U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 March 31, 2000
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---- Transition report under Section 13 or 15 (d) of the Exchange Act
For the transition period from to
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Commission file number 000-26587
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COMMUNITY BANCORP OF NEW JERSEY
(Exact name of registrant as specified in its charter)
New Jersey 22-3495579
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3535 Highway 9 North, Freehold, New Jersey 07728
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(Address of principal executive offices)
(732) 863-9000
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(Issuer's telephone number, including area code)
Not Applicable
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(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 May 11, 2000
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INDEX
COMMUNITY BANCORP OF NEW JERSEY
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at March 31, 2000
(Unaudited) and December 31, 1999 3
Consolidated Condensed Statements of Income for the three
months ended March 31, 2000 and 1999 (Unaudited) 4
Consolidated Condensed Statement of Changes in Stockholders' 5
Equity at March 31, 2000 (Unaudited)
Consolidated Condensed Statements of Cash Flows for the three
months ended March 31, 2000 and 1999 (Unaudited) 6
Notes to Consolidated Condensed Financial Statements
(Unaudited) 7 - 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11 - 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22 - 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - None 23
b. Reports on Form 8-K 23
SIGNATURES 24
2
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31,
2000 December 31,
(Unaudited) 1999
----------- -------------
(Dollars in thousands)
ASSETS
Cash and cash equivalents:
Cash and due from banks.......................................... $ 5,297 $ 4,991
Federal funds sold............................................... 14,845 20,275
----------- ------------
Total cash and cash equivalents 20,142 25,266
Investment securities available-for-sale.............................. 17,376 9,424
Investment securities held-to-maturity (fair value of $11,104
at March 31, 2000 and $11,093 at December 31, 1999).............. 11,246 11,245
Loans receivable...................................................... 86,141 82,632
Allowance for loan loss............................................... (1,295) (1,237)
----------- ------------
Net loans receivable 84,846 81,395
----------- ------------
Premises and equipment, net........................................... 4,690 4,631
Accrued interest receivable........................................... 808 643
Other assets.......................................................... 522 207
----------- ------------
Total Assets $ 139,630 $ 132,811
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand...................................... $.24,998 $ 22,963
Interest bearing - NOW........................................... 17,528 16,490
Savings and money market......................................... 45,681 43,492
Certificates of deposit, under $100,000.......................... 19,796 19,574
Certificates of deposit, $100,000 and over....................... 12,336 11,509
----------- ------------
Total deposits 120,339 114,028
----------- ------------
Accrued interest payable.............................................. 584 292
Other liabilities..................................................... 347 265
----------- ------------
Total liabilities 121,270 114,585
----------- ------------
Stockholders' equity
Commonstock - authorized 5,000,000 shares of no par value; issued and
outstanding, net of treasury shares, 1,827,766 shares at March 31,
2000 and December 31, 1999................................. 20,523 20,523
Treasury stock, at cost - 22,357 shares.......................... (363) (363)
Accumulated deficit.............................................. (1,777) (1,923)
Accumulated other comprehensive income (loss).................... (23) (11)
----------- ------------
Total stockholders' equity 18,360 18,226
----------- ------------
Total Liabilities and Stockholder's Equity $ 139,630 $ 132,811
========= =========
See accompanying notes to consolidated condensed financial statements.
3
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended
March 31,
---------------------------------------------
2000 1999
(Dollars in thousands, except per share data)
INTEREST INCOME
Loans, including Fees............................................ $ 1,722 $1,051
Federal funds sold............................................... 170 138
Investment securities - taxable.................................. 412 193
----------- ------------
Total interest income 2,304 1,382
----------- ------------
INTEREST EXPENSE
Interest bearing - NOW.......................................... 62 51
Savings and money market......................................... 452 331
Certificates of deposit.......................................... 453 73
----------- ------------
Total interest expense 967 455
----------- ------------
Net interest income 1,337 927
Provision for loan losses............................................. 58 111
----------- ------------
Net interest income after provision
for loan losses 1,279 816
----------- ------------
Non-interest income:
Service fees on deposit accounts................................. 86 47
Other fees and commissions....................................... 66 11
----------- ------------
Total non-interest income 152 58
----------- ------------
Non-interest expense:
Salaries and wages............................................... 520 311
Employee benefits................................................ 86 58
Occupancy expense................................................ 104 47
Depreciation - occupancy, furniture & equipment.................. 116 76
Other............................................................ 459 317
----------- ------------
Total non-interest expense 1,285 809
----------- ------------
Net Income (loss) $ 146 $ 65
=========== ============
Per Common Share:
Net income (loss) - basic........................................ $ 0.08 $ 0.03
Net income (loss) - diluted...................................... $ 0.08 $ 0.03
Weighted average shares outstanding (in thousands):
Basic............................................................ 1,919 1,935
Diluted.......................................................... 1,928 1,967
See accompanying notes to consolidated condensed financial statements.
4
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Other
Common Treasury Accumulated Comprehensive Comprehensive Stockholders'
Stock Stock Deficit Income (Loss) Income Equity
------- ------- --------- --------------- ------------- -------------
(Dollars in Thousands)
Balance December 31, 1999............ $20,523 $ (363) $ (1,923) $ (11) $18,226
Comprehensive Income:
Net Income....................... - - 146 - $ 146 146
Increase in unrealized holding
Losses on securities, net........ - - - (12) (12) (12)
---------- ----------
Total Comprehensive Income........... - - - - $ 134
-------- -------- --------- --------- ===========
Balance, March 32, 2000 (Unaudited).. $20,523 $ (363) $ (1,777) $ (23) $18,360
=== ==== ======= ======= ========= ========= =======
See accompanying notes to consolidated condensed financial statements.
5
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31,
-----------------------------------------
2000 1999
---------------- ----------------
(Dollars in thousands)
Cash flows from operating activities:
Net income $ 146 $ 65
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 116 76
Provision for loan losses 58 111
Accretion of investment discount (30) --
Amortization of investment premium 3 --
Increase in accrued interest receivable (165) (216)
Increase in other assets (306) (72)
Increase in accrued interest payable 292 1
Increase in other liabilities 82 106
-------- --------
Net cash provided by operating activities 196 71
-------- --------
Cash flows from investing activities:
Purchases of investment securities held-to-maturity -- (9,000)
Purchases of investment securities available-for-sale (8,447)
Proceeds from maturities and calls of investment securities 500 500
Net increase in loans made to customers (3,509) (9,076)
Purchases of premises and equipment (175) (940)
-------- --------
Net cash used in investing activities (11,631) (18,516)
-------- --------
Cash flows from financing activities:
Net increase in demand deposits and savings accounts 5,262 6,670
Net increase in certificates of deposit 1,049 844
Net proceeds from common stock issued -- 1,014
-------- --------
Net cash provided by financing activities 6,311 8,528
-------- --------
Net (decrease) increase in cash and cash equivalents (5,124) (9,917)
Cash and cash equivalents as of beginning of year 25,266 28,566
-------- --------
Cash and cash equivalents as of end of period $ 20,142 $ 18,649
-------- ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 675 $ 454
Cash paid during the period for income taxes $ 34 $ --
See accompanying notes to consolidated condensed financial statements.
6
COMMUNITY BANCORP OF NEW JERSEY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
NOTE A - BASIS OF PRESENTATION
The consolidated condensed financial statements 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 managements 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 ended March 31, 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 - INVESTMENT SECURITIES
The Company classifies its investments in accordance with Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities, (SFAS 115). SFAS 115 requires that an enterprise classify its
investments in debt securities as either securities held-to-maturity (carrying
amount equals amortized cost), securities available-for-sale (carrying amount
equals estimated fair value; unrealized gains and losses recorded in a separate
component of stockholders equity, net of taxes) or trading securities (carrying
amount equals estimated fair value; unrealized gains and losses included in the
determination of net income).
Any security which is a U.S. Government security, U.S. Government agency
security, an agency mortgage-backed security, or an obligation of a state or
political subdivision may be placed in the held-to-maturity category if acquired
with the intent and ability to maintain the security in the portfolio until
maturity. Premiums and discounts on these securities are amortized or accreted
on a basis that approximates the effective yield method. Realized gains and
losses from the sale of securities available-for-sale are determined on a
specific identification cost basis.
Management determines the appropriate classification of securities at the time
of purchase. The Companys stockholders equity will be affected by changing
interest rates which affect the market price of the Companys securities
available-for-sale. At March 31, 2000 and December 31, 1999, no investment
securities were classified as trading securities.
7
COMMUNITY BANCORP OF NEW JERSEY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Continued
The following tables present the book values, fair values and gross unrealized
gains and losses of the Company's investment securities portfolio as of March
31, 2000 and December 31, 1999 (Dollars in thousands).
March 31, 2000 (Unaudited)
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
Securities available-for-sale (1):
U.S. Government and agency securities........ $ 17,390 $ 1 $ (40) $17,351
Other securities............................. 25 - - 25
------------- ------------- ------------- -------------
$ 17,415 $ 1 $ (40) $17,376
============= ============= ============= =============
Securities held-to-maturity:
U.S. Government and agency securities........ $ 10,746 $ - $ (142) $10,604
Other securities............................. 500 - - 500
------------- ------------- ------------- -------------
$ 11,246 $ - $ (142) $11,104
============= ============= ============= =============
(1) Net unrealized losses of $23 thousand, net of a tax benefit of $16
thousand, were reported as a decrease to stockholders' equity at
March 31, 2000.
December 31, 1999
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
Securities available-for-sale (2):
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
============= ============= ============= =============
(2) Net unrealized losses of $11 thousand, net of a tax benefit of $8
thousand, were reported as a decrease to stockholders' equity at
December 31, 1999.
The following table sets forth as of March 31, 2000 the maturity distribution of
the Company's investment portfolio (Dollars in thousands).
Available-for-sale Held-to-maturity
------------------------------ ------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
------------- ------------- ------------- -------------
Due in one year or less...................... $ 13,527 $13,504 $ 750 $ 750
Due after one year through five years........ 3,863 3,847 9,996 9,854
Due after five years through ten years....... - - 500 500
Due after ten years.......................... 25 25 - -
------------- ------------- ------------- -------------
$ 17,415 $17,376 $11,246 $11,104
============= ============= ============= =============
Securities with a carrying value of $1,300,000 at March 31, 2000 and $1,
300,000 at December 31, 1999 were pledged to secure public funds on
deposit and for other purposes as required or permitted by law.
8
COMMUNITY BANCORP OF NEW JERSEY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Continued
NOTE C - LOANS RECEIVABLE and ALLOWANCE FOR LOAN LOSSES
The following table summarizes the components of the loan portfolio as of March
31, 2000 and December 31, 1999 (Dollars in thousands).
Loan Portfolio By Type of Loan
--------------------------------------------------------------------
March 31, 2000
(Unaudited) December 31, 1999
----------------------------- ------------------------------
Amount Percent Amount Percent
------------- ------------- -------------- -------------
Commercial and industrial loans...................... $ 14,534 16.87% $ 15,137 18.32%
Commercial mortgage loans............................ 40,999 47.60% 38,814 46.97%
Residential mortgages................................ 7,249 8.42% 7,254 8.78%
Construction loans................................... 9,645 11.20% 8,895 10.76%
Consumer loans....................................... 13,552 15.73% 12,476 15.10%
Other loans.......................................... 162 0.19% 56 0.07%
------------- ------------- -------------- -------------
$ 86,141 100.00% $ 82,632 100.00%
============= ============= ============== =============
The following table represents the activity in the allowance for loan losses for
the three month periods ended March 31, 2000 and 1999 and the year ended
December 31, 1999 (Dollars in thousands).
Allowance For Loan Losses
----------------------------------------------------
Three Months Ended
March 31, Year Ended
(Unaudited) December 31,
-----------------------------
2000 1999 1999
------------- ------------- --------------
Balance - beginning of period........................ $ 1,237 $ 914 $ 914
Charge-offs.......................................... - - (2)
Recoveries........................................... - - -
------------- ------------- --------------
Net (charge-offs) recoveries......................... - - (2)
Provision for loan losses............................ 58 111 325
------------- ------------- --------------
Balance - end of period.............................. $ 1,295 $ 1,025 $ 1,237
============= ============= ==============
Balance of Allowance at period-end as a %
of loans at period-end........................... 1.50% 1.87% 1.50%
============= ============= ==============
NOTE D - EARNINGS PER SHARE
Earnings per common share are computed by dividing net income by the weighted
average number of common shares and common share equivalents (when dilutive)
outstanding during each period after giving retroactive effect to stock
dividends declared. Basic EPS excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company. The common share
equivalents of options in the computation of diluted earnings per share is
computed utilizing the Treasury Stock method. For purposes of this computation,
the average market price of common stock during each three-month quarter
included in the period being reported upon, is used, when dilutive.
9
COMMUNITY BANCORP OF NEW JERSEY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Continued
NOTE E - RECLASSIFICATIONS
Certain amounts in the financial statements presented for prior periods have
been reclassified to conform with the year 2000 presentation.
NOTE F - SUBSEQUENT EVENT
On April 5, 2000 the Company announced that its Board of Directors approved a 5%
stock dividend payable May 1, 2000 to shareholders of record as of April 17,
2000. Weighted average shares outstanding and earnings per share have been
retroactively adjusted to reflect the stock dividend.
NOTE G - RECENTLY ISSUED ACCOUNTING STANDARDS
Accounting for Derivative Instruments and Hedging Activity
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments imbedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
cer- tain conditions are met, a derivative may be specifically designated as a
hedge. The accounting for changes in the fair value of a derivative (gains and
losses) depends on the intended use of the derivative and resulting designation.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Earlier application is permitted only as of the beginning
of any fiscal quarter. Subsequent to SFAS No. 133, the FASB issued SFAS No. 137,
which amended the effective date of SFAS No. 133 to be all fiscal quarters of
all fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133 is
not anticipated to have a material impact on the Company's consol- idated
financial position or results of operations.
10
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 March 31, 2000 increased by $6.8 million, or 5.1%, to $139.6
million compared to $132.8 million at December 31, 1999. Total assets averaged
$131.6 million in the first three months of 2000, a $32.7 million, or 33.1%,
increase from the 1999 full year average of $98.9 million. Average loans
increased $20.0 million, or 31.5%, to $83.4 million in the first three months of
2000, from the 1999 full year average of $63.4 million. Average investment
securities increased by $14.7 million, or 118.5%, to $27.1 million; average
Federal funds sold decreased by $3.4 million, or 21.9%, to $12.1 million; the
average of all other assets increased by $1.5 million, or 17.2%, to $10.2
million; and the loan loss reserve average increased $158 thousand, or 14.4%, to
$1.3 million during the first three months of 2000 compared to the full year
1999 averages.
These increases in average assets were funded primarily by a $32.3 million, or
40.5%, increase in average deposits, as the first three months of 2000 average
deposits increased to $112.1 million from the full year 1999 average of $79.8
million.
Lending Activity
Total loans at March 31, 2000 were $86.1 million, a 4.2%, or $3.5 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 $2.2 million in commercial mortgage
loans, $0.7 million in construction loans, $1.1 million in consumer loans and
$0.1 million in other loans. These increases were partially off-set by a
reduction of $0.6 million in commercial and industrial loans.
The 4.2% increase in loans at March 31, 2000 compared to December 31, 1999 is
partially attributable to greater penetration of the Company's marketplace and
an improvement in the general economic environment in New Jersey. The Company
opened its second office in downtown Freehold, New Jersey, in September 1997,
its third office in Howell, New Jersey, in November 1998 and its fourth office
in Matawan, New Jersey, in February 1999. In addition, the Company opened its
fifth branch in Manalapan, New Jersey, during November, 1999. Management
believes that the maturation of these branch locations will continue to provide
the Company with lending opportunities as well as funding sources for the loans.
The Company's loans are primarily to businesses and individuals located in
Monmouth, Middlesex, and Ocean Counties, New Jersey. Management believes that
its strategy of customer service, competitive rate structures, and selective
marketing will continue to enable the Company to gain market entry to local
11
loans. Bank mergers have also contributed to the Company's efforts to attract
borrowers. Management intends to continue to pursue quality loans in all lending
categories within the Company's market area.
Allowance for Loan Losses
The allowance for loan losses was $1.3 million, or 1.50% of total loans, at
March 31, 2000 compared to $1.2 million, or 1.50% of total loans, at December
31, 1999. At March 31, 2000 the Company had no non-performing loans and $12
thousand in loans past due and still accruing compared to no non-performing
loans and no past due loans at December 31, 1999.
Management attempts 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
management feels 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
management attempts 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 the
Company's allowance for loan losses. These agencies may require management 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 $7.9 million, or 38.2%, to $28.6 million at
March 31, 2000 compared to $20.7 million at December 31, 1999. During the period
ended March 31, 2000 the Company utilized its liquidity in excess of loan demand
to fund additional purchases of investment securities available-for-sale
amounting to $8.4 million, which was partially off-set by maturities and calls
amounting to $0.5 million.
Management determines the appropriate classification of securities at the time
of purchase. At March 31, 2000, investment securities of $17.4 million, or 60.8%
of the total investment securities portfolio, were classified as
available-for-sale and investment securities of $11.2 million, or 39.2% of the
total investment securities portfolio, were classified as held-to-maturity. The
Company had no investment securities classified as trading securities. The
12
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. Management currently maintains 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.
Deposits
Deposits are the Company's primary source of funds. Total deposits increased by
$6.3 million, or 5.5%, to $120.3 million at March 31, 2000 compared to $114.0
million at December 31, 1999. The increase in deposits during this period was
primarily due to the Company's greater penetration of its marketplace and the
continued growth of its new locations. In the first and fourth quarter of 1999,
the Company opened two new offices, which have contributed to its deposit
growth.
Average total deposits increased by $32.3 million, or 40.5%, to $112.1 million
for the three months ended March 31, 2000 compared to the 1999 full year average
of $79.8 million. Changes in the deposit mix for the three months ended March
31, 2000 compared to the 1999 full year averages include a $6.3 million, or
18.2%, increase in savings deposits; a $1.2 million, or 9.1%, increase in NOW
account deposits; a $18.9 million, or 148.8%, increase in time deposits; a $0.2
million, or 7.4%, increase in money market deposits; and a $5.8 million, or
35.4%, 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 quarter of 2000, the Manalapan branch
certificates of deposit averaged $9.5 million and certificates of deposit to
municipal agencies averaged $5.8 million.
The Company emphasizes relationships with commercial customers and seeks to
obtain transactional accounts, which are frequently kept in non-interest bearing
deposits. The Company also emphasizes the origination of savings deposits, which
amounted to $42.7 million at March 31, 2000, by offering rates higher than our
peer group institutions. The 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. Management may modify the interest rate paid without
notice, and the depositor may withdraw their funds on demand. The Company
markets this product as an alternative to time deposits and management believes
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 the Company serves. As of March 31, 2000 the Company did not have any
brokered deposits and neither solicited nor offered premiums for such deposits.
Liquidity
Liquidity is a measurement of the Company's ability to meet present and future
funding obligations and commitments. The Company adjusts its liquidity levels in
order to meet funding needs for deposit outflows, repayment of borrowings, when
applicable, and the funding of loan commitments. The Company also adjusts its
liquidity level as appropriate to meet its asset/liability objectives. Principal
sources of liquidity are deposit generation, access to purchased funds,
13
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 14.4% and 19.1% of the Company's total assets at March 31, 2000 and
December 31, 1999, respectively.
As shown in the Consolidated Condensed Statements of Cash Flows, the Company's
primary source of funds at March 31, 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
$6.3 million for the three months ended March 31, 2000; Federal funds sold
reductions provided $5.5 million in funding; and proceeds from maturities and
calls of investment securities amounted to $0.5 million. During the first
quarter of 2000, the Company utilized deposit growth and its liquid assets as
funding sources for increased loans made to customers amounting to $3.5 million,
securities purchases amounting to $8.4 million and purchases of premises and
equipment used primarily for operations expansion, amounting to $0.2 million.
The Company also has several additional sources of liquidity, including the
available-for-sale investment securities portfolio, which at March 31, 2000
amounted to $17.4 million. Also, many of the Company's 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, the Company has lines of
credit in the amount of $5.0 million for the purchase of Federal funds with
another financial institution.
The Company believes that its liquidity position is sufficient to provide funds
to meet future loan demand or the possible outflow of deposits, in addition to
being able to adapt to changing interest rate conditions.
Capital Resources
Stockholder's equity increased by $134 thousand at March 31, 2000 compared to
December 31, 1999. The changes in stockholders' equity during the three months
ended March 31, 2000 were comprised of an increase from net income of $146
thousand partially off-set by an increase of $12 thousand in the unrealized
losses, net of taxes, in the available-for-sale investment securities portfolio.
The Company's 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. The Federal Deposit Insurance Corporation also has adopted
14
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.
The following table summarizes the risk-based and leverage capital ratios for
the Company and the Bank at March 31, 2000 as well as the regulatory required
minimum and "well capitalized" capital ratios:
March 31, 2000 Regulatory Requirement
---------------
Company Bank Minimum "Well Capitalized"
------- ---- ------- ------------------
Risk-based Capital:
Tier I capital ratio........... 19.29% 19.29% 4.00% 6.00%
Total capital ratio............ 20.54% 20.54% 8.00% 10.00%
Leverage ratio.................. 13.97% 13.97% 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 March 31, 2000 the Bank's ratio of equity capital to total assets
was 13.17%.
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
The Company's 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 the Company's operations. Unlike
most industrial companies, nearly all of the Company's assets and liabilities
are monetary. As a result, interest rates have a greater impact on the Company's
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.
15
RESULTS OF OPERATIONS for the three months ended March 31, 2000 compared to the
three months ended March 31, 1999
Net Income
The Company earned $146 thousand, or $0.08 net income per share on a basic and
diluted basis, for the three months ended March 31, 2000, compared to net income
of $65 thousand, or $0.03 for both basic and diluted net income per share, for
the three months ended March 31, 1999. The increase in net income was primarily
due to a $410 thousand, or 44.2%, increase in net interest income, a $94
thousand, or 162.1%, increase in non-interest income and a $53 thousand, or
47.7%, decrease in the provision for loan losses; these items were partially
offset by a $476 thousand, or 58.8%, increase in non-interest expenses. The
Company's net income for the three months ended March 31, 1999 was benefited by
the application of net operating loss carryforwards to eliminate tax
liabilities. The results for the three months ended March 31, 2000 resulted in
the Company incurring a current tax liability of approximately $60 thousand. As
the Company continues to report earnings, the valuation allowance on the
deferred tax assets is being reduced, thereby reducing the total tax expense to
zero. Management will continue to evaluate the necessity of a valuation
allowance throughout the remainder of the year.
Net Interest Income
Net interest income increased $410 thousand, or 44.2%, to $1.3 million for the
three months ended March 31, 2000 from $927 thousand 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 $7.2 million, or 28.2%, for the first three months of
2000 compared to the same prior year period.
The Company's net interest margin (annualized net interest income divided by
average interest earning assets) for the three months ended March 31, 2000
declined to 4.37% from 5.02% 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 such as non-interest bearing demand
deposits and shareholders' equity. During December, 1998 and January, 1999 the
Company 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 quarter of 1999. In addition, the percent of average
non-interest bearing deposits to total average deposits decreased to 19.8%
during the first quarter of 2000 compared to 21.0% during the first quarter of
1999.
Interest income increased $922 thousand, or 66.7%, to $2.3 million for the three
months ended March 31, 2000 compared to $1.4 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 $743 thousand, volume related
increases in income of $181 thousand in the investment securities portfolio, and
volume related increases in income of $3 thousand in Federal funds sold as the
Company's growth resulted in an increase in average earning assets of $47.7
million, or 63.7%, to $122.6 million for the three months ended March 31, 2000
compared to $74.9 million for the same period in 1999.
The $927 thousand volume related increase in total interest income was reduced
by $18 thousand from rate related reductions as interest rates on earning assets
repriced to current yields. Interest earned on loans was reduced by $64 thousand
due to less fee income included in loan interest for the first quarter of 2000
compared to the first quarter of 1999. Total interest income was further
increased by $13 thousand as a result of one additional day during the first
quarter of 2000 compared to the first quarter of 1999.
Interest expense for the first three months of 2000 increased $512 thousand, or
112.5%, compared to the same prior year period. The increase in interest expense
was due primarily to net volume increases in interest bearing deposits which
accounted for $492 thousand of the expense increase; $14 thousand attributable
to net rate related increases; and $6 thousand due to one additional day in the
first quarter of 2000. The volume related increases in interest bearing
16
liabilities and expense rate decreases and 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 March 31, 2000 compared to
the quarter ended March 31, 1999.
17
CONSOLIDATED AVERAGE BALANCE SHEETS
With Resultant Interest And Average Rates
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
------------------------------------- ------------------------------------
Average Interest Average Average Interest Average
Balance Income/Expense Rate Balance Income/Expense Rate
---------- ----------------------- ---------- ----------------------
(In thousands, except percentages)
ASSETS
Interest Earning Assets:
Federal Funds Sold........................... $ 12,102 $ 170 5.63% $ 11,879 $ 138 4.71%
Investment Securities........................ 27,113 412 6.08% 13,980 193 5.52%
Loans (net of unearned income) (1) (2)....... 83,401 1,722 8.28% 49,078 1,051 8.68%
---------- --------- ---------- ----------
Total Interest Earning Assets......... 122,616 2,304 7.54% 74,937 1,382 7.48%
---------- --------- ---------- ----------
Non-Interest Earning Assets:
Loan Loss Reserve............................ (1,252) (957)
All Other Assets............................. 10,205 7,351
---------- ----------
Total Assets.......................... $131,569 $ 81,331
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
NOW Deposits................................. $ 14,418 62 1.72% $ 11,803 51 1.75%
Savings Deposits............................. 41,002 425 4.16% 29,592 306 4.19%
Money Market Deposits........................ 2,907 27 3.73% 2,637 25 3.84%
Time Deposits................................ 31,556 453 5.76% 5,381 73 5.50%
Short-term Borrowings........................ - - 0.00% - - 0.00%
---------- --------- ---------- ----------
Total Interest Bearing Liabilities.... 89,883 967 4.32% 49,413 455 3.73%
---------- --------- ---------- ----------
Non-Interest Bearing Liabilities:
Demand Deposits.............................. 22,237 13,150
Other Liabilities............................ 1,119 522
---------- ----------
Total Non-Interest Bearing Liabilities 23,356 13,672
---------- ----------
Stockholders' Equity................................. 18,330 18,246
---------- ----------
Total Liabilities and Stockholders'
Equity.............................. $131,569 $ 81,331
========== ==========
NET INTEREST INCOME.................................. $ 1,337 $ 927
========= ==========
NET INTEREST SPREAD (3).............................. 3.22% 3.74%
NET INTEREST MARGIN (4).............................. 4.37% 5.02%
(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
ANALYSIS OF CHANGES IN CONSOLIDATED NET INTEREST INCOME
Three Months Ended March 31, 2000
Compared to Three Months Ended March 31, 1999
------------------------------------------------------
Increase (Decrease) Due To
------------------------------------------------------
Volume Rate Time Net
---------- --------- ---------- ----------
(In thousands)
Interest Earned On:
Federal Funds Sold.............................. $ 3 $ 28 $ 1 $ 32
Investment Securities........................... 181 38 - 219
Loans (net of unearned income).................. 743 (84) 12 671
---------- --------- ---------- ----------
Total Interest Income................... 927 (18) 13 922
---------- --------- ---------- ----------
Interest Paid On:
NOW Deposits.................................... 11 (1) 1 11
Savings Deposits................................ 119 (4) 4 119
Money Market Deposits........................... 3 (1) - 2
Time Deposits................................... 359 20 1 380
Short-term Borrowings........................... - - - -
---------- --------- ---------- ----------
Total Interest Expense................. 492 14 6 512
---------- --------- ---------- ----------
Net Interest Income.................... $ 435 $ (32) $ 7 $ 410
========== ========= ========== ==========
19
Provision for Loan Losses
The provision for loan losses decreased to $58 thousand for the first three
months of 2000 compared to a provision of $111 thousand for the same period in
1999. The provision is the result of management's review of several factors,
including increased loan balances and management's assessment of economic
conditions, credit quality and other loss factors that may be inherent in the
existing loan portfolio. Although the Company had no non-accrual loans and past
due loans of only $12 thousand at March 31, 2000, management established
provisions for loan losses to create an adequate allowance based on management's
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 $1.3 million, or 1.50% of total loans, at March 31, 2000.
Non-Interest Income
Total non-interest income was $152 thousand for the first three months of 2000
compared to $58 thousand for the first three months of 1999, an increase of $94
thousand, or 162.1%. The increase was attributable to an increase in service
fees on deposits of $39 thousand, or 83.0%, and an increase in other fees and
commissions of $55 thousand, or 500.0%. The growth in service fees on deposits
reflects the growth in transaction account average deposits, which increased to
$12.0 million from $27.6 million, or an increase of 43.5% for the three months
ended March 31, 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 $37 thousand at March 31, 2000 compared to the same
prior year quarter. The increase in non-yield related fee income on loans is
primarily attributable to an increase in loan participations and the fees and
commissions generated on these transactions.
Non-Interest Expense
Total non-interest expense amounted to $1.3 million for the three months ended
March 31, 2000, an increase of $476 million, or 58.8%, 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 the Company's growth. Of this increase, employment
costs increased $237 thousand, or 64.2%, and reflected increases in the number
of employees from 44 full-time equivalents for the period ended March 31, 1999
to 58 full-time equivalents for the period ended March 31, 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 $57 thousand, or 121.3%, for the first three 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 $40 thousand, or 52.6%, for the first three months of 2000 compared to
the first three months of 1999 due primarily to depreciation costs associated
with the new facilities and on purchases of enhanced computer processing
equipment. Average depreciable assets amounted to $4.9 million during the three
months ended March 31, 2000 compared to $2.8 million for the same prior year
period, an increase of 75.0%.
20
Other expenses increased $142 thousand, or 44.8%, for the first three months of
2000 compared to the first three months of 1999. The increase was attributable
to increased other expenses resulting from the continued growth of the Company,
as costs of data processing services paid to the Company's third party
processors amounted to $118 thousand, an increase of $53 thousand; professional
and stockholder fees amounted to $42 thousand, a decrease of $30 thousand;
marketing and advertising costs amounted to $86 thousand, an increase of $42
thousand; stationery, supplies and printing costs amounted to $61 thousand, an
increase of $4 thousand; and all other expenses amounted to $152 thousand, an
increase of $73 thousand.
Income Tax Expense
The Company's net income for the three months ended March 31, 1999 was benefited
by the application of net operating loss carryforwards to eliminate tax
liabilities. The results for the three months ended March 31, 2000 resulted in
the Company incurring a current tax liability of approximately $60 thousand. As
the Company continues to report earnings, the valuation allowance on the
deferred tax assets is being reduced, thereby reducing the total tax expense to
zero. Management will continue to evaluate the necessity of a valuation
allowance throughout the remainder of the year.
21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Bank is periodically involved in various legal
proceedings as a normal incident to its business. In the
opinion of management, no material loss is expected from any
such pending lawsuit.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of Community Bancorp of
New Jersey was held on April 27, 2000. The following were the
results of voting on the seven proposals presented:
Note: Shares Outstanding were.......... 1,827,766
Shares Voted were................. 1,434,674
Proposal No. 1 - The re-election of nine nominees to the
Board of Directors.
Each Director received at least 97% of
the shares voted in favor of their
appointment.
Votes
Elected Director Votes For Withheld %
--------------------------------- ---------------- ---------------- -------------
Charles P. Kaempffer, CPA 1,425,737 8,937 99.4%
Morris Kaplan 1,422,647 12,027 99.2%
Robert M. Kaye 1,425,737 8,937 99.4%
Eli Kramer 1,425,737 8,937 99.4%
William J. Mehr, Esq. 1,425,737 8,937 99.4%
Robert D. O'Donnell 1,397,641 37,033 97.4%
Howard M. Schoor 1,425,737 8,937 99.4%
Arnold G. Silverman 1,401,973 32,701 97.7%
Lewis Wetstein, M.D. 1,425,737 8,937 99.4%
Proposal No. 2 - Approval of two Amendments to the Company's
APPROVED Certificate of Incorporation to:
a) classify the Board of
Directors into three classes,
and
b) prevent the removal of the
Directors by shareholders
without cause.
Votes %
---------- -----
For Approval........... 704,688 89.2%
Withheld Approval...... 84,992
Abstain................ 19,585
Proposal No. 3 - Approval of an Amendment to the Company's
APPROVED Certificate of Incorporation to require the
affirmative vote of 80% of the outstanding
common stock of the Company for approval of
certain business combination transactions
and to further require an affirmative vote
of 80% of the outstanding common stock to
amend this super-majority voting provision.
22
Votes %
---------- -----
For Approval........... 693,563 88.2%
Withheld Approval...... 92,532
Abstain................ 23,170
Proposal No. 4 - Approval of an Amendment to the Company's
APPROVED Certificate of Incorporation to require
advance notification of certain shareholder
proposals and nominations.
Votes %
--------- -----
For Approval........... 742,766 94.0%
Withheld Approval...... 47,449
Abstain................ 19,050
Proposal No. 5 - Approval of an Amendment to the Company's
APPROVED Certificate of Incorporation to provide for
1,000,000 shares of series preferred stock,
the terms, conditions and designations of
which may be set by the Board of Directors
at the time of issuance; and to increase
the authorized shares of common stock, no
par value, to 10,000,000 shares.
Votes %
---------- ------
For Approval........... 714,372 88.7%
Withheld Approval...... 90,782
Abstain................ 4,111
Proposal No. 6 - Approval of the 2000 Employee Stock Option
APPROVED Plan.
Votes %
----------- -----
For Approval........... 709,568 88.5%
Withheld Approval...... 92,051
Abstain................ 7,646
Proposal No. 7 - Approval of the 2000 Stock Option Plan for
APPROVED Non-Employee Directors.
Votes %
----------- ------
For Approval........... 696,935 87.1%
Withheld Approval...... 103,172
Abstain................. 9,158
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K
dated January 20, 2000 announcing its fourth quarter
1999 results of operations.
23
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: May 11, 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