage ratio.................. 13.03% 13.03% 3.00%-5.00% 5.00% or greater
</TABLE>
In addition, pursuant to the order of the New Jersey Department of Banking and
Insurance approving the Bank's charter, for its first five years of operation,
the Bank is required to maintain a ratio of equity to total assets of at least
10.00%. As of June 30, 2000 the Bank's ratio of equity capital to total assets
was 11.87%.
As noted in the above table, the Company's and the Bank's capital ratios exceed
the minimum regulatory and "well capitalized" requirements.
Impact of Inflation and Changing Prices
---------------------------------------
Our financial statements and notes thereto, presented elsewhere herein, have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time and due to inflation. The impact of inflation is
reflected in the increased cost of our operations. Unlike most industrial
companies, nearly all of our assets and liabilities are monetary. As a result,
interest rates have a greater impact on our performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
14
<PAGE>
RESULTS OF OPERATIONS for the six months ended June 30, 2000 compared to the six
months ended June 30, 1999
Net Income
----------
We earned $386 thousand, or $0.20 net income per share on a basic and diluted
basis, for the six months ended June 30, 2000, compared to net income of $204
thousand, or $0.11 per basic and $0.10 per diluted share, for the six months
ended June 30, 1999. The increase in net income was primarily due to a $907
thousand, or 45.9%, increase in net interest income, a $286 thousand, or 218.3%,
increase in non-interest income and a $84 thousand, or 37.8%, decrease in the
provision for loan losses; these items were partially offset by a $1.1 million,
or 65.2%, increase in non-interest expenses. Our net income for the six months
ended June 30, 1999 was benefited by the application of net operating loss
carryforwards to eliminate tax liabilities. For the six months ended June 30,
2000, we also did not recognize any income tax expense. Tax expense for the
period was offset by the benefit from the reduction in our valuation allowance
on our deferred tax asset as of June 30, 2000. We would have reported income tax
expense of approximately $140 thousand without the benefit from this valuation
allowance reduction. Based upon the current and projected levels of profit, it
is anticipated that we will further reduce our valuation allowance to zero, and
begin to record income tax expense in the first quarter of 2001.
Net Interest Income
-------------------
Net interest income increased $907 thousand, or 45.9%, to $2.9 million for the
six months ended June 30, 2000 from $2.0 million for the same prior year period.
The increase in net interest income was due primarily to volume increases as
average interest earning assets, net of average interest bearing liabilities,
increased by $8.1 million, or 30.8%, for the first six months of 2000 compared
to the same prior year period.
Our net interest margin (annualized net interest income divided by average
interest earning assets) for the six months ended June 30, 2000 declined to
4.52% from 4.95% for the same prior year period. The decline in the net interest
margin resulted primarily from an increase in the amount of interest earning
assets being funded by interest bearing liabilities. In prior periods, a higher
proportion of assets were funded by non-interest bearing sources of funds such
as non-interest bearing demand deposits and shareholders' equity. During
December, 1998 and January, 1999, we completed a secondary stock offering which
resulted in net proceeds of $7.6 million. This non-interest source of funds
supported earning asset growth during the first half of 1999.
Interest income increased $1.9 million, or 63.3%, to $4.9 million for the six
months ended June 30, 2000 compared to $3.0 million for the same period in 1999.
The improvement in interest income was primarily due to volume related increases
in income from the loan portfolio of $1.4 million and volume related increases
in income of $465 thousand in the investment securities portfolio, and was
offset by volume related decreases in income of $65 thousand in Federal funds
sold as our growth resulted in an increase in average earning assets of $47.5
million, or 59.1%, to $127.9 million for the six months ended June 30, 2000
compared to $80.4 million for the same period in 1999.
The $1.8 million volume related increase in total interest income was increased
by $100 thousand from rate related increases as interest rates on earning assets
repriced to current higher yields. Total interest income was further increased
by $14 thousand as a result of one additional day during the first half of 2000
compared to the first half of 1999.
15
<PAGE>
Interest expense for the first six months of 2000 increased $1.0 million, or
100.0%, compared to the same prior year period. The increase in interest expense
was due primarily to net volume increases in interest bearing deposits which
accounted for $913 thousand of the expense increase; $108 thousand attributable
to net rate related increases; and $6 thousand due to one additional day in the
first half of 2000. The volume related increases in interest bearing liabilities
and expense rate increases are the result of marketing and pricing decisions
made by management in response to the need for cost effective sources of funds,
primarily to provide for loan growth.
The following tables titled "Consolidated Average Balance Sheet with Resultant
Interest and Average Rates" and "Analysis of Changes in Consolidated Net
Interest Income" present by category the major factors that contributed to the
changes in net interest income for the quarter ended June 30, 2000 compared to
the quarter ended June 30, 1999 and the six months ended June 30, 2000 compared
to the same prior year period.
16
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS
With Resultant Interest And Average Rates
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
----------------------------------- ----------------------------------
Average Interest Average Average Interest Average
Balance Income/Expense Rate Balance Income/Expense Rate
------- -------------- ---- ------- -------------- ----
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Federal Funds Sold $ 9,507 $ 149 6.29% $ 15,214 $ 180 4.75%
Investment Securities 31,101 480 6.17% 10,389 144 5.48%
Loans (net of unearned income) (1) (2) 92,500 1,976 8.57% 60,049 1,269 8.48%
--------- --------- --------- ---------
Total Interest Earning Assets 133,108 2,605 7.85% 85,652 1,593 7.46%
--------- --------- --------- ---------
Non-Interest Earning Assets:
Loan Loss Reserve (1,342) (1,066)
All Other Assets 11,150 8,239
--------- ---------
Total Assets $ 142,916 $ 92,825
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
NOW Deposits $ 16,683 70 1.68% $ 13,094 54 1.65%
Savings Deposits 43,189 460 4.27% 33,943 354 4.18%
Money Market Deposits 3,209 31 3.87% 2,707 26 3.79%
Time Deposits 33,794 499 5.92% 8,820 111 5.05%
Short-term Borrowings -- -- 0.00% 34 1 5.93%
--------- --------- --------- ---------
Total Interest Bearing Liabilities 96,875 1,060 4.39% 58,598 545 3.73%
--------- --------- --------- ---------
Non-Interest Bearing Liabilities:
Demand Deposits 26,229 15,266
Other Liabilities 1,353 558
--------- ---------
Total Non-Interest Bearing Liabilities 27,582 15,824
--------- ---------
Stockholders' Equity 18,459 18,403
--------- ---------
Total Liabilities and Stockholders'
Equity $ 142,916 $ 92,825
========= =========
NET INTEREST INCOME $ 1,545 $ 1,048
========= =========
NET INTEREST SPREAD (3) 3.46% 3.73%
NET INTEREST MARGIN (4) 4.66% 4.91%
</TABLE>
(1) Included in interest income on loans are loan fees.
(2) Includes non-performing loans.
(3) The interest rate spread is the difference between the weighted average
yield on average interest earning assets and the weighted average cost
of average interest bearing liabilities.
(4) The interest rate margin is calculated by dividing annualized net
interest income by average interest earning assets.
17
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS
With Resultant Interest And Average Rates
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
-------------------------------------- ---------------------------------
Average Interest Average Average Interest Average
Balance Income/Expense Rate Balance Income/Expense Rate
------- -------------- ---- ------- -------------- ----
(In thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Federal Funds Sold $ 10,804 $ 319 5.92% $ 13,555 $ 318 4.73%
Investment Securities 29,107 892 6.13% 12,175 337 5.51%
Loans (net of unearned income) (1) (2) 87,944 3,698 8.43% 54,665 2,320 8.56%
--------- --------- --------- ---------
Total Interest Earning Assets 127,855 4,909 7.70% 80,395 2,975 7.46%
--------- --------- --------- ---------
Non-Interest Earning Assets:
Loan Loss Reserve (1,297) (1,012)
All Other Assets 10,678 7,798
--------- ---------
Total Assets $ 137,236 $ 87,181
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
NOW Deposits $ 15,530 132 1.70% $ 12,453 105 1.70%
Savings Deposits 42,096 885 4.22% 31,780 660 4.19%
Money Market Deposits 3,078 58 3.78% 2,672 50 3.81%
Time Deposits 32,675 952 5.84% 7,110 184 5.22%
Short-term Borrowings -- -- 0.00% 17 1 5.93%
--------- --------- --------- ---------
Total Interest Bearing Liabilities 93,379 2,027 4.35% 54,032 1,000 3.73%
--------- --------- --------- ---------
Non-Interest Bearing Liabilities:
Demand Deposits 24,233 14,213
Other Liabilities 1,234 540
Total Non-Interest Bearing Liabilities 25,467 14,753
--------- ---------
Stockholders' Equity 18,390 18,396
--------- ---------
Total Liabilities and Stockholders'
Equity $ 137,236 $ 87,181
========= =========
NET INTEREST INCOME $ 2,882 $ 1,975
========= =========
NET INTEREST SPREAD (3) 3.35% 3.73%
NET INTEREST MARGIN (4) 4.52% 4.95%
</TABLE>
(1) Included in interest income on loans are loan fees.
(2) Includes non-performing loans.
(3) The interest rate spread is the difference between the weighted average
yield on average interest earning assets and the weighted average cost
of average interest bearing liabilities.
(4) The interest rate margin is calculated by dividing annualized net
interest income by average interest earning assets.
18
<PAGE>
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN CONSOLIDATED NET INTEREST INCOME
Three Months Ended June 30, 2000 Six Months Ended June 30, 2000
Compared to Three Months Ended Compared to Six Months Ended
June 30, 1999 June 30, 1999
---------------------------------- ----------------------------------------------
Increase (Decrease) Due To Increase (Decrease) Due To
---------------------------------- ----------------------------------------------
Volume Rate Net Volume Rate Time Net
--------- --------- --------- --------- --------- ------- ---------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Earned On:
Federal Funds Sold $ (68) $ 37 $ (31) $ (65) $ 64 $ 2 $ 1
Investment Securities 282 54 336 465 91 (1) 555
Loans (net of unearned income) 686 21 707 1,420 (55) 13 1,378
Total Interest Income 900 112 1,012 1,820 100 14 1,934
Interest Paid On:
NOW Deposits 15 1 16 26 -- 1 27
Savings Deposits 96 10 106 215 6 4 225
Money Market Deposits 5 1 6 8 -- -- 8
Time Deposits 314 74 388 665 102 1 768
Short-term Borrowings (1) -- (1) (1) -- -- (1)
Total Interest Expense 429 86 515 913 108 6 1,027
Net Interest Income $ 471 $ 26 $ 497 $ 907 $ (8) $ 8 $ 907
</TABLE>
19
<PAGE>
Provision for Loan Losses
-------------------------
The provision for loan losses decreased to $138 thousand for the first six
months of 2000 compared to a provision of $222 thousand for the same period in
1999. The provision is the result of our review of several factors, including
increased loan balances and our assessment of economic conditions, credit
quality and other loss factors that may be inherent in the existing loan
portfolio. Although we had no non-accrual loans at June 30, 2000, we established
provisions for loan losses to create an adequate allowance based on our analysis
of the loan portfolio and growth experienced over the periods, as well as the
risks inherent in the lending function. The allowance for loan losses totaled
$1.4 million, or 1.38% of total loans, at June 30, 2000.
Non-Interest Income
-------------------
Total non-interest income was $417 thousand for the first six months of 2000
compared to $131 thousand for the first six months of 1999, an increase of $286
thousand, or 218.3%. The increase was attributable to an increase in service
fees on deposits of $81 thousand, or 82.7%, and an increase in other fees and
commissions of $205 thousand, or 621.2%. The growth in service fees on deposits
reflects the growth in transaction account average deposits, which increased to
$24.2 million from $14.2 million, or an increase of 70.4% for the six months
ended June 30, 2000 compared to the same prior year period. The growth in other
fees and commissions is primarily due to higher non-yield related fee income on
loans which increased by $171 thousand at June 30, 2000 compared to the same
prior year period. The increase in non-yield related fee income on loans is
primarily attributable to an increase in loan participations sold and the fees
and commissions generated on these transactions. Other increases in other fees
and commissions, amounting to $34 thousand, resulted primarily from the
continued growth of the Company.
Non-Interest Expense
--------------------
Total non-interest expense amounted to $2.8 million for the six months ended
June 30, 2000, an increase of $1.1 million, or 64.7%, over the same prior year
period. The increase was due primarily to increases in employment expenses as
well as increases in occupancy expenses, equipment expenses and other expenses
generally attributable to our growth. Of this increase, employment costs
increased $527 thousand, or 68.1%, and reflected increases in the number of
employees from 46 full-time equivalents for the period ended June 30, 1999 to 70
full-time equivalents for the period ended June 30, 2000. The increase in
personnel is primarily attributable to the opening of the Manalapan, New Jersey
office in November 1999 in addition to the acquisition of additional support
personnel required due to the Company's growth.
Occupancy expenses increased $89 thousand, or 82.4%, for the first six months of
2000 compared to the same period in 1999. The increase was attributable
primarily to increased lease expense and increased common area maintenance costs
due on existing branch offices in addition to costs on two new branch offices.
Depreciation expenses on leasehold improvements, furniture, and equipment
increased $72 thousand, or 42.9%, for the first six months of 2000 compared to
the first six months of 1999 due primarily to depreciation costs associated with
the new facilities and on purchases of enhanced computer processing equipment.
20
<PAGE>
Other expenses increased $407 thousand, or 64.6%, for the first six months of
2000 compared to the first six months of 1999. The increase was attributable to
increased other expenses resulting from our continued growth, as costs of data
processing services paid to our third party processors amounted to $277
thousand, an increase of $114 thousand; professional and stockholder related
costs amounted to $145 thousand, a decrease of $3 thousand; marketing and
advertising costs amounted to $173 thousand, an increase of $107 thousand;
stationery, supplies and printing costs amounted to $124 thousand, an increase
of $21 thousand; communications expenses amounted to $61 thousand, an increase
of $27 thousand; and all other expenses amounted to $257 thousand, an increase
of $141 thousand.
Income Tax Expense
------------------
Our net income for the six months ended June 30, 1999 was benefited by the
application of net operating loss carryforwards to eliminate tax liabilities.
For the six months ended June 30, 2000, we did not recognize any income tax
expense. Tax expense for the period was offset by the benefit from the reduction
in our valuation allowance on our deferred tax asset as of June 30, 2000. We
would have reported income tax expense of approximately $140 thousand without
the benefit from this valuation allowance reduction. Based upon the current and
projected levels of profit, it is anticipated that we will further reduce our
valuation allowance to zero, and begin to record income tax expense in the first
quarter of 2001.
RESULTS OF OPERATIONS for the three months ended June 30, 2000 compared to the
three months ended June 30, 1999
Net Income
----------
For the quarter ended June 30, 2000, we earned $240 thousand compared to $139
thousand for the same period last year. Basic and diluted net income per share
for the second quarter of 2000 was $0.12, compared to net income per share for
basic and diluted shares of $0.08 and $0.07, respectively, for the second
quarter of 1999. The increase in net income was primarily due to a $497
thousand, or 47.4%, increase in net interest income, a $192 thousand, or 263.0%,
increase in non-interest income and a $31 thousand, or 27.9%, decrease in the
provision for loan losses; these items were partially offset by a $619 thousand,
or 71.1%, increase in non-interest expenses. Our net income for the three months
ended June 30, 1999 was benefited by the application of net operating loss
carryforwards to eliminate tax liabilities. For the three months ended June 30,
2000, we also did not recognize any income tax expense. Tax expense for the
period was offset by the benefit from the reduction in our valuation allowance
on our deferred tax asset as of June 30, 2000. For the quarter ended June 30,
2000, we would have reported income tax expense of approximately $80 thousand
without the benefit from this valuation allowance reduction. Based upon the
current and projected levels of profit, it is anticipated that we will further
reduce our valuation allowance to zero, and begin to record income tax expense
in the first quarter of 2001.
Net Interest Income
-------------------
Net interest income increased $497 thousand, or 47.4%, to $1.5 million for the
three months ended June 30, 2000 from $1.0 million for the same prior year
period. The increase in net
21
<PAGE>
interest income was due primarily to volume increases as average interest
earning assets, net of average interest bearing liabilities, increased by $9.2
million, or 33.9%, for the second quarter of 2000 compared to the same prior
year period.
Our net interest margin (annualized net interest income divided by average
interest earning assets) for the three months ended June 30, 2000 declined to
4.66% from 4.91% for the same prior year period. The decline in the net interest
margin resulted primarily from an increase in the amount of interest earning
assets being funded by interest bearing liabilities rather than non-interest
bearing sources of funds. During December, 1998 and January, 1999, we completed
a secondary stock offering which resulted in net proceeds of $7.6 million. This
non-interest source of funds supported earning asset growth during the first
half of 1999.
Interest income increased $1.0 million, or 62.5%, to $2.6 million for the three
months ended June 30, 2000 compared to $1.6 million for the same period in 1999.
The improvement in interest income was primarily due to volume related increases
in income from the loan portfolio of $686 thousand, volume related increases in
income of $282 thousand in the investment securities portfolio, and was offset
by volume related decreases in income of $68 thousand in Federal funds sold as
our growth resulted in an increase in average earning assets of $47.5 million,
or 55.4%, to $133.1 million for the three months ended June 30, 2000 compared to
$85.6 million for the same period in 1999.
The $900 thousand volume related increase in total interest income was increased
by $112 thousand from rate related increases as interest rates on earning assets
repriced to current higher yields.
Interest expense for the second quarter of 2000 increased $515 thousand, or
94.5%, compared to the same prior year period. The increase in interest expense
was due primarily to net volume increases in interest bearing deposits which
accounted for $429 thousand of the expense increase and $86 thousand was
attributable to net rate related increases. The volume related increases in
interest bearing liabilities and expense rate increases are the result of
marketing and pricing decisions made by management in response to the need for
cost effective sources of funds, primarily to provide for loan growth.
Provision for Loan Losses
-------------------------
The provision for loan losses decreased to $80 thousand for the second quarter
of 2000 compared to a provision of $111 thousand for the same period in 1999.
The provision is the result of our review of several factors, including
increased loan balances and our assessment of economic conditions, credit
quality and other loss factors that may be inherent in the existing loan
portfolio. Although we had no non-accrual loans at June 30, 2000, we established
provisions for loan losses to create an adequate allowance based on our analysis
of the loan portfolio and growth experienced over the periods, as well as the
risks inherent in the lending function. The allowance for loan losses totaled
$1.4 million, or 1.38% of total loans, at June 30, 2000.
Non-Interest Income
-------------------
Total non-interest income was $265 thousand for the second quarter of 2000
compared to $73 thousand for the second quarter of 1999, an increase of $192
thousand, or 263.0%. The increase was attributable to an increase in service
fees on deposits of $42 thousand, or 82.4%, and an
22
<PAGE>
increase in other fees and commissions of $150 thousand, or 681.8%. The growth
in service fees on deposits reflects the growth in transaction account average
deposits, which increased to $26.2 million from $15.3 million, or an increase of
71.2% for the three months ended June 30, 2000 compared to the same prior year
period. The growth in other fees and commissions is primarily due to higher
non-yield related fee income on loans which increased by $134 thousand for the
quarter ended June 30, 2000 compared to the same prior year period. The increase
in non-yield related fee income on loans is primarily attributable to an
increase in loan participations sold and the fees and commissions generated on
these transactions. Other increases in other fees and commissions amounting to
$16 thousand resulted primarily from our continued growth.
Non-Interest Expense
--------------------
Total non-interest expense amounted to $1.5 million for the three months ended
June 30, 2000, an increase of $619 thousand, or 71.1%, over the same prior year
period. The increase was due primarily to increases in employment expenses as
well as increases in occupancy expenses, equipment expenses and other expenses
generally attributable to our growth. Of this increase, employment costs
increased $290 thousand, or 71.6%, and reflected increases in the number of
employees from 46 full-time equivalents for the period ended June 30, 1999 to 70
full-time equivalents for the period ended June 30, 2000. The increase in
personnel is primarily attributable to the opening of the Manalapan, New Jersey
office in November 1999 in addition to the acquisition of additional support
personnel required due to the Company's growth.
Occupancy expenses increased $32 thousand, or 52.5%, for the second quarter of
2000 compared to the same period in 1999. The increase was attributable
primarily to increased lease expense and increased common area maintenance costs
due on existing branch offices in addition to costs on the Manalapan branch
office.
Depreciation expenses on leasehold improvements, furniture, and equipment
increased $32 thousand, or 34.8%, for the second quarter of 2000 compared to the
second quarter of 1999 due primarily to depreciation costs associated with the
new facility and on purchases of enhanced computer processing equipment.
Other expenses increased $265 thousand, or 84.7%, for the second quarter of 2000
compared to the second quarter of 1999. The increase was attributable to
increased other expenses resulting from our continued growth, as costs of data
processing services paid to our third party processors amounted to $159
thousand, an increase of $61 thousand; professional and stockholder related
costs amounted to $103 thousand, an increase of $27 thousand; marketing and
advertising costs amounted to $87 thousand, an increase of $65 thousand;
stationery, supplies and printing costs amounted to $63 thousand, an increase of
$17 thousand; communications expenses amounted to $32 thousand, an increase of
$15 thousand; and all other expenses amounted to $134 thousand, an increase of
$80 thousand.
Income Tax Expense
------------------
Our net income for the three months ended June 30, 1999 was benefited by the
application of net operating loss carryforwards to eliminate tax liabilities.
For the three months ended June 30, 2000, we did not recognize any income tax
expense. Tax expense for the period was offset by the benefit from the reduction
in our valuation allowance on our deferred tax asset as of June 30, 2000. For
the quarter ended June 30, 2000, we would have reported income tax expense of
23
<PAGE>
approximately $80 thousand without the benefit from this valuation allowance
reduction. Based upon the current and projected levels of profit, it is
anticipated that we will further reduce our valuation allowance to zero, and
begin to record income tax expense in the first quarter of 2001.
24
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Bank is periodically involved in various legal
proceedings as a normal incident to its business. In the
opinion of management, no material loss is expected from any
such pending lawsuit.
Item 2. Changes in Securities
---------------------
Not Applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The annual meeting of shareholders of Community Bancorp of
New Jersey was held on April 27, 2000. The following were the
results of voting on the seven proposals presented:
Note: Shares Outstanding were.............. 1,827,766
Shares Voted were.................... 1,434,674
Proposal No. 1 - The re-election of nine nominees to the
Board of Directors.
Note: Each Director received at least 97% of the shares voted
in favor of their appointment.
<TABLE>
<CAPTION>
Elected Director Votes For Votes Withheld %
---------------- --------- -------------- -
<S> <C> <C> <C> <C>
Charles P. Kaempffer, CPA 1,425,737 8,937 99.4%
Morris Kaplan 1,422,647 12,027 99.2%
Robert M. Kaye 1,425,737 8,937 99.4%
Eli Kramer 1,425,737 8,937 99.4%
William J. Mehr, Esq. 1,425,737 8,937 99.4%
Robert D. O'Donnell 1,397,641 37,033 97.4%
Howard M. Schoor 1,425,737 8,937 99.4%
Arnold G. Silverman 1,401,973 32,701 97.7%
Lewis Wetstein, M.D. 1,425,737 8,937 99.4%
</TABLE>
Proposal No. 2 - Approval of two Amendments to the Company's
APPROVED Certificate of Incorporation to:
a) classify the Board of Directors into
three classes, and
b) prevent the removal of the Directors by
shareholders without cause.
Votes %
------- -----
For Approval.............. 704,688 89.2%
Withheld Approval......... 84,992
Abstain................... 19,585
Proposal No. 3 - Approval of an Amendment to the Company's
APPROVED Certificate of Incorporation to require the
affirmative vote of 80% of the outstanding
common stock of the Company for approval of
certain business combination transactions
and to further require an affirmative vote
of 80% of the outstanding common stock to
amend this super-majority voting provision.
Votes %
------- -----
For Approval.............. 693,563 88.2%
Withheld Approval......... 92,532
Abstain................... 23,170
25
<PAGE>
Proposal No. 4 - Approval of an Amendment to the Company's
APPROVED Certificate of Incorporation to require
advance notification of certain shareholder
proposals and nominations.
Votes %
------- -----
For Approval.............. 742,372 88.7%
Withheld Approval......... 47,449
Abstain................... 19,050
Proposal No. 5 - Approval of an Amendment to the Company's
APPROVED Certificate of Incorporation to provide for
1,000,000 shares of series preferred stock,
the terms, conditions and designations of
which may be set by the Board of Directors
at the time of issuance; and to increase the
authorized shares of common stock, no par
value, to 10,000,000 shares.
Votes %
------- -----
For Approval.............. 714,372 88.7%
Withheld Approval......... 90,782
Abstain.................... 4,111
Proposal No. 6 - Approval of the 2000 Employee Stock Option
APPROVED Plan.
Votes %
------- -----
For Approval.............. 709,568 88.5%
Withheld Approval......... 92,051
Abstain................... 7,646
Proposal No. 7 - Approval of the 2000 Stock Option Plan for
APPROVED Non-Employee Directors.
Votes %
------- -----
For Approval............... 696,935 87.1%
Withheld Approval.......... 103,172
Abstain.................... 9,158
Item 5. Other Information
-----------------
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits - None
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K
dated July 27, 2000 announcing its second quarter
2000 results of operations.
26
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY BANCORP OF NEW JERSEY
-------------------------------
(Issuer)
Date: August 7, 2000 By: /s/ROBERT D. O'DONNELL
-------------- -------------------
ROBERT D. O'DONNELL
President and Chief Executive Officer
By: /s/MICHAEL BIS
--------------
MICHAEL BIS
Vice President and Chief Financial Officer
27
