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 September 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 22-3666589
----------------------------------- ------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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 November 7, 2000
<PAGE>
INDEX
COMMUNITY BANCORP OF NEW JERSEY
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at September 30, 2000
(Unaudited) and December 31, 1999 3
Consolidated Condensed Statements of Income for the three and
nine months ended September 30, 2000 and 1999 (Unaudited) 4
Consolidated Condensed Statement of Changes in Stockholders'
Equity at September 30, 2000 (Unaudited) 5
Consolidated Condensed Statements of Cash Flows for the three
and nine months ended September 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
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - None 25
b. Reports on Form 8-K 25
SIGNATURES 26
2
<PAGE>
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
2000 December 31,
(Unaudited) 1999
-------------- ---------------
(Dollars in
thousands)
ASSETS Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks $ 5,730 $ 4,991
Federal funds sold 16,500 20,275
---------------------------------------------------------------------------- --------- ---------
Total cash and cash equivalents 22,230 25,266
---------------------------------------------------------------------------- --------- ---------
Investment securities available-for-sale 22,007 9,424
Investment securities held-to-maturity (fair value of $10,385
at September 30, 2000 and $11,093 at December 31, 1999) 10,497 11,245
Loans receivable 105,298 82,632
Allowance for loan loss (1,430) (1,237)
---------------------------------------------------------------------------- --------- ---------
Net loans receivable 103,868 81,395
---------------------------------------------------------------------------- --------- ---------
Premises and equipment, net 4,849 4,631
Accrued interest receivable 1,050 643
Other assets 529 207
---------------------------------------------------------------------------- --------- ---------
Total Assets $ 165,030 $ 132,811
---------------------------------------------------------------------------- ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand $ 29,648 $ 22,963
Interest bearing - NOW 15,542 16,490
Savings and money market 55,131 43,492
Certificates of deposit, under $100,000 30,006 19,574
Certificates of deposit, $100,000 and over 14,298 11,509
---------------------------------------------------------------------------- --------- ---------
Total deposits 144,625 114,028
---------------------------------------------------------------------------- --------- ---------
Accrued interest payable 1,028 292
Other liabilities 415 265
---------------------------------------------------------------------------- --------- ---------
Total liabilities 146,068 114,585
---------------------------------------------------------------------------- --------- ---------
Stockholders' equity
Commonstock - 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 September 30, 2000 and December 31, 1999, respectively 21,662 20,523
Accumulated deficit (2,327) (1,923)
Accumulated other comprehensive income (loss) (10) (11)
Treasury stock, 22,357 shares, at cost (363) (363)
---------------------------------------------------------------------------- --------- ---------
Total stockholders' equity 18,962 18,226
---------------------------------------------------------------------------- --------- ---------
Total Liabilities and Stockholder's Equity $ 165,030 $ 132,811
---------------------------------------------------------------------------- ========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------------------
2000 1999
-----------------------------------
(Dollars in thousands, except per share data)
INTEREST INCOME
<S> <C> <C>
Loans, including Fees $2,233 $1,404
Federal funds sold 299 198
Investment securities - taxable 516 142
--------------------------------------------------------------- -------------- --------------
Total interest income 3,048 1,744
--------------------------------------------------------------- -------------- --------------
INTEREST EXPENSE
Interest bearing - NOW 75 57
Savings and money market 596 402
Certificates of deposit 704 169
Short-term borrowings - -
--------------------------------------------------------------- -------------- --------------
Total interest expense 1,375 628
--------------------------------------------------------------- -------------- --------------
Net interest income 1,673 1,116
Provision for loan losses 55 45
--------------------------------------------------------------- -------------- --------------
Net interest income after provision
for loan losses 1,618 1,071
--------------------------------------------------------------- -------------- --------------
Non-interest income:
Service fees on deposit accounts 88 67
Other fees and commissions 108 102
--------------------------------------------------------------- -------------- --------------
Total non-interest income 196 169
--------------------------------------------------------------- -------------- --------------
Non-interest expense:
Salaries and wages 588 404
Employee benefits 89 60
Occupancy expense 86 81
Depreciation - occupancy, furniture & equipment 117 91
Other 571 444
--------------------------------------------------------------- -------------- --------------
Total non-interest expense 1,451 1,080
--------------------------------------------------------------- -------------- --------------
Income before income taxes 363 160
Income tax expense 12 -
--------------------------------------------------------------- -------------- --------------
Net Income $ 351 $ 160
--------------------------------------------------------------- ============== ==============
Per Common Share:
Net income - basic $0.18 $0.08
Net income - diluted $0.18 $0.08
Weighted average shares outstanding (in thousands):
Basic 1,919 1,919
Diluted 1,937 1,951
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
2000 1999
-----------------------------------
(Dollars in thousands, except per share data)
INTEREST INCOME
<S> <C> <C>
Loans, including Fees $5,931 $3,617
Federal funds sold 618 516
Investment securities - taxable 1,408 479
----------------------------------------------------------- -------------- --------------
Total interest income 7,957 4,612
----------------------------------------------------------- -------------- --------------
INTEREST EXPENSE
Interest bearing - NOW 207 162
Savings and money market 1,539 1,112
Certificates of deposit 1,656 353
Short-term borrowings - 1
----------------------------------------------------------- -------------- --------------
Total interest expense 3,402 1,628
----------------------------------------------------------- -------------- --------------
Net interest income 4,555 2,984
Provision for loan losses 193 267
----------------------------------------------------------- -------------- --------------
Net interest income after provision
for loan losses 4,362 2,717
----------------------------------------------------------- -------------- --------------
Non-interest income:
Service fees on deposit accounts 267 165
Other fees and commissions 346 242
----------------------------------------------------------- -------------- --------------
Total non-interest income 613 407
----------------------------------------------------------- -------------- --------------
Non-interest expense:
Salaries and wages 1,705 1,062
Employee benefits 273 176
Occupancy expense 283 189
Depreciation - occupancy, furniture & equipment 357 259
Other 1,608 1,074
----------------------------------------------------------- -------------- --------------
Total non-interest expense 4,226 2,760
----------------------------------------------------------- -------------- --------------
Income before income taxes 749 364
Income tax expense 12 -
----------------------------------------------------------- -------------- --------------
Net Income $ 737 $ 364
----------------------------------------------------------- ============== ==============
Per Common Share:
Net income - basic $0.38 $0.19
Net income - diluted $0.38 $0.19
Weighted average shares outstanding (in thousands):
Basic 1,919 1,926
Diluted 1,932 1,957
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Treasury Accumulated
Stock Stock Deficit
---------------- ---------------- ------------------
(Dollars in thousands)
<S> <C> <C> <C>
Balance December 31, 1999 ............................ $20,523 $ (363) $(1,923)
5% stock dividend (91,191 shares)..................... 1,139 - (1,139)
Cash in lieu of fractional shares..................... - - (2)
Comprehensive Income:
Net Income.................................... - - 737
Increase in unrealized holding
losses on securities, net.............. - - -
Total Comprehensive Income............................ - - -
---------------- ---------------- ------------------
Balance, June 30, 2000 (Unaudited) ................... $21,662 $ (363) $(2,327)
================ ================ ==================
<CAPTION>
Accumulated
Other Total
Comprehensive Comprehensive Stockholders'
Income (Loss) Income Equity
------------------ ---------------------- ----------------------
<S> <C> <C> <C>
Balance December 31, 1999 ............................ $ (11) $ 18,226
5% stock dividend (91,191 shares)..................... - -
Cash in lieu of fractional shares..................... - (2)
Comprehensive Income:
Net Income.................................... - $ 737 737
Increase in unrealized holding
losses on securities, net.............. 1 1 1
---------------------- ----------------------
Total Comprehensive Income............................ - $ 738
------------------ ======================
Balance, June 30, 2000 (Unaudited) ................... $ (10) $ 18,962
================== ======================
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------
2000 1999
------------------ ------------------
(Dollars in thousands)
Cash flows from operating activities:
<S> <C> <C>
Net income .................................................... $ 737 $ 364
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization .................... 357 259
Provision for loan losses ........................ 193 267
Accretion of investment discount ................. (113) (1)
Amortization of investment premium ............... 3 2
Increase in accrued interest receivable .......... (407) (302)
Increase in other assets ......................... (325) (206)
Increase in accrued interest payable ............. 736 48
Increase in other liabilities .................... 150 953
------------------------------------------------------------------------------ ------------------ ------------------
Net cash provided by operating activities 1,331 1,384
------------------------------------------------------------------------------ ------------------ ------------------
Cash flows from investing activities:
Purchases of investment securities held-to-maturity ........... - (12,302)
Purchases of investment securities available-for-sale ......... (14,661) -
Proceeds from maturities and calls of investment securities ... 2,940 6,500
Net increase in loans made to customers ....................... (22,666) (26,082)
Purchases of premises and equipment ........................... (575) (1,462)
------------------------------------------------------------------------------ ------------------ ------------------
Net cash used in investing activities ... (34,962) (33,346)
------------------------------------------------------------------------------ ------------------ ------------------
Cash flows from financing activities:
Net increase in demand deposits and savings accounts .......... 17,376 15,847
Net increase in certificates of deposit ....................... 13,221 7,448
Stock dividend-cash paid in lieu of fractional shares ......... (2) -
Net proceeds from common stock issued ......................... - 1,014
Purchase of common stock for treasury and options for retirement - (674)
------------------------------------------------------------------------------ ------------------ ------------------
Net cash provided by financing activities 30,595 23,635
------------------------------------------------------------------------------ ------------------ ------------------
Net decrease in cash and cash equivalents ............................... (3,036) (8,327)
Cash and cash equivalents as of beginning of year ....................... 25,266 28,566
------------------------------------------------------------------------------ ------------------ ------------------
Cash and cash equivalents as of end of period ........................... $ 22,230 $ 20,239
------------------------------------------------------------------------------ ================== ==================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ...................... $ 2,666 $ 1,580
Cash paid during the period for income taxes .................. $ 288 $ -
</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
nine months ended September 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
September 30, 2000 and December 31, 1999 (Dollars in thousands).
<TABLE>
<CAPTION>
September 30, 2000 (Unaudited)
-------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------- ------------------ ----------------- ------------------
Securities available-for-sale:
<S> <C> <C> <C> <C>
U.S. Government and agency securities $ 21,997 $ 16 $ (31) $21,982
Other securities 25 - - 25
----------------- ------------------ ----------------- ------------------
$ 22,022 $ 16 $ (31) $22,007
================= ================== ================= ==================
Securities held-to-maturity:
U.S. Government and agency securities $ 9,997 $ - $ (118) $ 9,879
Other securities 500 6 - 506
----------------- ------------------ ----------------- ------------------
$ 10,497 $ 6 $ (118) $10,385
================= ================== ================= ==================
<CAPTION>
December 31, 1999
------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------- ------------------ ----------------- ------------------
Securities available-for-sale:
<S> <C> <C> <C> <C>
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 September 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>
ue in one year or less $ 18,173 $18,150 $ 5,000 $ 4,958
ue after one year through five years 3,824 3,832 4,997 4,921
ue after five years through ten years - - 500 506
ue after ten years 25 25 - -
----------------- ------------------ ----------------- ------------------
$ 22,022 $22,007 $10,497 $10,385
================= ================== ================= ==================
</TABLE>
8
<PAGE>
COMMUNITY BANCORP OF NEW JERSEY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Continued
NOTE E - INVESTMENT SECURITIES
The following table summarizes the components of the loan portfolio as of
September 30, 2000 and December 31, 1999 (Dollars in thousands).
<TABLE>
<CAPTION>
Loan Portfolio By Type of Loan
----------------------------------------------------------------------------------------
September 30, 2000
(Unaudited) December 31, 1999
------------------------------------------- ----------------------------------------
Amount Percent Amount Percent
-------------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Commercial and industrial loans $ 20,073 19.06% $15,137 18.32%
Commercial mortgage loans 47,595 45.20% 38,814 46.97%
Residential mortgages 8,211 7.80% 7,254 8.78%
Construction loans 14,642 13.91% 8,895 10.76%
Consumer loans 14,683 13.94% 12,476 15.10%
Other loans 94 0.09% 56 0.07%
-------------------- ------------------ ----------------- ------------------
$ 105,298 100.00% $82,632 100.00%
==================== ================== ================= ==================
</TABLE>
The following table represents the activity in the allowance for loan losses for
the nine month periods ended September 30, 2000 and 1999 and the year ended
December 31, 1999 (Dollars in thousands).
<TABLE>
<CAPTION>
Allowance For Loan Losses
-----------------------------------------------------------------
Nine Months Ended
September 30,
(Unaudited) Year Ended
------------------------------------------- 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 193 267 325
-------------------- ------------------ -----------------
Balance - end of period $ 1,430 $ 1,179 $ 1,237
==================== ================== =================
Balance of Allowance at period-end as a %
of loans at period-end 1.36% 1.64% 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 September 30, 2000 increased by $32.2 million, or 24.2%, to
$165.0 million compared to $132.8 million at December 31, 1999. Total assets
averaged $145.8 million in the first nine months of 2000, a $46.9 million, or
47.4%, increase from the 1999 full year average of $98.9 million. Average loans
increased $29.1 million, or 45.9%, to $92.5 million in the first nine months of
2000, from the 1999 full year average of $63.4 million. Average investment
securities increased by $18.0 million, or 145.2%, to $30.4 million; average
Federal funds sold decreased by $2.3 million, or 14.8%, to $13.2 million; the
average of all other assets increased by $2.3 million, or 26.4%, to $11.0
million; and the loan loss reserve average increased $236 thousand, or 21.6%, to
$1.3 million during the first nine months of 2000 compared to the full year 1999
averages.
These increases in average assets were funded primarily by a $46.1 million, or
57.8%, increase in average deposits, as the first nine months of 2000 average
deposits increased to $125.9 million from the full year 1999 average of $79.8
million.
Lending Activity
----------------
Total loans at September 30, 2000 were $105.3 million, a 27.5%, or $22.7 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 $8.8 million in commercial mortgage
loans, $5.7 million in construction loans, $5.0 million in commercial and
industrial loans, $2.2 million in consumer loans and $1.0 million in residential
mortgage and other loans.
The 27.5% increase in loans at September 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. From September
1997 through November 1999, we opened four new offices in our Monmouth County
market area. 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
borrowers and depositors. We intend to continue to pursue quality loans in all
lending categories within our market area.
10
<PAGE>
Allowance for Loan Losses
-------------------------
The allowance for loan losses was $1.4 million, or 1.36% of total loans, at
September 30, 2000 compared to $1.2 million, or 1.50% of total loans, at
December 31, 1999. At September 30, 2000 and December 31, 1999, we had no
non-performing loans. The decline in the allowance as a percentage of loans
reflects the continued growth of our loan portfolio.
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 $11.8 million, or 57.0%, to $32.5 million at
September 30, 2000 compared to $20.7 million at December 31, 1999. During the
period ended September 30, 2000, we utilized our liquidity in excess of loan
demand to fund additional purchases of investment securities available-for-sale
amounting to $14.7 million, which was partially off-set by maturities and calls
amounting to $2.9 million.
Management determines the appropriate classification of securities at the time
of purchase. At September 30, 2000, investment securities of $22.0 million, or
67.7% of the total investment securities portfolio, were classified as
available-for-sale and investment securities of $10.5 million, or 32.3% 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 $30.6
million, or 26.8%, to $144.6 million at September 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 $46.1 million, or 57.8%, to $125.9 million
for the nine months ended September 30, 2000 compared to the 1999 full year
average of $79.8 million. Changes in the deposit mix averages for the nine
months ended September 30, 2000 compared to the 1999 full year averages include
a $8.7 million, or 25.0%, increase in savings deposits; a $2.6 million, or
19.7%, increase in NOW account deposits; a $23.9 million, or 188.2%, increase in
time deposits; a $1.9 million, or 70.4%, increase in money market deposits; and
a $9.0 million, or 54.9%, 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 nine months of
2000, the Manalapan branch certificates of deposit averaged $11.2 million and
certificates of deposit to municipal agencies averaged $6.0 million. Short
duration certificate of deposit promotions, targeted to retain maturing deposits
and to gain market penetration, have also increased deposit growth. During July
2000, a 12 month certificate of deposit promotion generated $10.3 million in
funds as total deposits for the month of July 2000 increased by $14.2 million.
Management intends to continue to promote targeted deposit products as funding
needs and other balance sheet management considerations arise.
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 $45.2 million at September 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 September 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
13.5% and 19.1% of our total assets at September 30, 2000 and December 31, 1999,
respectively.
<PAGE>
As shown in the Consolidated Condensed Statements of Cash Flows, our primary
source of funds at September 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 $30.6 million for the nine
months ended September 30, 2000; Federal funds sold reductions provided $3.8
million in funding; and proceeds from maturities and calls of investment
securities amounted to $2.9 million. During the first nine months of 2000, we
utilized deposit growth and liquid assets as funding sources for increased loans
made to customers amounting to $22.7 million, securities purchases amounting to
$14.7 million and purchases of premises and equipment used primarily for
operations expansion, amounting to $0.6 million.
We also have several additional sources of liquidity, including the
available-for-sale investment securities portfolio, which at September 30, 2000
amounted to $22.0 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 $736 thousand at September 30, 2000 compared
to December 31, 1999. The changes in stockholders' equity during the nine months
ended September 30, 2000 were comprised of an increase from net income of $737
thousand partially off-set by a decrease of $1 thousand in the unrealized
losses, net of taxes, in the available-for-sale investment securities portfolio,
and the payment of $2 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 September 30, 2000 as well as the regulatory
required minimum and "well capitalized" capital ratios:
September 30, 2000 Regulatory Requirement
------------------- ------------------------------
Company Bank Minimum "Well Capitalized"
------- ---- ------- ------------------
Risk-based Capital:
Tier I capital ratio....... 16.43% 16.43% 4.00% 6.00%
Total capital ratio........ 17.67% 17.67% 8.00% 10.00%
Leverage ratio............. 11.65% 11.65% 3.00%-5.00% 5.00% or greater
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 September 30, 2000 the Bank's ratio of equity capital to total
assets was 11.50%.
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 nine months ended September 30, 2000 compared to
the nine months ended September 30, 1999
Net Income
----------
We earned $737 thousand, or $0.38 net income per share on a basic and diluted
basis, for the nine months ended September 30, 2000, compared to net income of
$364 thousand, or $0.19 per basic and diluted share, for the nine months ended
September 30, 1999. The increase in net income was primarily due to a $1.58
million, or 53.0%, increase in net interest income, a $206 thousand, or 50.6%,
increase in non-interest income and a $74 thousand, or 27.7%, decrease in the
provision for loan losses. These items were partially offset by a $1.47 million,
or 53.3%, increase in non-interest expenses. For the nine months ended September
30, 2000, we recognized $12 thousand in State income tax expense and did not
recognize any Federal income tax expense. Tax expense for the period has been
offset by the benefit from the reduction in the Company's valuation allowance on
its deferred tax asset as of September 30, 2000. We would have reported income
tax expense of approximately $285 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 the valuation allowance to
zero, and begin to record Federal income tax expense in the first quarter of
2001.
Net Interest Income
-------------------
Net interest income increased $1.58 million, or 53.0%, to $4.56 million for the
nine months ended September 30, 2000 from $2.98 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 $8.8 million, or 32.7%, for the first nine 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 nine months ended September 30, 2000 declined
to 4.46% from 4.70% 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 nine months of 1999. In
addition, during July 2000, a 12 month certificate of deposit promotion
generated $10.3 million in funds at a yield cost of 7.15%, resulting in
approximately a 8 basis point decrease in our net interest margin as of
September 30, 2000.
Interest income increased $3.35 million, or 72.7%, to $7.96 million for the nine
months ended September 30, 2000 compared to $4.61 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 $2.04 million and volume related
increases in income of $784 thousand in the investment securities portfolio, and
was offset by volume related decreases in income of $34 thousand in Federal
funds sold as our growth resulted in an increase in average earning assets of
$51.2 million, or 60.3%, to $136.1 million for the nine months ended September
30, 2000 compared to $84.9 million for the same period in 1999.
15
<PAGE>
In addition to the volume related increase, total interest income increased by
$538 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 nine months
of 2000 compared to the first nine months of 1999.
Interest expense for the first nine months of 2000 increased $1.77 million, or
108.6%, 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 $1.47 million of the expense increase; $291 thousand attributable
to net rate related increases; and $9 thousand due to one additional day in the
first nine months 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 September 30, 2000 compared
to the quarter ended September 30, 1999 and the nine months ended September 30,
2000 compared to the same prior year period.
16
<PAGE>
CONSOLIDATED AVERAGE BALANCE SHEETS
With Resultant Interest And Average Rates
<TABLE>
<CAPTION>
Three Months Ended
September 30, 2000
-----------------------------------------------
Average Interest Average
Balance Income/Expense Rate
------------- --------------- ------------
(In thousands, except percentages)
ASSETS
Interest Earning Assets:
<S> <C> <C> <C>
Federal Funds Sold........................................ $ 18,043 $ 299 6.57%
Investment Securities..................................... 32,946 516 6.26%
Loans (net of unearned income) (1) (2).................... 101,494 2,233 8.73%
------------- ------------
Total Interest Earning Assets................. 152,483 3,048 7.93%
------------- ------------
Non-Interest Earning Assets:
Loan Loss Reserve......................................... (1,394)
All Other Assets.......................................... 11,777
-------------
Total Assets.................................. $162,866
=============
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
NOW Deposits.............................................. $ 16,442 75 1.81%
Savings Deposits.......................................... 46,105 498 4.29%
Money Market Deposits..................................... 7,667 98 5.07%
Time Deposits............................................. 44,216 704 6.32%
Short-term Borrowings..................................... - - 0.00%
------------- ------------
Total Interest Bearing Liabilities............ 114,430 1,375 4.77%
------------- ------------
Non-Interest Bearing Liabilities:
Demand Deposits........................................... 27,727
Other Liabilities......................................... 1,948
-------------
Total Non-Interest Bearing Liabilities........ 29,675
-------------
Stockholders' Equity................................................ 18,761
-------------
Total Liabilities and Stockholders'
Equity........................................ $162,866
=============
NET INTEREST INCOME................................................. $ 1,673
=============
NET INTEREST SPREAD (3)............................................. 3.16%
NET INTEREST MARGIN (4)............................................. 4.35%
<CAPTION>
Three Months Ended
September 30, 1999
----------------------------------------------
Average Interest Average
Balance Income/Expense Rate
------------- ---------------- -----------
(In thousands, except percentages)
ASSETS
Interest Earning Assets:
Federal Funds Sold........................................ $ 15,374 $ 198 5.11%
Investment Securities..................................... 10,274 142 5.53%
Loans (net of unearned income) (1) (2).................... 68,091 1,404 8.18%
------------- ------------
Total Interest Earning Assets................. 93,739 1,744 7.38%
------------- ------------
Non-Interest Earning Assets:
Loan Loss Reserve......................................... (1,154)
All Other Assets.......................................... 8,793
-------------
Total Assets.................................. $ 101,378
=============
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
NOW Deposits.............................................. $ 13,698 57 1.65%
Savings Deposits.......................................... 36,469 379 4.12%
Money Market Deposits..................................... 2,585 23 3.53%
Time Deposits............................................. 13,038 169 5.14%
Short-term Borrowings..................................... - - 0.00%
------------- ------------
Total Interest Bearing Liabilities............ 65,790 628 3.79%
------------- ------------
Non-Interest Bearing Liabilities:
Demand Deposits........................................... 16,513
Other Liabilities......................................... 723
-------------
Total Non-Interest Bearing Liabilities........ 17,236
-------------
Stockholders' Equity................................................ 18,352
-------------
Total Liabilities and Stockholders'
Equity........................................ $ 101,378
=============
NET INTEREST INCOME................................................. $ 1,116
============
NET INTEREST SPREAD (3)............................................. 3.59%
NET INTEREST MARGIN (4)............................................. 4.72%
</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>
CONSOLIDATED AVERAGE BALANCE SHEETS
With Resultant Interest And Average Rates
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 2000
------------------------------------------------------
Average Interest Average
Balance Income/Expense Rate
--------------- -------------- ---------
(In thousands, except percentages)
ASSETS
Interest Earning Assets:
<S> <C> <C> <C>
Federal Funds Sold ................................... $ 13,235 $ 618 6.22%
Investment Securities ................................ 30,396 1,408 6.18%
Loans (net of unearned income) (1) (2) ............... 92,494 5,931 8.54%
--------------- -------------
Total Interest Earning Assets ........ 136,125 7,957 7.79%
--------------- -------------
Non-Interest Earning Assets:
Loan Loss Reserve .................................... (1,330)
All Other Assets ..................................... 11,047
---------------
Total Assets ......................... $ 145,842
===============
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
NOW Deposits ......................................... $ 15,836 207 1.74%
Savings Deposits ..................................... 43,442 1,383 4.24%
Money Market Deposits ................................ 4,619 156 4.50%
Time Deposits ........................................ 36,550 1,656 6.04%
Short-term Borrowings ................................ - - 0.00%
--------------- -------------
Total Interest Bearing Liabilities ... 100,447 3,402 4.51%
--------------- -------------
Non-Interest Bearing Liabilities:
Demand Deposits ...................................... 25,406
Other Liabilities .................................... 1,474
---------------
Total Non-Interest Bearing Liabilities 26,880
---------------
Stockholders' Equity .............................................. 18,515
---------------
Total Liabilities and Stockholders'
Equity ............................... $ 145,842
===============
NET INTEREST INCOME ............................................... $4,555
=============
NET INTEREST SPREAD (3) ........................................... 3.28%
NET INTEREST MARGIN (4) ........................................... 4.46%
<CAPTION>
Nine Months Ended
September 30, 1999
--------------------------------------------------------
Average Interest Average
Balance Income/Expense Rate
--------------- -------------- ---------
(In thousands, except percentages)
ASSETS
Interest Earning Assets:
<S> <C> <C> <C>
Federal Funds Sold ................................... $14,168 $ 516 4.87%
Investment Securities ................................ 11,535 479 5.54%
Loans (net of unearned income) (1) (2) ............... 59,185 3,617 8.17%
---------------- --------------
Total Interest Earning Assets ........ 84,888 4,612 7.26%
---------------- --------------
Non-Interest Earning Assets:
Loan Loss Reserve .................................... (1,059)
All Other Assets ..................................... 8,132
----------------
Total Assets ......................... $91,961
================
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
NOW Deposits ......................................... $12,895 162 1.68%
Savings Deposits ..................................... 33,360 1,039 4.16%
Money Market Deposits ................................ 2,620 73 3.75%
Time Deposits ........................................ 9,108 353 5.19%
Short-term Borrowings ................................ 11 1 5.94%
---------------- --------------
Total Interest Bearing Liabilities ... 57,994 1,628 3.75%
---------------- --------------
Non-Interest Bearing Liabilities:
Demand Deposits ...................................... 14,989
Other Liabilities .................................... 602
----------------
Total Non-Interest Bearing Liabilities 15,591
----------------
Stockholders' Equity .............................................. 18,376
----------------
Total Liabilities and Stockholders'
Equity ............................... $91,961
================
NET INTEREST INCOME ............................................... $2,984
==============
NET INTEREST SPREAD (3) ........................................... 3.51%
NET INTEREST MARGIN (4) ........................................... 4.70%
</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>
ANALYSIS OF CHANGES IN CONSOLIDATED NET INTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000
Compared to Three Months Ended
September 30, 1999
-------------------------------------------
Increase (Decrease) Due To
-------------------------------------------
Volume Rate Net
---------- --------- ----------
(In thousands)
Interest Earned On:
<S> <C> <C> <C>
Federal Funds Sold .......................... $ 34 $ 67 $ 101
Investment Securities ....................... 313 61 374
Loans (net of unearned income) .............. 689 140 829
---------- --------- ----------
Total Interest Income ....... 1,036 268 1,304
---------- --------- ----------
Interest Paid On:
NOW Deposits ................................ 11 7 18
Savings Deposits ............................ 100 19 119
Money Market Deposits ....................... 45 30 75
Time Deposits ............................... 404 131 535
Short-term Borrowings ....................... - - -
---------- --------- ----------
Total Interest Expense ...... 560 187 747
---------- --------- ----------
Net Interest Income ......... $ 476 $ 81 $ 557
========== ========= ==========
<CAPTION>
Nine Months Ended September 30, 2000
Compared to Nine Months Ended
September 30, 1999
--------------------------------------------------------------
Increase (Decrease) Due To
--------------------------------------------------------------
Volume Rate Time Net
---------- ----------- -------- ------------
(In thousands)
Interest Earned On:
<S> <C> <C> <C> <C>
Federal Funds Sold .......................... $ (34) $ 134 $ 2 $ 102
Investment Securities ....................... 784 146 (1) 929
Loans (net of unearned income) .............. 2,043 258 13 2,314
---------- ----------- -------- ------------
Total Interest Income ....... 2,793 538 14 3,345
---------- ----------- -------- ------------
Interest Paid On:
NOW Deposits ................................ 37 7 1 45
Savings Deposits ............................ 315 25 4 344
Money Market Deposits ....................... 56 26 1 83
Time Deposits ............................... 1,067 233 3 1,303
Short-term Borrowings ....................... (1) - - (1)
---------- ----------- -------- ------------
Total Interest Expense ...... 1,474 291 9 1,774
---------- ----------- -------- ------------
Net Interest Income ......... $ 1,319 $ 247 $ 5 $1,571
========== =========== ======== ============
</TABLE>
19
<PAGE>
Provision for Loan Losses
-------------------------
The provision for loan losses decreased to $193 thousand for the first nine
months of 2000 compared to a provision of $267 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 September 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 1.36% of total loans, at September 30, 2000.
Non-Interest Income
Total non-interest income was $613 thousand for the first nine months of 2000
compared to $407 thousand for the first nine months of 1999, an increase of $206
thousand, or 50.6%. The increase was attributable to an increase in service fees
on deposits of $102 thousand, or 61.8%, and an increase in other fees and
commissions of $104 thousand, or 43.0%. The growth in service fees on deposits
reflects the growth in demand deposit account average balances, which increased
to $25.4 million from $15.0 million, or an increase of 69.3% for the nine months
ended September 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 $49 thousand at September 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 $55 thousand, resulted primarily from
the continued growth of the Company.
Non-Interest Expense
--------------------
Total non-interest expense amounted to $4.23 million for the nine months ended
September 30, 2000, an increase of $1.47 million, or 53.3%, 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 $740 thousand, or 59.8%, and reflected increases in the number
of employees from 48 full-time equivalents for the period ended September 30,
1999 to 70 full-time equivalents for the period ended September 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 $94 thousand, or 49.7%, for the first nine 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 $98 thousand, or 37.8%, for the first nine months of 2000 compared to
the first nine 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 $534 thousand, or 49.7%, for the first nine months of
2000 compared to the first nine 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 $461
thousand, an increase of $203 thousand; professional and stockholder related
costs amounted to $249 thousand, a decrease of $15 thousand; marketing and
advertising costs amounted to $240 thousand, an increase of $95 thousand;
stationery, supplies and printing costs amounted to $193 thousand, an increase
of $40 thousand; communications expenses amounted to $125 thousand, an increase
of $47 thousand; and all other expenses amounted to $340 thousand, an increase
of $164 thousand.
Income Tax Expense
------------------
For the nine months ended September 30, 2000, we recognized $12 thousand in
State income tax expense and did not recognize any Federal income tax expense.
Tax expense for the period has been offset by the benefit from the reduction in
the Company's valuation allowance on its deferred tax asset as of September 30,
2000. We would have reported income tax expense of approximately $285 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 the valuation allowance to zero, and begin to record Federal income tax
expense in the first quarter of 2001.
RESULTS OF OPERATIONS for the three months ended September 30, 2000 compared to
the three months ended September 30, 1999
Net Income
----------
For the quarter ended September 30, 2000, we earned $351 thousand compared to
$160 thousand for the same period last year, an increase of $191 thousand, or
119.4%. Basic and diluted net income per share for the third quarter of 2000 was
$0.18, compared to net income per share for both basic and diluted shares of
$0.08 for the third quarter of 1999. The increase in net income was primarily
due to a $557 thousand, or 49.9%, increase in net interest income, and a $27
thousand, or 16.0%, increase in non-interest income. These items were partially
offset by an increase in the provision for loan losses of $10 thousand, or
22.2%, an increase in non-interest expenses of $371 thousand, or 34.4%, and the
recognition of $12 thousand in State tax expense for the third quarter of 2000.
Our net income for the three months ended September 30, 1999 was benefited by
the application of net operating loss carryforwards to eliminate tax
liabilities. For the three months ended September 30, 2000, we recognized $12
thousand in State income tax expense and did not recognize any Federal income
tax expense. Tax expense for the period has been offset by the benefit from the
reduction in the Company's valuation allowance on its deferred tax asset as of
September 30, 2000. We would have reported income tax expense of approximately
$145 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 the valuation allowance to zero, and begin to record Federal
income tax expense in the first quarter of 2001.
21
<PAGE>
Net Interest Income
-------------------
Net interest income increased $557 thousand, or 49.9%, to $1.67 million for the
three months ended September 30, 2000 from $1.1 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 $10.1 million, or 36.2%, for the third 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 September 30, 2000 declined
to 4.35% from 4.72% 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 nine months of 1999. In addition, during July 2000, a 12 month
certificate of deposit promotion generated $10.3 million in funds at a yield
cost of 7.15%, resulting in approximately a 25 basis point decrease in the net
interest margin for the quarter ended September 30, 2000.
Interest income increased $1.30 million, or 74.7%, to $3.05 million for the
three months ended September 30, 2000 compared to $1.74 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 $689 thousand, volume
related increases in income of $313 thousand in the investment securities
portfolio, and volume related increases in income of $34 thousand in Federal
funds sold as our growth resulted in an increase in average earning assets of
$58.8 million, or 62.8%, to $152.5 million for the three months ended September
30, 2000 compared to $93.7 million for the same period in 1999.
In addition to the volume related increase, total interest income increased by
$268 thousand from rate related increases as interest rates on earning assets
repriced to current higher yields.
Interest expense for the third quarter of 2000 increased $747 thousand, or
118.9%, 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 $560 thousand of the expense increase and $187 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 was $55 thousand for the third quarter of 2000
compared to a provision of $45 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 September 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
1.36% of total loans, at September 30, 2000.
22
<PAGE>
Non-Interest Income
-------------------
Total non-interest income was $196 thousand for the third quarter of 2000
compared to $169 thousand for the third quarter of 1999, an increase of $27
thousand, or 16.0%. The increase was attributable to an increase in service fees
on deposits of $21 thousand, or 31.3%, and an increase in other fees and
commissions of $6 thousand, or 5.9%. The growth in service fees on deposits
reflects the growth in demand deposit account average deposits, which increased
to $27.7 million from $16.5 million, or an increase of 67.9% for the three
months ended September 30, 2000 compared to the same prior year period. The
growth in other fees and commissions is primarily due to increases in other fees
and commissions such as safe deposit box rental fees and ATM and debit card
fees, which increased by $21.0 thousand for the quarter ended September 30, 2000
compared to the same prior year period. This increase was offset by lower
non-yield related fee income on loans, which decreased by $15 thousand for the
quarter ended September 30, 2000 compared to the same prior year period. The
decrease in non-yield related fee income on loans is primarily attributable to a
decrease in the activity of loan participations sold and the fees and
commissions generated on these transactions. Increases in other fees and
commissions resulted primarily from our continued growth.
Non-Interest Expense
--------------------
Total non-interest expense amounted to $1.45 million for the three months ended
September 30, 2000, an increase of $371 thousand, or 34.4%, 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 $213 thousand, or 45.9%, and reflected increases in the number
of employees from 48 full-time equivalents for the period ended September 30,
1999 to 70 full-time equivalents for the period ended September 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 $5 thousand, or 6.2%, for the third 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 $26 thousand, or 28.6%, for the third quarter of 2000 compared to the
third quarter of 1999 due primarily to depreciation costs associated with the
new facility and on purchases of enhanced computer processing equipment.
Other expenses increased $127 thousand, or 28.6%, for the third quarter of 2000
compared to the third 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 $184
thousand, an increase of $89 thousand; professional and stockholder related
costs amounted to $104 thousand, a decrease of $12 thousand; marketing and
advertising costs amounted to $67 thousand, a decrease of $12 thousand;
stationery, supplies and printing costs amounted to $69 thousand, an increase of
$19 thousand; communications expenses amounted to $64 thousand, an increase of
$20 thousand; and all other expenses amounted to $83 thousand, an increase of
$23 thousand.
Income Tax Expense
------------------
Our net income for the three months ended September 30, 1999 was benefited by
the application of net operating loss carryforwards to eliminate tax
liabilities. For the three months ended September 30, 2000, we recognized $12
thousand in State income tax expense and did not recognize any Federal income
tax expense. Tax expense for the period has been offset by the benefit from the
reduction in the Company's valuation allowance on its deferred tax asset as of
September 30, 2000. We would have reported income tax expense of approximately
$145 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 the valuation allowance to zero, and begin to record Federal
income tax expense in the first quarter of 2001.
23
<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
---------------------------------------------------
Not Applicable.
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 October 17, 2000 announcing
its third quarter 2000 results of
operations.
24
<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: November 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
25
