Bancorp of New Jersey (BKJ) 10-Q 2010 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended   June 30, 2010

OR

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

For the transition period from to 

Commission file number:  001-34089

BANCORP OF NEW JERSEY, INC.

(Exact name of registrant as specified in its charter)

New Jersey	20-8444387
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1365 Palisade Ave, Fort Lee, New Jersey	07024
(Address of principal executive offices)	(Zip Code)

(201) 944-8600

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x      No  £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  £      No  £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):

Yes  £      No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 10, 2010 there were 5,206,932 outstanding shares of the issuer’s class of common stock, no par value.

INDEX

				PAGE
Part I Financial Information
Item 1.	Financial Statements:
		Unaudited Consolidated Statements of Financial Condition – June 30, 2010 and December 31, 2009		3
		Unaudited Consolidated Statements of Operations – Three Months Ended June 30, 2010 and 2009		4
		Unaudited Consolidated Statements of Operations – Six Months Ended June 30, 2010 and 2009		5
		Unaudited Consolidated Statements of Cash Flows – Six Months Ended June 30, 2010 and 2009		6
		Notes to Unaudited Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk			33
Item 4.	Controls and Procedures			33
Part II Other Information
Item 1.	Legal Proceedings			34
Item 1A.	Risk Factors		34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 3.	Defaults Upon Senior Securities			34
Item 4.	(Removed and Reserved)			34
Item 5.	Other Information			34
Item 6.	Exhibits			34
Signatures				35

2

PART I  FINANCIAL INFORMATION

ITEM 1. Financial Statements

BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands, except share data)

ASSETS	June 30, 2010			December 31, 2009
Cash and due from banks	$	945		$	576
Interest-bearing deposits		27,176			17,055
Federal funds sold		466			467
Total cash and cash equivalents		28,587			18,098
Restricted investment in bank stock, at cost		491			419
Securities available for sale, at fair value (amortized cost of $32,074 and $21,005, respectively)		32,449			21,111
Securities held to maturity (fair value of $2,387 and $4,297 respectively)		2,400			4,296
Loans receivable		278,155			263,931
Deferred loan fees and unamortized costs, net		27			13
Less: allowance for loan losses		(3,446	)		(2,792	)
Net loans		274,736			261,152
Premises and equipment, net		10,079			10,214
Accrued interest receivable		1,455			1,173
Other assets		3,248			3,145
TOTAL ASSETS	$	353,445		$	319,608
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Deposits:
Non-interest bearing	$	34,203		$	36,687
Savings and interest-bearing transaction accounts		53,538			50,372
Time deposits under $100		55,628			34,789
Time deposits $100 and over		157,796			145,295
Total deposits		301,165			267,143
Accrued interest payable and other liabilities		1,395			2,930
TOTAL LIABILITIES		302,560			270,073
Commitments and contingencies
Stockholders’ equity:
Common stock, no par value, authorized 20,000,000 shares; issued and outstanding 5,206,932 shares at June 30, 2010; and December 31, 2009		49,244			49,096
Retained earnings		1,411			373
Accumulated other comprehensive income		230			66
TOTAL STOCKHOLDERS’ EQUITY		50,885			49,535
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	353,445		$	319,608

See accompanying notes to unaudited consolidated financial statements

3

BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months Ended June 30,
	2010		2009
	(In thousands, except per share data)
INTEREST INCOME
Loans, including fees	$	4,011	$	3,587
Securities		181		206
Federal funds sold		14		16
TOTAL INTEREST INCOME		4,206		3,809
INTEREST EXPENSE
Savings and money markets		42		43
Time deposits		1,045		1,445
TOTAL INTEREST EXPENSE		1,087		1,488
NET INTEREST INCOME		3,119		2,321
Provision for loan losses		384		144
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		2,735		2,177
NON-INTEREST INCOME  -  principally fees and service charges		60		48
NON-INTEREST EXPENSE
Salaries and employee benefits		963		911
Occupancy and equipment expense		368		342
FDIC related expenses		124		262
Data processing		104		92
Professional fees		118		111
Other expenses		223		180
TOTAL NON-INTEREST EXPENSE		1,900		1,898
Income before provision for income taxes		895		327
Income tax expense		371		136
NET INCOME	$	524	$	191
PER SHARE OF COMMON STOCK
Basic and diluted earnings	$	0.10	$	0.04

See accompanying notes to unaudited consolidated financial statements.

4

BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Six Months Ended June 30
	2010		2009
	(In thousands, except per share data)
INTEREST INCOME
Loans, including fees	$	7,903	$	6,963
Securities		324		385
Federal funds sold		25		58
TOTAL INTEREST INCOME		8,252		7,406
INTEREST EXPENSE
Savings and money markets		83		167
Time deposits		2,049		3,050
TOTAL INTEREST EXPENSE		2,132		3,217
NET INTEREST INCOME		6,120		4,189
Provision for loan losses		654		205
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		5,466		3,984
NON-INTEREST INCOME  -  principally fees and service charges		98		86
NON-INTEREST EXPENSE
Salaries and employee benefits		1,950		1,827
Occupancy and equipment expense		750		684
FDIC related expenses		231		303
Data processing		196		171
Professional fees		246		171
Other expenses		431		377
TOTAL NON-INTEREST EXPENSE		3,804		3,533
Income before provision for income taxes		1,760		537
Income tax expense		722		230
NET INCOME	$	1,038	$	307
PER SHARE OF COMMON STOCK
Basic and diluted earnings	$	0.20	$	0.06

See accompanying notes to unaudited consolidated financial statements.

5

BANCORP OF NEW JERSEY, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Six Months Ended June 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES	(in thousands)
Net income	$	1,038		$	307
Adjustments to reconcile net income to net cash Provided by (used in) operating activities:
Depreciation and amortization		212			203
Provision for loan losses		654			205
Recognition of stock option expense		148			208
Changes in operating assets and liabilities:
Increase in accrued interest receivable		(282	)		(513	)
(Increase) decrease in other assets		(208	)		118
Decrease in other liabilities		(1,535	)		(997	)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		27			(469	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for sale, net		(26,073	)		(23,883	)
Purchases of investment in bank stock		(72	)		(73	)
Proceeds from sales or calls of securities available for sale		15,004			17,391
Purchases of securities held to maturity		(2,400	)		(4,296	)
Maturities of securities held to maturity		4,296			---
Net increase in loans		(14,238	)		(19,860	)
Purchases of premises and equipment		(77	)		(256	)
NET CASH USED IN INVESTING ACTIVITIES		(23,560	)		(30,977	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase(decrease) in deposits		34,022			(3,363	)
Exercise of stock options		--			23
Exercise of warrants		--			21
NET CASH PROVIDED BY FINANCING ACTIVITIES		34,022			3,407
Net increase (decrease) in cash and cash equivalents		10,489			(28,039	)
Cash and cash equivalents, beginning of period		18,098			40,480
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	28,587		$	12,441
Cash paid during the period for:
Interest	$	2,007		$	2,976
Income taxes	$	1,554		$	501

See accompanying notes to unaudited consolidated financial statements

6

BANCORP OF NEW JERSEY, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies

Basis of Financial Statement Presentation

The accompanying unaudited consolidated financial statements include the accounts of Bancorp of New Jersey, Inc., (the “Company”) and its direct wholly-owned subsidiary, Bank of New Jersey (the “Bank”), and the Bank’s wholly owned subsidiary, BONJ-New York Corp..  These financial statements include the effect of the holding company reorganization which took place on July 31, 2007 pursuant to a plan of acquisition that was approved by the boards of directors of the Company and the Bank and adopted by the shareholders of the Bank at a special meeting held on July 19, 2007.

The holding company reorganization is accounted for as a reorganization under common control and the assets, liabilities, and stockholders’ equity of the Bank immediately prior to the holding company reorganization have been carried forward on the Company’s consolidated financials statements at the amounts carried on the Bank’s books at the effective date of the holding company reorganization.  The consolidated capitalization, assets, liabilities, results of operations and other financial data of the Company immediately following the reorganization were substantially the same as those of the Bank immediately prior to the holding company reorganization.  Accordingly, these unaudited consolidated financial statements of the Company include the Bank’s historical recorded values.

These financial statements reflect all adjustments and disclosures which management believes are necessary for a fair presentation of interim results.  All significant inter-company accounts and transactions have been eliminated in consolidation.  The results of operations for the three month and six month periods presented do not necessarily indicate the results that the Company will achieve for the 2010 fiscal year. You should read these consolidated unaudited interim financial statements in conjunction with the financial statements and accompanying notes that are presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 as filed with the Securities and Exchange Commission.

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

Certain reclassifications have been made to the prior period financial statements to conform to the June 30, 2010 presentation.

7

Organization

The Company is a New Jersey corporation and bank holding company registered with the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”).  The Bank is a community bank which provides a full range of banking services to individuals and corporate customers in New Jersey.  Both the Company and the Bank are subject to competition from other financial institutions.  The Bank is regulated by state and federal agencies and is subject to periodic examinations by those regulatory authorities.  The Bank conducts a traditional commercial banking business, accepting deposits from the general public, including individuals, businesses, non-profit organizations, and governmental units.  The Bank makes commercial loans, consumer loans, and both residential and co mmercial real estate loans.  In addition, the Bank provides other customer services and makes investments in securities, as permitted by law.  The Bank has sought to offer an alternative, community-oriented style of banking in an area, that is presently dominated by larger, statewide and national institutions.  The Bank continues to focus on establishing and retaining customer relationships by offering a broad range of traditional financial services and products, competitively-priced and delivered in a responsive manner to small businesses, professionals and individuals in the local market.  As a community bank, the Bank endeavors to provide superior customer service that is highly personalized, efficient and responsive to local needs.  To better serve its customers and expand it market reach, the Bank provides for the delivery of certain of its financial products and services to its local customers and to a broader market through the use of mail, telephone a nd internet banking.  The Bank seeks to deliver these products and services with the care and professionalism expected of a community bank and with a special dedication to personalized customer service.

Note 2. Stockholders’ Equity and Related Transactions

During the six month period ended June 30, 2010, the Company issued no shares of common stock.  During the six month period ended June 30, 2009, the Company issued 2,000 shares of common stock upon exercises of options for an aggregate purchase price of approximately $23 thousand.

Note 3. Benefit Plans and Stock-Based Compensation

2006 Stock Option Plan

During 2006, the Bank’s stockholders approved the 2006 Stock Option Plan.  At the time of the holding company reorganization, the 2006 Stock Option Plan was assumed by the Company.  The plan allows directors and employees of the Company to purchase up to 239,984 shares of the Company’s common stock.  At June 30, 2010, incentive stock options to purchase 220,300 shares have been issued to employees of the Bank, of which options to purchase 187,900 shares were outstanding at June 30, 2010.

Under the 2006 Stock Option Plan, there were a total of 45,000 unvested options at June 30, 2010 and approximately $142,000 remains to be recognized in expense over approximately the next three years.  Under the 2006 Stock Option Plan, no options were granted, or exercised, during the first six months of 2010; however, 600 shares were forfeited.

8

2007 Director Plan

During 2007, the Bank’s stockholders approved the 2007 Non-Qualified Stock Option Plan for Directors.  At the time of the holding company reorganization, the 2007 Non-Qualified Stock Option Plan was assumed by the Company. This plan provides for 480,000 options to purchase shares of the Company’s common stock to be issued to non-employee directors of the Company.  At June 30, 2010, non-qualified options to purchase 460,000 shares of the Company’s stock have been issued to non-employee directors of the Company and approximately 413,000 were outstanding at June 30, 2009.  No options were granted or forfeited during the first six months of 2010.

Under the 2007 Director Plan, there were a total of approximately 113,000 unvested options at June 30, 2010 and approximately $304,000 remains to be recognized in expense over approximately four remaining years.

In connection with both the 2006 Stock Option Plan and the 2007 Director Plan, share based compensation totaled $74,000 and $90,000 for the three months ended June 30, 2010 and 2009, respectively.  For the six months ended June 30, 2010 and 2009, respectively, share based compensation totaled $148,000 and $208,000, respectively.

The aggregate intrinsic value of options outstanding as of June 30, 2010 under the 2006 Stock Option Plan and the 2007 Director Plan was approximately $587,000.

The aggregate intrinsic value of options outstanding as of June 30, 2009 under the 2006 Stock Option Plan and the 2007 Director Plan was $0, as the per share exercise price of all such options exceeded the per share market value of the underlying common stock.

9

Note 4. Earnings Per Share.

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

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

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

	For the Three Months Ended June 30,
(In thousands except per share data)	2010		2009
Net income applicable to common stock	$	524	$	191
Weighted average number of common shares outstanding – basic		5,207		5,069
Basic earnings per share	$	0.10	$	0.04
Net income applicable to common stock	$	524	$	191
Weighted average number of common shares outstanding		5,207		5,069
Effect of dilutive options		21		-
Weighted average number of common shares and common share equivalents –diluted		5,228		5,069
Diluted earnings per share	$	0.10	$	0.04

Non-qualified options to purchase 414,668 shares of common stock at a weighted average price of $11.50; and incentive stock options to purchase 187,900 shares of common stock at a weighted average price of $10.24 were included in the computation of diluted earnings per share for the three months ended June 30, 2010.

Non-qualified options to purchase 413,000 shares of common stock at a weighted average price of $11.50; 776,618 warrants to purchase shares of common stock at a weighted average price of $10.91 per share; and 188,900 incentive stock options were not included in the computation of diluted earnings per share for the second quarter of 2009 because they were anti-dilutive.

10

The following schedule shows earnings per share for the six month periods presented:

	For the Six Months Ended June 30,
(In thousands except per share data)	2010		2009
Net income applicable to common stock	$	1,038	$	307
Weighted average number of common shares outstanding – basic		5,207		5,068
Basic earnings per share	$	0.20	$	0.06
Net income applicable to common stock	$	1,038	$	307
Weighted average number of common shares outstanding		5,207		5,068
Effect of dilutive options		17		-
Weighted average number of common shares and common share equivalents –diluted		5,224		5,068
Diluted earnings per share	$	0.20	$	0.06

Non-qualified options to purchase 414,668 shares of common stock at a weighted average price of $11.50; and incentive stock options to purchase 187,900 shares of common stock at a weighted average price of $10.24 were included in the computation of diluted earnings per share for the six months ended June 30, 2010.

Non-qualified options to purchase 460,000 shares of common stock at a weighted average price of $11.50; 776,618 warrants to purchase shares of common stock at a weighted average price of $10.91 per share; and 188,900 incentive stock options were not included in the computation of diluted earnings per share for the six months ended June 30, 2009 because they were anti-dilutive.

11

Note 5. Comprehensive Income

Accounting principles generally accepted in the United States of America requires the reporting of comprehensive income, which includes net income as well as certain other items, which result in changes to equity during the period.  Total comprehensive income is presented for the three month periods and the six month periods ended June 30, 2010 and 2009, respectively, (in thousands) as follows:

	Three months ended June 30,
Comprehensive Income	2010		2009
Net income	$	524	$	191
Unrealized holding gain (loss) on securities available for sale, net of taxes of $132 and $94 for 2010 and 2009, respectively		207		(131	)
Total comprehensive income	$	731	$	60

	Six months ended June 30,
	2010		2009
Comprehensive Income
Net income	$	1,038	$	307
Unrealized holding gain (loss) on securities available for sale, net of taxes of $105 and $79 for 2010 and 2009, respectively		164		(119	)
Total comprehensive income	$	1,202	$	191

12

Note 6. Securities Available for Sale and Investment Securities

A summary of securities available for sale at June 30, 2010 and December 31, 2009 is as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
June 30, 2010	Cost		Gains		Losses		Value
U.S. Treasury obligations	$	11,073	$	72	$	-	$	11,145
Government Sponsored Enterprise obligations		21,001		303		-		21,304
Total securities available for sale	$	32,074	$	375	$	-	$	32,449

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2009	Cost		Gains		Losses			Value
U.S. Treasury obligations	$	2,005	$	-	$	(5	)	$	2,000
Government Sponsored Enterprise obligations		19,000		127		(16	)		19,111
Total securities available for sale	$	21,005	$	127	$	(21	)	$	21,111

At June 30, 2010, the Company held no securities available for sale with unrealized losses.  At December 31, 2009, the unrealized losses, categorized by the length of time of the continuous loss position, and the fair value of related securities available for sale, were as follows:

	Less than 12 Months				More than 12 Months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2009	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury obligations	$	2,000	$	5	$	-	$	-	$	2,000	$	5
Government Sponsored Enterprise obligations		5,984		16		-		-		5,984		16
Total securities available for sale	$	7,984	$	21	$	-	$	-	$	7,984	$	21

The amortized cost and estimated fair value of securities available for sale at June 30, 2010 by contractual maturity are shown below.  Expected maturities will differ from contractual maturities as borrowers may  have the right to call or prepay obligations with or without call or prepayment penalties (in thousands):

	Amortized		Fair
	Cost		Value
One year or less	$	-	$	-
After one to five years		24,074		24,341
After five to ten years		8,000		8,108
After ten years		-		-
Total	$	32,074	$	32,449

13

Management evaluates securities for other-than-temporary-impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

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

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

At June 30, 2010, the Company’s available for sale securities portfolio consisted of 20 securities, of which none were in an unrealized loss position.  No OTTI charges were recorded for the three or six months ended June 30, 2010.

There was one security held to maturity at June 30, 2010 in the amount of $2.4 million.  At December 31, 2009, there was $4.3 million in securities held to maturity.  A summary of held to maturity securities at June 30, 2010 and December 31, 2009 is as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
June 30, 2010	Cost		Gains		Losses		Value
Obligations of states and political subdivisions	$	2.400	$	-	$	13	$	2,387
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2009	Cost		Gains		Losses		Value
Obligations of states and political subdivisions	$	4,296	$	1	$	-	$	4,297

Securities with an amortized cost of $2.0 million, and a fair value of $2.0 million, were pledged to secure public funds on deposit at June 30, 2010 and December 31, 2009.

14

Note 7. Loans.

The components of the loan portfolio at June 30, 2010 and December 31, 2009 are summarized as follows (in thousands):

	June 30, 2010		December 31, 2009
Real estate	$	182,092	$	177,031
Commercial		37,876		36,036
Credit lines		49,429		47,536
Consumer		8,758		3,328
	$	278,155	$	263,931

The Bank grants commercial, mortgage and installment loans primarily to New Jersey residents and businesses within its local trading area.  Each of its borrower’s ability to repay or otherwise satisfy its obligations is dependent upon various factors, including the borrower’s income and net worth and, if the obligations are secured by collateral, the cash flows generated by the underlying collateral, the value of the underlying collateral, and the priority of the Bank’s lien on the underlying collateral.  Such factors are dependent upon various economic conditions and individual circumstances beyond the Bank’s control; the Bank is therefore subject to risk of loss.  The Bank believes its lending policies and procedures reasonably account for the potential exposure to such risks and that provisions for loan losses are made to maintain an allowance for loan losses which management believes is adequate to absorb probable losses inherent in the loan portfolio.

15

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

	Three months ended
	June 30, 2010		June 30, 2009
Balance at beginning of period	$	3,062	$	2,432
Provision charged to expense		384		144
Balance at end of period	$	3,446	$	2,576
	Six months ended
	June 30, 2010		June 30, 2009
Balance at beginning of period	$	2,792	$	2,371
Provision charged to expense		654		205
Balance at end of period	$	3,446	$	2,576

	Six months ended
	June 30, 2010		June 30, 2009
Balance at beginning of period	$	2,792	$	2,371
Provision charged to expense		654		61
Balance at end of period	$	3,446	$	2,432

Impaired loans and related amounts recorded in the allowance for loan losses are summarized as follows:

	June 30, 2010			December 31, 2009
Impaired loans without valuation allowance	$	1,320		$	1,181
Impaired loans with a valuation allowance		3,310			2,777
Valuation allowance related to impaired loans		(373	)		(99	)
	$	4,257		$	3,859

As of June 30, 2010 the Bank had eight impaired loans totaling approximately $4.6 million, of which three loans totaling approximately $3.3 million had specific reserves of $373 thousand and five loans totaling approximately $1.3 million had no specific reserve.  If interest had been accrued, such income would have been approximately $88 thousand for the three month period ended June 30, 2010, and $148 thousand for the six month period ended June 30, 2010.  At June 30, 2010, the Bank had two residential mortgage loans that met the definition of a troubled debt restructuring (“TDR”) loan.  TDRs are loans where the contractual terms of the loan have been modified for a borrower experiencing financial difficulties.  These modifications could include a reduction in the interest rate of t he loan, payment extensions, forgiveness of principal or other actions to maximize collection.  At June 30, 2010, the TDR loans have an outstanding balance of $1.0 million with specific reserves of approximately $8 thousand and are performing in accordance with their modified terms.  One of the TDRs, with an outstanding balance at June 30, 2010 of $533 thousand and a specific reserve of $8 thousand is included in the Bank’s impaired loan total.

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Note 8. Guarantees

The Company does not issue any guarantees that would require liability recognition or disclosure, other than the Bank’s standby letters of credit.  Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party.  Generally, all letters of credit, when issued, have expiration dates within one year.  The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers.  The Bank generally holds collateral and/or personal guarantees supporting these commitments.  As of June 30, 2010, the Bank had $815 thousand of commercial letters of credit.  Management believes that the proceeds obtained through a liquidation of collateral an d the enforcement of guarantees would be sufficient to cover the potential amount of future payment required under the corresponding guarantees.

Note 9. Fair Value Measurements

The Company adopted the guidance on fair value measurement now codified as FASB ASC Topic 820, “Fair Value Measurement and Disclosures”, on January 1, 2008.  Under ASC Topic 820, fair value measurements are not adjusted for transaction costs.  ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).

Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique.  Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in sales transactions on the dates indicated.  The estimated fair value amounts have been measured as of their respective period end and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates.  As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at the respective reporting dates.

The three levels of fair value hierarchy are as follows:

· Level 1 Inputs - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

· Level 2 Inputs -  Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

· Level 3 Inputs -  Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported with little or no market activity).

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

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For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2010 and December 31, 2009, respectively, are as follows (in thousands):

Description	June 30, 2010		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Securities available for sale	$	32,449	$	11,145	$	21,304	$	–

Description	December 31, 2009		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Securities available for sale	$	21,111	$	2,000	$	19,111	$	–

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2010 and December 31, 2009, respectively, follows (in thousands):

Description	June 30, 2010		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Impaired loans	$	2,937	$	–	$	–	$	2,937

Description	December 31, 2009		(Level 1) Quoted Prices in Active Markets for Identical Assets		(Level 2) Significant Other Observable Inputs		(Level 3) Significant Unobservable Inputs
Impaired loans	$	2,678	$	–	$	–	$	2,678

The following information should not be interpreted as an estimate of the fair value of the entire Company, since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities.  Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other

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companies may not be meaningful.  The following methods and assumptions were used to estimate the fair values of the Company’s finanical instruments at June 30, 2010 and December 31, 2009:

Cash and Cash Equivalents (Carried at cost)

The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets’ fair values.

Securities

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

Restricted Investment in Bank Stock (Carried at Cost)

The carrying amount of restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities.

Loans Receivable (Carried at Cost)

The fair value of loans are estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and the interest rate-risk inherent in the loans.  Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal.  Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.

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Impaired loans

Impaired loans are those loans on non-accrual status and may also include loans that are accounted for under ASC Sub-topic 310-40, Troubled Debt Restructuring by Creditors, in which the Company has measured impairment generally based on the fair value of the loan’s collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds.  These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Accrued Interest Receivable and Payable (Carried at Cost)

The carrying amount of accrued interest receivable and accrued interest payable approximates fair value.

Deposits (Carried at Cost)

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts).  Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities of time deposits.

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Fair value estimates and assumptions are set forth below for the Company’s financial instruments at June 30, 2010 and December 31, 2009 (in thousands):

	June 30, 2010				December 31, 2009
	Carrying amount		Estimated Fair Value		Carrying amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	28,587	$	28,587	$	18,098	$	18,098
Securities available for sale		32,074		32,449		21,005		21,111
Securities held to maturity		2,400		2,387		4,296		4,297
Restricted investment in bank stock		491		491		419		419
Net loans		274,736		275,910		261,152		261,329
Accrued interest receivable		1,455		1,455		1,173		1,173
Financial liabilities:
Deposits		301,165		297,363		267,143		268,101
Short term borrowings		–		–		–		–
Accrued interest payable		497		497		372		372

Limitation

The preceding fair value estimates were made at June 30, 2010 and December 31, 2009 based on pertinent market data and relevant information on the financial instrument.  These estimates do not include any premium or discount that could result from an offer to sell at one time the Company’s entire holdings of a particular financial instrument or category thereof.  Since no market exists for a substantial portion of the Company’s financial instruments, fair value estimates were necessarily based on judgments regarding future expected loss experience, current economic conditions, risk assessment of various financial instruments, and other factors.  Given the innately subjective nature of these estimates, the uncertainties surrounding them and the matter of significant judgment that must be applie d, these fair value estimates cannot be calculated with precision.  Modifications in such assumptions could meaningfully alter these estimates.

Since these fair value approximations were made solely for on- and off-balance-sheet financial instruments at June 30, 2010 and December 31, 2009, no attempt was made to estimate the value of anticipated future business.  Furthermore, certain tax implications related to the realization of the unrealized gains and losses could have a substantial impact on these fair value estimates and have not been incorporated into the estimates.

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Note 10. Recent Accounting Pronouncements

The Financial Account Standards Board  (“FASB”) has issued Account Standards Update (“ASU”) 2010-18, Receivables (Topic 310): Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset, codifies the consensus reached in EITF Issue No. 09-I, “Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset.” The amendments to the Codification provide that modifications of loans that are accounted for within a pool under Subtopic 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the po ol of assets in which the loan is included is impaired if expected cash flows for the pool change. ASU 2010-18 does not affect the accounting for loans under the scope of Subtopic 310-30 that are not accounted for within pools. Loans accounted for individually under Subtopic 310-30 continue to be subject to the troubled debt restructuring accounting provisions within Subtopic 310-40.

ASU 2010-18 is effective prospectively for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. Early application is permitted. Upon initial adoption of ASU 2010-18, an entity may make a one-time election to terminate accounting for loans as a pool under Subtopic 310-30. This election may be applied on a pool-by-pool basis and does not preclude an entity from applying pool accounting to subsequent acquisitions of loans with credit deterioration.  We do not expect the adoption of this standard to have a material effect on our financial position or results of operations.

The FASB has issued ASU 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. It will help investors assess the credit risk of a company’s receivables portfolio and the adequacy of its allowance for credit losses held against the portfolios by expanding credit risk disclosures. 

This ASU requires more information about the credit quality of financing receivables in the disclosures to financial statements, such as aging information and credit quality indicators.  Both new and existing disclosures must be disaggregated by portfolio segment or class.  The disaggregation of information is based on how a company develops its allowance for credit losses and how it manages its credit exposure.

The amendments in this ASU  apply to all public and nonpublic entities with financing receivables.  Financing receivables include loans and trade accounts receivable.  However, short-term trade accounts receivable, receivables measured at fair value or lower of cost or fair value, and debt securities are exempt from these disclosure amendments. 

The effective date of ASU 2010-20 differs for public and nonpublic companies.  For public companies, the amendments that require disclosures as of the end of a reporting period are effective for periods ending on or after December 15, 2010.  The amendments that require disclosures about activity that occurs during a reporting period are effective for periods beginning on or after December 15, 2010.  For nonpublic companies, the amendments are effective for annual reporting periods ending on or after December 15, 2011.  We do not expect the adoption of this standard to have a material effect on our financial position or results of operations.

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ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read this discussion and analysis in conjunction with the consolidated unaudited interim financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q, and with our audited consolidated financial statements for the year ended December 31, 2009 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented in our Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the Securities and Exchange Commission.

Statements Regarding Forward Looking Information

This document contains forward-looking statements, in addition to historical information.  Forward looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” and variations of such words and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may,” or similar expressions.  The U.S. Private Securities Litigation Reform Act of 1995 provides a safe harbor in regard to the inclusion of forward-looking statements in this document and documents incorporated by reference.

You should note that many factors, some of which are discussed elsewhere in this document and in the documents that are incorporated by reference, could affect the future financial results of Bancorp of New Jersey, Inc. and its subsidiary and could cause those results to differ materially from those expressed in the forward-looking statements contained or incorporated by reference in this document.  These factors include, but are not limited, to the following:

· Current economic crisis affecting the financial industry;

· Current interest rate environment affecting loan, deposit, and investment pricing;

· Increased credit risk and risks associated with the real estate market;

· Operating, legal and regulatory risk;

· Economic, political and competitive forces affecting the Company’s business; and

· That management’s analysis of these risks and factors could be incorrect, and/or that the strategies developed to address them could be unsuccessful.

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

Critical Accounting Policies, Judgments and Estimates

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles.  In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of financial condition and revenues and expenses for the period indicated.  Actual results could differ significantly from those estimates.  Management believes the following critical accounting policies

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encompass the more significant judgments and estimates used in the preparation of the consolidated financial statements.

Allowance for Loan Losses

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses.Losses on loans are charged to the allowance for loan losses.  Additions to this allowance are made by recoveries of loans previously charged off and by a provision charged to expense.  The determination of the allowance for loan losses is based on an analysis of the loan portfolio, economic conditions and other factors warranting recognition.  Management believes that the allowance for loan losses is maintained at an adequate level to provide for losses inherent in the loan portfolio.  While management uses available information to evaluate the adequacy of the allowance for loan losse s, increases to the allowance for loan losses may be necessary based on changes in economic conditions, particularly changes affecting New Jersey customers and small businesses.  In addition to management’s review, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses.  Such agencies may require us to make additional provisions for loan losses, in order to increase the allowance, based on their judgments about information available to them at the time of their examinations.

Deferred Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the period in which the deferred tax asset or liability is expected to be settled or realized.  The effect on deferred taxes of a change in tax rates is recognized in income in the period in which the change occurs.  Deferred tax assets are reduced, through a valuation allowance, if necessary, by the amount of such benefits that are not expected to be realized based on current available evidence.

Recent Legislative Development

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), was signed into law. The Dodd-Frank Act represents a comprehensive overhaul of the financial services industry within the United States.  The Dodd-Frank Act requires various federal agencies, including the newly established federal Bureau of Consumer Financial Protection (the “BCFP”), to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress.  The BCFP may reshape the consumer financial laws through rulemaking and enforcement of unfair, deceptive or abusive practices, which may directly impact the business operations of depository institutions offering consumer financial products or services, including the Bank. The federal agen cies are given significant discretion in drafting the implementing rules and regulations, and, as a result, many of the details and much of the impact of the Dodd-Frank Act may not be known for many months or years.

Among other things, the Dodd-Frank Act permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2009, and non-interest bearing transaction accounts have unlimited deposit insurance through December 31, 2013.   It includes mortgage reform provisions regarding a customer’s ability to repay, restricting variable-rate lending by requiring the ability to repay to be determined for variable-rate loans by using the maximum rate that will apply during the first five years of a variable-rate loan term, and making more loans subject to provisions for higher cost loans, new disclosures, and certain other requirements.  The legislation also requires that publicly traded companies give stockholders a non-binding vote on executive compensation and “golden parachute” payments, and authorizes the Securities and Exchange Commission to promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials. The Dodd-Frank Act also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded or not.

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At this time, it is difficult to predict the extent to which the Dodd-Frank Act or the resulting rules and regulations will impact our business.  The Dodd-Frank Act and the implementing rules and regulations could require us to make material expenditures, in particular personnel training costs and additional compliance expenses, or otherwise adversely affect our business or financial results. It could also require us to change certain of our business practices, adversely affect our ability to pursue business opportunities in which we might otherwise consider engaging, cause business disruptions and/or have other impacts that are as-of-yet unknown to us.

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Results of Operations

Three Months Ended June 30, 2010 and 2009 and Six Months Ended June 30, 2010 and 2009

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

Net Income

Net income for the second quarter of 2010 was $524 thousand compared to net income of $191 thousand for the second quarter of 2009, an increase of $333 thousand, or 174%.  This increase was due in most part to an increase in net interest income of approximately $800 thousand, or 34%, offset somewhat by an increase in the provision for loan losses of approximately $240 thousand.  Non-interest income and expense stayed relatively flat during the second quarter of 2010 as compared to the same period last year, while income tax expense increased by $235 thousand as a result of the increase in pre-tax income.

Net income for the six months ended June 30, 2010 was $1.0 million compared to net income of $307 thousand for the six months ended June 30, 2009, an increase of $731 thousand, or 238%.  Similar to the quarterly growth, the increase was fueled by an increase in net interest income of $1.9 million.  This increase was offset somewhat by increases in income tax expense and non-interest expenses of $492 thousand and $271 thousand, respectively.

On a per share basis, basic and diluted earnings per share were $0.10 for the second quarter of 2010 as compared to basic and diluted earnings per share of $0.04 for the second quarter of 2009.  Basic and diluted earnings per share were $0.20 for the six months ended June 30, 2010 as compared to basic and diluted earnings per share of $0.06 for the six months ended June 30, 2009.

Net Interest Income

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities.  Net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them.  For both the three month period and the six month period, the growth in net interest income has been, primarily, driven by increased interest income from loans, including fees, combined with the Company’s ability to attract lower cost deposits during the current interest rate environment.  During the second quarter of 2010, net interest income reached $3.1 million from $2.3 million during the second quarter of 2009 primarily as a result of loan growth during the period and the lower cost of deposits.

During the six months ended June 30, 2010, net interest income reached $6.1 million compared to $4.2 million for the six months ended June 30, 2009, an increase of $1.9 million.  This increase is also attributable to the increase in interest income from loans, including fees and the decrease in interest expense.  Interest income from loans, including fees, securities and federal funds sold reached $8.3 million for the six months ended June 30, 2010 from $7.4 million for the six months ended June 30, 2009.  At the same time, interest expense decreased from $3.2 million for the six months ended June 30, 2009 to $2.1 million for the six months ended June 30, 2010, a decrease of approximately $1.1 million.

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Provision for Loan Losses

The provision for loan losses was $384 thousand for the three months ended June 30, 2010 as compared to $144 thousand for the three months ended June 30, 2009.  During the six months ended June 30, 2010, the provision for loan losses was $654 thousand as compared to $205 thousand during the six months ended June 30, 2009.  For the three and six month periods the increase represents the increased loan growth as well as an increase in the Bank’s non-accruing loans.  At June 30, 2010, the Bank had non-accruing loans of $4.1 million as compared to $2.0 million at June 30, 2009.

Non-interest Income

Non-interest income, primarily attributable to service fees, was $60 thousand during the quarter ended June 30, 2010 compared to $48 thousand for the quarter ended June 30, 2009.  For the six months ended June 30, 2010, non-interest income totaled $98 thousand as compared to $86 thousand for the six months ended June 30, 2009.

Non-interest Expense

Non-interest expense was basically flat at $1.9 million during the second quarter of 2010 compared to the same amount in the second quarter of 2009.  The second quarter of 2009 included the effect of the FDIC special assessment which totaled approximately $140 thousand.  This decrease in FDIC expense for 2010 offset increases in salaries and employee benefits, other expenses and occupancy and equipment expenses of $52 thousand, $43 thousand and $26 thousand, respectively for the three months ended June 30, 2010 as compared to June 30, 2009.  During the six months ended June 30, 2010, non-interest expense reached approximately $3.8 million from approximately $3.5 million for the six months ended June 30, 2009.  This increase reflected increases in salaries and employee benefits, professional fees and occupancy and equipment expense of $123 thousand, $75 thousand and $66 thousand, respectively, offset somewhat by a decrease in FDIC expenses of $72 thousand.  The increases related to salaries and employee benefits and occupancy and equipment expenses are in part due to the opening and operating of a new location in the second quarter of 2009, and therefore are not included for the full six months of 2009.

Income Tax Expense

The income tax provision reached $371 thousand for the quarter ended June 30, 2010 as compared to $136 thousand for the quarter ended June 30, 2009.  For the six months ended June 30, 2010, income tax expense reached $722 thousand as compared to $230 thousand for the six months ended June 30, 2009.  The income tax provision is reflective of our pre-tax income and the effect of permanent differences between financial and tax reporting.  These permanent tax differences include the recognition of non-deductible stock option expense as required under FASB ASC 718.

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FINANCIAL CONDITION

Total consolidated assets increased $33.8 million, or approximately 10.6%, from $319.6 million at December 31, 2009 to $353.4 million at June 30, 2010.  Total deposits increased from $267.1 million at December 31, 2009 to $301.2 million at June 30, 2010, an increase of $34.0 million, or approximately 12.7%.  Loans receivable, or “total loans,” increased from $263.9 million at December 31, 2009 to $278.2 million at June 30, 2010, an increase of $14.2 million, or approximately 5.4%.

Loans

Our loan portfolio is the primary component of our assets.  Total loans increased by 5.4% since year end to reach $278.2 million at June 30, 2010.  At December 31, 2009, our total loans were approximately $263.9 million.  While we have focused on conservative lending practices, the growth in the loan portfolio continues to be supported by recommendations and referrals from members of our board of directors, our shareholders, our executive officers, and selective marketing by our management and staff.  We believe that we will continue to have opportunities for loan growth within the Bergen County market of northern New Jersey, due in part, to our customer service, competitive rate structures, and selective marketing.  We maintain that it is not cost-efficient for large institutions, many of which are headquartered out of state, to provide the level of personal service to small business borrowers that these customers seek and that we endeavor to provide.  We also provide a level of service and decision making which we believe can only be provided by community banks.

Our loan portfolio consists of commercial loans, real estate loans, and consumer loans.  Commercial loans are made for the purpose of providing working capital, financing the purchase of equipment or inventory, as well as for other business purposes.  Real estate loans consist of loans secured by commercial or residential real property and loans for the construction of commercial or residential property.  Credit lines, consist mainly of home equity lines of credit.  Consumer loans are made for the purpose of financing the purchase of consumer goods, home improvements, and other personal needs, which are generally secured by the personal property owned or being purchased by the borrowers.

Our loans are primarily to businesses and individuals located in Bergen County, New Jersey.  We have not made loans to borrowers outside of the United States.  We continue to focus on conservative lending practices.  We have not made any subprime loans.  Commercial lending activities are focused primarily on lending to small business borrowers.  We believe that our strategy of prudent lending, customer service, competitive rate structures, and selective marketing have enabled us to expand our presence in the local lending market.  Further, we believe that bank mergers and lending restrictions at larger financial institutions with which we compete have also contributed to the success of our efforts to attract borrowers.

For more information on the loan portfolio, see Note 7 in Notes to the Financial Statements in this Quarterly Report on Form 10-Q.

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Loan Quality

As mentioned above, our principal assets are our loans.  Inherent in the lending function is the risk of the borrower’s inability to repay a loan, either under its existing terms or at all.  Risk elements include non-accrual loans, past due and restructured loans, potential problem loans, loan concentrations, and other real estate owned.

Non-performing assets include loans that are not accruing interest (non-accrual loans) as a result of principal or interest being in default for a period of 90 days or more, accruing loans that are 90 days past due, and other real estate owned.  When a loan is classified as non-accrual, interest accruals discontinue and all past due interest, including interest applicable to prior years, is reversed and charged against current income.  Until the loan becomes current, any payments received from the borrower are applied to outstanding principal until such time as management determines that the financial condition of the borrower and other factors merit recognition of such payments as interest.

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

As of June 30, 2010 the Bank had eight impaired loans totaling approximately $4.6 million, of which three loans totaling approximately $3.3 million had specific reserves of $373 thousand and five loans totaling approximately $1.3 million had no specific reserve.  If interest had been accrued, such income would have been approximately $88 thousand for the three months ended June 30, 2010, and $148 thousand for the six month period ended June 30, 2010.  In addition, at June 30, 2010, the Bank had two residential mortgage loans that met the definition of a troubled debt restructured (“TDR”) loan.  TDRs are loans where the contractual terms of the loan have been modified for a borrower experiencing financial difficulties.  These modifications could include a reduction in the interest rate of the loan, payment extensions, forgiveness of principal or other actions to maximize collection.  At June 30, 2010, the TDR loans had an outstanding balance of $1.0 million, had specific reserves of $8 thousand and are performing in accordance with their modified terms.  One of the TDRs, with an outstanding balance at June 30, 2010 of $533 thousand and a specific reserve of $8 thousand is included in the Bank’s impaired loan total.

As of June 30, 2010 and December 31, 2009, there were no concentrations of loans (other than those categories of loans disclosed in Note 7 in Notes to the Financial Statements in this Quarterly Report on Form 10-Q) which exceeded 10% of our total loans, and we had no foreign loans.  Furthermore, our loan portfolio does not contain any subprime loans.

Investment Securities

Securities held as available for sale (“AFS”) were approximately $32.4 million at June 30, 2010 compared to $24.1 million at December 31, 2009.  This increase in the AFS category represented the purchase of securities during the period with funds in excess of federal funds sold.  Securities held to maturity decreased $1.9 million to $2.4 million at June 30, 2010 from $4.3 million at December 31, 2009.

Deposits

Deposits remain our primary source of funds.  Total deposits increased from $267.1 million at December 31, 2009 to $301.2 million at June 30, 2010, an increase of $34.0 million, or 12.7%.  This increase is primarily attributable to an increase in our time deposit accounts which we believe reflects our competitive rate structure and the public perception of our safety and soundness.  During this interest rate

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environment, our attractive time deposit products have allowed the Bank to increase its overall deposits while still being able to reduce its overall cost of deposits and thereby increasing its net interest income.

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Liquidity

Our liquidity is a measure of our ability to fund loans, withdrawals or maturities of deposits, and other cash outflows in a cost-effective manner.  Our principal sources of funds are deposits, scheduled amortization and prepayments of loan principal, maturities of investment securities, and funds provided by operations.  While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition.  We also have the ability to use overnight lines of credit with our correspondent banks.

Our total deposits equaled $301.2 million at June 30, 2010 as compared to $267.1 million at December 31, 2009.

Through the investment portfolio, we will seek to obtain a safe, yet slightly higher yield than would have been available to us as a net seller of overnight federal funds, while maintaining liquidity.  Through our investment portfolio, we also attempt to manage our maturity gap, by seeking maturities of investments which coincide with maturities of deposits.  The investment portfolio also includes securities available for sale to provide liquidity for anticipated loan demand and other liquidity needs.

As of June 30, 2010, we have a $12 million overnight line of credit with First Tennessee Bank and a $10 million overnight line of credit with Atlantic Central Bankers Bank for the purchase of federal funds in the event that temporary liquidity needs arise.  There were no amounts outstanding under either facility at June 30, 2010.  The bank is also a member of the Federal Home Bank of New York (“FHLBNY”).  The FHLBNY relationship could provide additional sources of liquidity, if required.

Capital Resources

A significant measure of the strength of a financial institution is its capital base.  Our federal regulators have classified and defined our capital into the following components:  Tier 1 Capital, which includes tangible shareholders’ equity for common stock and qualifying preferred stock, and Tier 2 Capital, which includes a portion of the allowance for loan losses, certain qualifying long-term debt, and preferred stock which does not qualify as Tier 1 Capital.  Minimum capital levels are regulated by risk-based capital adequacy guidelines, which require certain capital as a percent of our assets and certain off-balance sheet items, adjusted for predefined credit risk factors, referred to as “risk-adjusted assets.”

We are required to maintain, at a minimum, Tier 1 Capital as a percentage of risk-adjusted assets of 4.0% and combined Tier 1 and Tier 2 Capital, or “Total Capital,” as a percentage of risk-adjusted assets of 8.0%.

In addition to the risk-based guidelines, our regulators require that an institution which meets the regulator’s highest performance and operation standards maintain a minimum leverage ratio (Tier 1 Capital as a percentage of tangible assets) of 3.0%.  For those institutions with higher levels of risk or that are experiencing or anticipating significant growth, the applicable minimum leverage ratio will be evaluated and established through the ongoing regulatory examination process.

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The following table summarizes the Bank’s risk-based capital and leverage ratios at June 30, 2010, as well as the applicable minimum ratios:

	June 30, 2010			Minimum Regulatory Requirements
Risk-Based Capital :
Tier 1 Capital Ratio		18.53	%		4.0	%
Total Capital Ratio		19.78	%		8.0	%
Leverage Ratio		14.86	%		4.0	%

The capital levels detailed above reflect the success of our initial stock offering as well as our results of operations.  As we continue to employ our capital and grow our operations, we expect that our capital levels will decrease, but that we will remain a “well-capitalized” institution.

The Company is subject to regulatory capital requirements which are substantially similar to those of the Bank.

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

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

ITEM 4. Controls and Procedures

Evaluation of disclosure controls and procedures.  

We maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose in our reports filed or submitted pursuant to the Securities Exchange Act of 1934, as amended, the “Exchange Act”, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that information we are required to disclose in our Exchange Act reports is accumulated and communicated to management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of December 30, 2009.  Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2010.

Changes in internal controls over financial reporting.

There was no change in our internal control over financial reporting identified during the quarter ended June 30, 2010 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II  OTHER INFORMATION

ITEM 1. Legal Proceedings

None.

ITEM 1A. Risk Factors

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

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

None

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. (Removed and Reserved)

ITEM 5. Other Information

None.

ITEM 6. Exhibits

The exhibits filed or incorporated by reference as part of this report are listed in the Exhibit Index, which appears at page 34.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Bancorp of New Jersey, Inc.
By:	/s/ Albert F. Buzzetti
	Albert F. Buzzetti
	Chairman and Chief Executive Officer
	(Principal Executive Officer)

By:	/s/ Michael Lesler
	Michael Lesler
	President and Chief Operating Officer
	(Principal Financial Officer)

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EXHIBIT INDEX

Exhibit Number	Description
31.1	Rule 13a-14(a) Certification of the Principal Executive Officer
31.2	Rule 13a-14(a) Certification of the Principal Financial Officer
32	Section 1350 Certifications

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