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, 2001
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[_] Transition report under Section 13 or 15 (d) of the Exchange Act
For the transition period from ________ to ________
Commission file number 000-26587
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COMMUNITY BANCORP OF NEW JERSEY
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(Exact name of registrant as specified in its charter)
New Jersey 22-3666589
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3535 Highway 9 North, Freehold, New Jersey 07728
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(Address of principal executive offices)
(Issuer's telephone number, including area code) (732) 863-9000
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, 2001
INDEX
COMMUNITY BANCORP OF NEW JERSEY
PART I. FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at March 31, 2001
(Unaudited) and December 31, 2000 3
Consolidated Condensed Statements of Income for the three
months ended March 31, 2001 and 2000 (Unaudited) 4
Consolidated Condensed Statement of Changes in Stockholders' 5
Equity at March 31, 2001 (Unaudited)
Consolidated Condensed Statements of Cash Flows for the three
months ended March 31, 2001 and 2000 (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
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - None 22
b. Reports on Form 8-K 22
SIGNATURES 23
2
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31,
----------------------------
2001 2000
-------- --------
(Dollars in thousands)
Cash flows from operating activities:
Net income ........................................................ $ 334 $ 146
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ..................... 146 116
Provision for loan losses ......................... 146 58
Accretion of investment discount .................. (55) (30)
Amortization of investment premium ................ 8 3
Decrease (increase) in accrued interest receivable 475 (165)
Decrease (increase in) other assets ............... 224 (306)
Increase in accrued interest payable .............. 21 292
Increase in other liabilities ..................... 97 82
- ------------------------------------------------------------------------------- -------- --------
Net cash provided by operating activities 1,396 196
- ------------------------------------------------------------------------------- -------- --------
Cash flows from investing activities:
Purchases of investment securities available-for-sale ............. (532) (8,447)
Proceeds from maturities and calls of investment securities ....... 27,430 500
Net increase in loans made to customers ........................... (11,065) (3,509)
Purchases of premises and equipment ............................... (637) (175)
- ------------------------------------------------------------------------------- -------- --------
Net cash used in investing activities ... 15,196 (11,631)
- ------------------------------------------------------------------------------- -------- --------
Cash flows from financing activities:
Net increase in demand deposits and savings accounts .............. 4,101 5,262
Net increase in certificates of deposit ........................... 5,858 1,049
- ------------------------------------------------------------------------------- -------- --------
Net cash provided by financing activities 9,959 6,311
- ------------------------------------------------------------------------------- -------- --------
Net increase (decrease) in cash and cash equivalents .......................... 26,551 (5,124)
Cash and cash equivalents as of beginning of year ............................. 9,624 25,266
- ------------------------------------------------------------------------------- -------- --------
Cash and cash equivalents as of end of period ................................. $ 36,175 $ 20,142
- ------------------------------------------------------------------------------- ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest .......................... $ 1,511 $ 675
Cash paid during the period for income taxes ...................... $ 74 $ 34
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,
----------------------
2001 2000
------ ------
(Dollars in thousands, except per share data)
INTEREST INCOME
Loans, including Fees ........................................... $2,726 $1,722
Federal funds sold .............................................. 200 170
Investment securities - taxable ................................. 543 412
- ------------------------------------------------------------------------- ------ ------
Total interest income ......................... 3,469 2,304
- ------------------------------------------------------------------------- ------ ------
INTEREST EXPENSE
Interest bearing - NOW .......................................... 62 62
Savings and money market ........................................ 534 452
Certificates of deposit ......................................... 936 453
- ------------------------------------------------------------------------- ------ ------
Total interest expense ........................ 1,532 967
- ------------------------------------------------------------------------- ------ ------
Net interest income ........................... 1,937 1,337
Provision for loan losses ............................................... 146 58
- ------------------------------------------------------------------------- ------ ------
Net interest income after provision
for loan losses ...................... 1,791 1,279
- ------------------------------------------------------------------------- ------ ------
Non-interest income:
Service fees on deposit accounts ................................ 102 86
Other fees and commissions ...................................... 256 66
- ------------------------------------------------------------------------- ------ ------
Total non-interest income ..................... 358 152
- ------------------------------------------------------------------------- ------ ------
Non-interest expense:
Salaries and wages .............................................. 649 520
Employee benefits ............................................... 103 86
Occupancy expense ............................................... 122 104
Depreciation - occupancy, furniture & equipment ................. 146 116
Other ........................................................... 603 459
- ------------------------------------------------------------------------- ------ ------
Total non-interest expense .................... 1,623 1,285
- ------------------------------------------------------------------------- ------ ------
Income before income taxes .................... 526 146
Income tax expense ...................................................... 192 --
- ------------------------------------------------------------------------- ------ ------
Net Income .................................... $ 334 $ 146
- ------------------------------------------------------------------------- ====== ======
Per Common Share:
Net income - basic .............................................. $ 0.17 $ 0.07
Net income - diluted ............................................ $ 0.16 $ 0.07
Weighted average shares outstanding (in thousands):
Basic ........................................................... 2,015 2,015
Diluted ......................................................... 2,041 2,024
See accompanying notes to consolidated condensed financial statements.
4
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Accumulated
Other Total
Common Treasury Accumulated Comprehensive Comprehensive Stockholders'
Stock Stock Deficit Income Income Equity
------- -------- -------- ------------- ------------- --------
(Dollars in thousands)
Balance December 31, 2000 ................ $21,663 $ (363) $(1,913) $ 28 $19,415
Comprehensive Income:
Net Income ..................... -- -- 334 -- $ 334 334
Increase in unrealized holding
gains on securities, net -- -- -- 12 12 12
------- -------
Total Comprehensive Income ............... -- -- -- -- $ 346
------- ------- ------- ------- =======
Balance, March 31, 2001 (Unaudited) ...... $21,663 $ (363) $(1,579) $ 40 $19,761
======= ======= ======= ======= =======
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,
----------------------------
2001 2000
-------- --------
(Dollars in thousands)
Cash flows from operating activities:
Net income ........................................................ $ 334 $ 146
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ..................... 146 116
Provision for loan losses ......................... 146 58
Accretion of investment discount .................. (55) (30)
Amortization of investment premium ................ 8 3
Decrease (increase) in accrued interest receivable 475 (165)
Decrease (increase in) other assets ............... 224 (306)
Increase in accrued interest payable .............. 21 292
Increase in other liabilities ..................... 97 82
- ------------------------------------------------------------------------------- -------- --------
Net cash provided by operating activities 1,396 196
- ------------------------------------------------------------------------------- -------- --------
Cash flows from investing activities:
Purchases of investment securities available-for-sale ............. (532) (8,447)
Proceeds from maturities and calls of investment securities ....... 27,430 500
Net increase in loans made to customers ........................... (11,065) (3,509)
Purchases of premises and equipment ............................... (637) (175)
- ------------------------------------------------------------------------------- -------- --------
Net cash used in investing activities ... 15,196 (11,631)
- ------------------------------------------------------------------------------- -------- --------
Cash flows from financing activities:
Net increase in demand deposits and savings accounts .............. 4,101 5,262
Net increase in certificates of deposit ........................... 5,858 1,049
- ------------------------------------------------------------------------------- -------- --------
Net cash provided by financing activities 9,959 6,311
- ------------------------------------------------------------------------------- -------- --------
Net increase (decrease) in cash and cash equivalents .......................... 26,551 (5,124)
Cash and cash equivalents as of beginning of year ............................. 9,624 25,266
- ------------------------------------------------------------------------------- -------- --------
Cash and cash equivalents as of end of period ................................. $ 36,175 $ 20,142
- ------------------------------------------------------------------------------- ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest .......................... $ 1,511 $ 675
Cash paid during the period for income taxes ...................... $ 74 $ 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 of Community Bancorp of New
Jersey (the Company) included herein have been prepared without audit pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the financial statement date and the
reported amounts of revenues and expenses during the reporting period. Since
management's judgment involves making estimates concerning the likelihood of
future events, the actual results could differ from those estimates which will
have a positive or negative effect on future period results. The accompanying
consolidated condensed financial statements reflect all adjustments which are,
in the opinion of management, necessary to a fair statement of the results for
the interim periods presented. Such adjustments are of a normal recurring
nature. These consolidated condensed financial statements should be read in
conjunction with the audited financial statements and the notes thereto as of
and for the year ended December 31, 2000. The results for the three months ended
March 31, 2001 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2001.
The consolidated condensed financial statements include the accounts of the
Company and its wholly owned subsidiary, the Community Bank of New Jersey. All
significant inter-company accounts and transactions have been eliminated.
NOTE B - EARNINGS PER SHARE
The Company follows the provisions of SFAS No. 128, Earnings Per Share. SFAS No.
128 eliminates primary and fully diluted earnings per share (EPS) and requires
presentation of basic and diluted EPS in conjunction with the disclosure of the
methodology used in computing such EPS. Basic EPS excludes dilution and is
computed by dividing income available to common shareholders by the weighted
average common shares outstanding during the period. Diluted EPS takes into
account the potential dilution that could occur if securities or other contracts
to issue common stock were exercised and converted into common stock. EPS is
computed based on the weighted average number of shares of common stock
outstanding.
NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, was
amended in June, 1999 by SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133,
and in June, 2000, by SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, (collectively SFAS No. 133). SFAS
No. 133 requires that entities recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure those
instruments at fair value. Under SFAS No. 133 an entity may designate a
derivative as a hedge of exposure to either changes in: (a) fair value of a
recognized asset or liability or firm commitment, (b) cash flows of a recognized
or forecasted transaction, or (c) foreign currencies of a net investment in
foreign operations, firm commitments, available-for-sale securities or a
forecasted transaction. Depending upon the effectiveness of the hedge and/or the
transaction being hedged, any changes in the fair value of the derivative
instrument is either recognized in earnings in the current year, deferred to
future periods, or recognized as hedge accounting are recognized in current year
earnings. SFAS No. 133 is required for all fiscal quarters of
7
fiscal years beginning after June 15, 2000. We adopted SFAS No. 133 effective
January 1, 2001. No adjustment was required as a result of the change in
accounting principle.
Statement of Financial Accounting Standards No. 119 Disclosure About Derivative
Financial Instruments and Fair Value of Financial Instruments, (SFAS No. 119)
required disclosures about financial instruments, which are defined as futures,
forwards, swap and option contracts and other financial instruments with similar
characteristics. On balance sheet receivables and payables are excluded from
this definition. We did not hold any derivative financial instrument as defined
by SFAS No. 119 at March 31, 2001 or December 31, 2000.
In September 2000, the Financial Accounting Standards Board adopted SFAS No.
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which replaces SFAS No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
revises the standards for accounting for the securitizations and other transfers
of financial assets and collateral. This new standard also requires certain
disclosures, but carries over most of the provisions of SFAS No. 125. SFAS No.
140 is effective for transfers and servicing of financial assets and
extinguishments of liabilities after March 31, 2001. However, for recognition
and reclassification of collateral and for disclosures relating to
securitizations, transactions and collateral, this statement is effective for
fiscal years ending after December 15, 2000 with earlier application not allowed
and is to be applied prospectively. The adoption of this statement is not
expected to have a material impact on our consolidated financial statements.
NOTE D - STOCK DIVIDEND
On April 9, 2001 the Company's Board of Directors approved a 5% stock dividend
payable May 15, 2001 to shareholders of record as of April 23, 2001. Weighted
average shares outstanding and earnings per share were retroactively adjusted to
reflect the stock dividend.
8
COMMUNITY BANCORP OF NEW JERSEY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Continued
NOTE E - INVESTMENT SECURITIES
The following tables present the book values, fair values and gross unrealized
gains and losses of the Company's investment securities portfolio as of March
31, 2001 and December 31, 2000 (Dollars in thousands).
March 31, 2001 (Unaudited)
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------- ------- ------- -------
Securities available-for-sale:
U.S. Government and agency securities $10,913 $ 63 $ -- $10,976
Other securities .................... 297 -- -- 297
------- ------- ------- -------
$11,210 $ 63 $ -- $11,273
======= ======= ======= =======
Securities held-to-maturity:
U.S. Government and agency securities $ 5,999 $ 14 $ -- $ 6,013
Other securities .................... 500 48 -- 548
------- ------- ------- -------
$ 6,499 $ 62 $ -- $ 6,561
======= ======= ======= =======
December 31, 2000
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
Securities available-for-sale:
U.S. Government and agency securities $ 33,798 $ 48 $ (4) $ 33,842
Other securities .................... 264 -- -- 264
-------- -------- -------- --------
$ 34,062 $ 48 $ (4) $ 34,106
======== ======== ======== ========
Securities held-to-maturity:
U.S. Government and agency securities $ 9,998 $ -- $ (43) $ 9,955
Other securities .................... 500 14 -- 514
-------- -------- -------- --------
$ 10,498 $ 14 $ (43) $ 10,469
======== ======== ======== ========
The following table sets forth as of March 31, 2001 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 .............. $ 5,661 $ 5,699 $ 5,999 $ 6,013
Due after one year through five years 5,252 5,277 -- --
Due after five years through ten years -- -- 500 548
Due after ten years .................. 297 297 -- --
------- ------- ------- -------
$11,210 $11,273 $ 6,499 $ 6,561
======= ======= ======= =======
9
COMMUNITY BANCORP OF NEW JERSEY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Continued
NOTE F - LOANS RECEIVABLE and ALLOWANCE FOR LOAN LOSSES
The following table summarizes the components of the loan portfolio as of March
31, 2001 and December 31, 2000 (Dollars in thousands).
Loan Portfolio By Type of Loan
-----------------------------------------------------
March 31, 2001
(Unaudited) December 31, 2000
----------------------- ----------------------
Amount Percent Amount Percent
-------- -------- -------- -------
Commercial and industrial loans $ 25,333 19.04% $ 24,865 20.39%
Commercial mortgage loans ..... 65,644 49.34% 56,849 46.61%
Residential mortgages ......... 8,153 6.13% 7,867 6.45%
Construction loans ............ 18,437 13.86% 17,046 13.98%
Consumer loans ................ 15,349 11.54% 14,275 11.70%
Other loans ................... 115 0.09% 1,064 0.87%
-------- ------ -------- ------
$133,031 100.00% $121,966 100.00%
======== ====== ======== ======
The following table represents the activity in the allowance for loan losses for
the three month periods ended March 31, 2001 and 2000 and the year ended
December 31, 2000 (Dollars in thousands).
Allowance For Loan Losses
-------------------------------------------
Three Months Ended
March 31,
(Unaudited) Year Ended
--------------------------- December 31,
2001 2000 2000
------- ------- -------
Balance - beginning of period ........... $ 1,584 $ 1,237 $ 1,237
Charge-offs ............................. -- -- (1)
Recoveries .............................. -- -- --
------- ------- -------
Net (charge-offs) recoveries ............ -- -- (1)
Provision for loan losses ............... 146 58 348
------- ------- -------
Balance - end of period ................. $ 1,730 $ 1,295 $ 1,584
======= ======= =======
Balance of Allowance at period-end as a %
of loans at period-end .............. 1.30% 1.50% 1.30%
======= ======= =======
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, 2001 increased by $10.4 million, or 5.7%, to $192.5
million compared to $182.1 million at December 31, 2000. Total assets averaged
$185.2 million in the first three months of 2001, a $32.2 million, or 21.0%,
increase from the 2000 full year average of $153.0 million. Average loans
increased $28.9 million, or 29.6%, to $126.6 million in the first three months
of 2001, from the 2000 full year average of $97.7 million. Average investment
securities increased by $0.7 million, or 2.2%, to $32.8 million; average Federal
funds sold increased by $1.9 million, or 14.4%, to $13.2 million; the average of
all other assets increased by $1.1 million, or 9.6%, to $12.5 million; and the
loan loss reserve average increased $263 thousand, or 19.3%, to $1.6 million
during the first three months of 2001 compared to the full year 2000 averages.
These increases in average assets were funded primarily by a $30.8 million, or
23.2%, increase in average deposits, as average deposits for the first three
months of 2001 increased to $163.4 million from the full year 2000 average of
$132.6 million.
Lending Activity
Total loans at March 31, 2001 were $133.0 million, a 9.0%, or $11.0 million
increase from December 31, 2000. The loan portfolio consists primarily of loans
secured by real estate, and, to a lesser extent, commercial, construction and
consumer loans. Changes in the composition of the loan portfolio during the
comparative periods included increases of $8.8 million in commercial mortgage
loans, $1.4 million in construction loans, $0.4 million in commercial and
industrial loans, $1.0 million in consumer loans and a decrease of $0.6 million
in residential mortgage and other loans.
The 9.0% increase in loans at March 31, 2001 compared to December 31, 2000 is
partially attributable to greater penetration of our marketplace and the
continuation of a strong general economic environment within our market area.
From September 1997 through November 1999, we opened four new offices in our
Monmouth County market area. Management believes that the maturation of these
branch locations will continue to provide us with lending opportunities as well
as funding sources for the loans.
Our loans are primarily to businesses and individuals located in Monmouth,
Middlesex, and Ocean Counties, New Jersey. We believe that our strategy of
customer service, competitive rate structures, and selective marketing will
continue to enable us to gain market entry to local loans and deposits. Bank
mergers and consolidations have also contributed to our efforts to attract
borrowers and depositors. We intend to continue to pursue quality loans in all
lending categories within our market area.
11
Allowance for Loan Losses
The allowance for loan losses was $1.7 million, or 1.30% of total loans, at
March 31, 2001 compared to $1.6 million, or 1.30% of total loans, at December
31, 2000. At March 31, 2001 and December 31, 2000, we had no non-performing
loans. The increase in the balance of the allowance for loan losses reflects the
continued growth of our loan portfolio.
We attempt to maintain an allowance for loan losses at a sufficient level to
provide for potential losses in the loan portfolio. Loan losses are charged
directly to the allowance when they occur and any recovery is credited to the
allowance. Risks within the loan portfolio are analyzed on a continuous basis by
our officers, by outside, independent loan review auditors, our Directors Loan
Review Committee and the Board of Directors. A risk system, consisting of
multiple grading categories, is utilized as an analytical tool to assess risk
and set appropriate reserves. Along with the risk system, management further
evaluates risk characteristics of the loan portfolio under current and
anticipated economic conditions and considers such factors as the financial
condition of the borrower, past and expected loss experience, and other factors
we feel deserve recognition in establishing an appropriate reserve. These
estimates are reviewed at least quarterly, and, as adjustments become necessary,
they are realized in the periods in which they become known. Additions to the
allowance are made by provisions charged to expense and the allowance is reduced
by net charge-offs (i.e. - loans judged to be uncollectible and charged against
the reserve, less any recoveries on such loans). Although we attempt to maintain
the allowance at a level deemed adequate, future additions to the allowance may
be necessary based upon changes in market conditions. In addition, various
regulatory agencies periodically review our allowance for loan losses. These
agencies may require us to take additional provisions based on their judgements
about information available to them at the time of their examination.
Investment Securities Activity
Investment securities decreased by $26.8 million, or 60.1%, to $17.8 million at
March 31, 2001 compared to $44.6 million at December 31, 2000. During the year
ended December 31, 2000, we utilized our liquidity in excess of loan demand to
fund additional purchases of investment securities available-for-sale. Based
upon Asset/Liability management considerations arising during the first quarter
of 2001, primarily anticipated loan growth and deposit repricing opportunities,
management has decided to retain planned, matured investment securities proceeds
of $27.4 million, for other funding purposes. At March 31, 2001, the proceeds
were invested in Federal funds.
Management determines the appropriate classification of securities at the time
of purchase. At March 31, 2001, investment securities of $11.3 million, or 63.5%
of the total investment securities portfolio, were classified as
available-for-sale and investment securities of $6.5 million, or 36.5% of the
total investment securities portfolio, were classified as held-to-maturity. We
had no investment securities classified as trading securities. The investment
portfolio is comprised primarily of U.S. Government and agency securities with
maturities of three years or less and with call features of one year or less. We
currently maintain an investment portfolio of short duration in order to fund
projected increased loan volume and to provide for other liquidity uses as
needed, and secondarily as an additional source of interest income.
12
Deposits
Deposits are our primary source of funds. Total deposits increased by $10.0
million, or 6.2%, to $170.5 million at March 31, 2001 compared to $160.5 million
at December 31, 2000. The increase in deposits during this period was primarily
due to greater penetration of our marketplace and the continued growth of our
new locations. In the first and fourth quarter of 1999, we opened two new
offices, which have contributed to our deposit growth.
Average total deposits increased by $30.8 million, or 23.2%, to $163.4 million
for the three months ended March 31, 2001 compared to the 2000 full year average
of $132.6 million. Changes in the deposit mix averages for the three months
ended March 31, 2001 compared to the 2000 full year averages include a $2.8
million, or 6.3%, increase in savings deposits; a $0.3 million, or 1.9%,
decrease in NOW account deposits; a $19.1 million, or 47.4%, increase in time
deposits; a $3.8 million, or 62.3%, increase in money market deposits; and a
$5.3 million, or 20.0%, increase in non-interest bearing demand deposits. Short
duration certificate of deposit promotions, targeted to retain maturing deposits
and to gain market penetration, have contributed to deposit growth. During July
2000, a 12-month certificate of deposit promotion generated $10.3 million in
funds as total deposits for the month of July 2000 increased by $14.2 million.
Management intends to continue to promote targeted deposit products as funding
needs and other balance sheet management considerations arise.
We emphasize relationships with commercial customers and seek to obtain
transactional accounts, which are frequently kept in non-interest bearing
deposits. We also emphasize the origination of savings deposits, which amounted
to $48.2 million at March 31, 2001, by offering rates higher than our peer group
institutions. Our primary savings product is the stepped rate savings account.
The interest rate is based upon the amount on deposit, and the deposit amount
can be changed. We may modify the interest rate paid without notice, and the
depositor may withdraw their funds on demand. We market this product as an
alternative to time deposits and we believe it has resulted in a higher rate of
core deposits and lower cost of funds than our peer group institutions. Deposits
are obtained primarily from the market areas that we serve. As of March 31, 2001
we did not have any brokered deposits and neither solicited nor offered premiums
for such deposits.
Liquidity
Liquidity is a measurement of our ability to meet present and future funding
obligations and commitments. We adjust our liquidity levels in order to meet
funding needs for deposit outflows, repayment of borrowings, when applicable,
and the funding of loan commitments. We also adjust our liquidity level as
appropriate to meet our asset/liability objectives. Principal sources of
liquidity are deposit generation, access to purchased funds, including
borrowings from other financial institutions, repurchase agreements, maturities
and repayments of loans and investment securities, and net interest income and
fee income. Liquid assets (consisting of cash and Federal funds sold) comprised
18.8% and 5.3% of our total assets at March 31, 2001 and December 31, 2000,
respectively. During the first quarter of 2001, liquid assets were increased
through deposit growth and planned investment securities maturities in order to
manage
13
second quarter 2001 asset/liability considerations (primarily loan growth and
deposit repricing opportunities).
As shown in the Consolidated Condensed Statements of Cash Flows, our primary
source of funds at March 31, 2001 was increased deposits and proceeds from
maturities and calls of investment securities. Deposit increases amounted to
$10.0 million for the three months ended March 31, 2001 and proceeds from
maturities and calls of investment securities amounted to $27.4 million. During
2001, we utilized deposit growth and liquid assets as funding sources for
increased loans made to customers amounting to $39.3 million and securities
purchases amounting to $32.4 million. During the first quarter of 2001, deposit
growth and proceeds from investment securities maturities were utilized for
asset/liability management considerations as previously discussed.
We also have several additional sources of liquidity, including the
available-for-sale investment securities portfolio, which at March 31, 2001
amounted to $11.3 million. Also, many of our loans are originated pursuant to
underwriting standards which make them readily marketable to other financial
institutions or investors in the secondary market. In addition, in order to meet
liquidity needs on a temporary basis, we have established lines of credit with
other financial institutions to purchase up to $9.0 million in Federal funds and
may borrow funds at the Federal Reserve discount window, subject to our ability
to supply collateral. During the fourth quarter of 2000, we became a member of
the Federal Home Loan Bank of New York and have an additional overnight
borrowing line of $5.4 million. In addition, subject to certain Federal Home
Loan Bank requirements, we may also obtain longer-term advances of up to 30% of
our assets. As of March 31, 2001, we have no purchased funds.
We believe that our liquidity position is sufficient to provide funds to meet
future loan demand or the possible outflow of deposits, in addition to enabling
us to adapt to changing interest rate conditions.
Capital Resources
Stockholder's equity increased by $346 thousand at March 31, 2001 compared to
December 31, 2000. The changes in stockholders' equity during the three months
ended March 31, 2001 were comprised of an increase from net income of $334
thousand and an increase of $12 thousand in the unrealized gains, net of taxes,
in the available-for-sale investment securities portfolio.
Our regulators, the Board of Governors of the Federal Reserve System (which
regulates bank holding companies), and the Bank's Federal regulator, the Federal
Deposit Insurance Corporation, have issued guidelines classifying and defining
capital into the following components: (1) Tier I Capital, which includes
tangible stockholders' equity for common stock and certain qualifying preferred
stock, and excludes net unrealized gains or losses on available-for-sale
securities and deferred tax assets that are dependent on projected taxable
income greater than one year in the future, and (2) Tier II Capital (Total
Capital), which includes a portion of the allowance for loan losses and certain
qualifying long-term debt and preferred stock that does not qualify for Tier I
Capital. The risk-based capital guidelines require financial institutions to
apply certain risk factors ranging from 0% to 100%, against assets to determine
total risk-based assets. The minimum Tier I and the combined Tier I and Tier II
14
capital to risk-weighted assets ratios are 4.0% and 8.0%, respectively. Our
Regulators have also adopted regulations which supplement the risk-based capital
guidelines to include a minimum leverage ratio of Tier I Capital to total assets
of 3.0%. For those institutions with higher levels of risk or that are
experiencing or anticipating significant growth, the minimum leverage ratio will
be proportionately increased by 100 to 200 basis points.
The following table summarizes the risk-based and leverage capital ratios for
the Company and the Bank at March 31, 2001 as well as the regulatory required
minimum and "well capitalized" capital ratios:
March 31, 2001 Regulatory Requirement
--------------- ----------------------------------------
Company Bank Minimum "Well Capitalized"
------- ------- ----------- ------------------
Risk-based Capital:
Tier I capital ratio...........13.79% 13.79% 4.00% 6.00%
Total capital ratio............15.00% 15.00% 8.00% 10.00%
Leverage ratio.................10.65% 10.65% 3.00%-5.00% 5.00% or greater
In addition, pursuant to the order of the New Jersey Department of Banking and
Insurance approving the Bank's charter, as amended during April, 2001 for its
first five years of operation, the Bank is required to maintain a ratio of
equity to total assets of at least 8.00%. As of March 31, 2001 the Bank's ratio
of equity capital to total assets was 10.25%.
As noted in the above table, the Company's and the Bank's capital ratios exceed
the minimum regulatory and "well capitalized" requirements.
Impact of Inflation and Changing Prices
Our financial statements and notes thereto, presented elsewhere herein, have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time and due to inflation. The impact of inflation is
reflected in the increased cost of our operations. Unlike most industrial
companies, nearly all of our assets and liabilities are monetary. As a result,
interest rates have a greater impact on our performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
15
RESULTS OF OPERATIONS for the three months ended March 31, 2001 compared to the
three months ended March 31, 2000
Net Income For the three months ended March 31, 2001, we earned $334 thousand
after $192 thousand of income tax expense compared to $146 thousand in net
income after no income tax expense for the same period last year. During 2000 we
benefited from the application of net granting loss carry forwards which were
not available in 2001.Basic and diluted net income per share for the three
months ended March 31, 2001 was $0.17 and $0.16, respectively, compared to basic
and diluted net income per share of $0.07 for the same prior year period. The
increase in net income was primarily due to a $600 thousand, or 44.9%, increase
in net interest income and a $206 thousand, or 135.5%, increase in non-interest
income. These items were partially offset by a $88 thousand, or 151.7%, increase
in the provision for loan losses, and a $338 thousand, or 26.3%, increase in
non-interest expenses.
Net Interest Income
Net interest income increased $600 thousand, or 44.9%, to $1.94 million for the
three months ended March 31, 2001 from $1.34 million for the same prior year
period. The increase in net interest income was due primarily to volume
increases as average interest earning assets, net of average interest bearing
liabilities, increased by $10.1 million, or 30.9%, for the first three months of
2001 compared to the same prior year period.
Our net interest margin (annualized net interest income divided by average
interest earning assets) for the three months ended March 31, 2001 increased to
4.50% from 4.37% for the same prior year period. The increase in the net
interest margin resulted primarily from a change in the mix of average interest
earning assets as higher yielding loans as a percent of total interest earning
assets increased by 83.4% compared to an increase of 16.6% for all other
interest earning assets.
Interest income increased $1.17 million, or 50.9%, to $3.47 million for the
three months ended March 31, 2001 compared to $2.30 million for the same period
in 2000. The improvement in interest income was primarily due to volume related
increases in income from the loan portfolio of $881 thousand, volume related
increases in income of $85 thousand in the investment securities portfolio, and
volume related increases in income of $42 thousand in Federal funds sold as our
growth resulted in an increase in average earning assets of $51.8 million, or
42.3%, to $174.4 million for the three months ended March 31, 2001 compared to
$122.6 million for the same period in 2000.
In addition to the volume related increase, total interest income increased by
$177 thousand from rate related increases as interest rates on earning assets
repriced to current higher yields compared to first quarter 2000 yields. Total
interest income was also decreased by $20 thousand as a result of one less day
during the first three months of 2001 compared to the first three months of
2000.
Interest expense for the first three months of 2001 increased $565 thousand, or
58.4%, compared to the same prior year period. The increase in interest expense
16
was due primarily to net volume increases in interest bearing deposits which
accounted for $524 thousand of the expense increase; $50 thousand attributable
to net rate related increases; and was partially offset by a decrease of $9
thousand due to one less day in the first three months of 2001. The volume
related increases in interest bearing liabilities and expense rate increases are
the result of marketing and pricing decisions made by management in response to
the need for cost effective sources of funds, primarily to provide for loan
growth.
The following tables titled "Consolidated Average Balance Sheet with Resultant
Interest and Average Rates" and "Analysis of Changes in Consolidated Net
Interest Income" present by category the major factors that contributed to the
changes in net interest income for the three months ended March 31, 2001
compared to the three months ended March 31, 2000.
17
Three Months Ended
March 31, 2001
--------------------------------------------
Average Interest Average
Balance Income/Expense Rate
----------- ---------- ------
(In thousands, except percentages)
ASSETS
Interest Earning Assets:
Federal Funds Sold .............................. $ 15,094 $ 200 5.37%
Investment Securities ........................... 32,754 543 6.63%
Loans (net of unearned income) (1) (2) .......... 126,558 2,726 8.74%
--------- ---------
Total Interest Earning Assets........... 174,406 3,469 8.07%
--------- ---------
Non-Interest Earning Assets:
Loan Loss Reserve ............................... (1,626)
All Other Assets ................................ 12,453
Total Assets ........................... $ 185,233
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
NOW Deposits .................................... $ 15,239 62 1.65%
Savings Deposits ................................ 47,086 432 3.72%
Money Market Deposits ........................... 9,927 102 4.17%
Time Deposits ................................... 59,378 936 6.39%
Short-term Borrowings ........................... -- -- 0.00%
Total Interest Bearing Liabilities ..... 131,630 1,532 4.72%
Non-Interest Bearing Liabilities:
Demand Deposits ................................. 31,765
Other Liabilities ............................... 2,186
Total Non-Interest Bearing Liabilities . 33,951
Stockholders' Equity ........................................... 19,652
Total Liabilities and Stockholders'
Equity ................................. $ 185,233
NET INTEREST INCOME ............................................ $ 1,937
NET INTEREST SPREAD (3) ........................................ 3.35%
NET INTEREST MARGIN (4) ........................................ 4.50%
Three Months Ended
March 31, 2000
---------------------------------------
Average Interest Average
Balance Income/Expense Rate
--------- ---------- ------
(In thousands, except percentages)
ASSETS
Interest Earning Assets:
Federal Funds Sold .............................. $ 12,102 $ 170 5.63%
Investment Securities ........................... 27,113 412 6.08%
Loans (net of unearned income) (1) (2) .......... 83,401 1,722 8.28%
--------- ---------
Total Interest Earning Assets........... 122,616 2,304 7.54%
--------- ---------
Non-Interest Earning Assets:
Loan Loss Reserve ............................... (1,252)
All Other Assets ................................ 10,205
---------
Total Assets ........................... $ 131,569
=========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
NOW Deposits .................................... $ 14,418 62 1.72%
Savings Deposits ................................ 41,002 425 4.16%
Money Market Deposits ........................... 2,907 27 3.73%
Time Deposits ................................... 31,556 453 5.76%
Short-term Borrowings ........................... -- -- 0.00%
--------- ---------
Total Interest Bearing Liabilities ..... 89,883 967 4.32%
--------- ---------
Non-Interest Bearing Liabilities:
Demand Deposits ................................. 22,237
Other Liabilities ............................... 1,119
---------
Total Non-Interest Bearing Liabilities . 23,356
---------
Stockholders' Equity ........................................... 18,330
---------
Total Liabilities and Stockholders'
Equity ................................. $ 131,569
=========
NET INTEREST INCOME ............................................ $ 1,337
=========
NET INTEREST SPREAD (3) ........................................ 3.22%
NET INTEREST MARGIN (4) ........................................ 4.37%
(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, 2001
Compared to Three Months Ended March 31, 2000
---------------------------------------------------------------
Increase (Decrease) Due To
---------------------------------------------------------------
Volume Rate Time Net
------ ------ ------ ------
(In thousands)
Interest Earned On:
Federal Funds Sold ....................... $ 42 $ (10) $ (2) $ 30
Investment Securities .................... 85 45 1 131
Loans (net of unearned income) ........... 881 142 (19) 1,004
------ ------ ------ ------
Total Interest Income 1,008 177 (20) 1,165
------ ------ ------ ------
Interest Paid On:
NOW Deposits ............................. 3 (3) -- --
Savings Deposits ......................... 62 (51) (4) 7
Money Market Deposits .................... 64 11 -- 75
Time Deposits ............................ 395 93 (5) 483
Short-term Borrowings .................... -- -- -- --
------ ------ ------ ------
Total Interest Expense 524 50 (9) 565
------ ------ ------ ------
Net Interest Income .. $ 484 $ 127 $ (11) $ 600
====== ====== ====== ======
19
Provision for Loan Losses
The provision for loan losses increased to $146 thousand for the first three
months of 2001 compared to a provision of $58 thousand for the same period in
2000. The provision is the result of our review of several factors, including
increased loan balances and our assessment of economic conditions, credit
quality and other loss factors that may be inherent in the existing loan
portfolio. Although we had no non-accrual loans at March 31, 2001, we
established provisions for loan losses to create an adequate allowance based on
our analysis of the loan portfolio and growth experienced over the periods, as
well as the risks inherent in the lending function. The allowance for loan
losses totaled $1.7 million, or 1.30% of total loans, at March 31, 2001.
Non-Interest Income
Total non-interest income was $358 thousand for the first three months of 2001
compared to $152 thousand for the first three months of 2000, an increase of
$206 thousand, or 135.5%. The increase was attributable to an increase in
service fees on deposits of $16 thousand, or 18.6%, and an increase in other
fees and commissions of $190 thousand, or 287.9%. The growth in service fees on
deposits reflects the growth in demand deposit account average balances, which
increased to $31.8 million from $22.2 million, or an increase of 43.2% for the
three months ended March 31, 2001 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 $149 thousand at March 31, 2001
compared to the same prior year period. The increase in non-yield related fee
income on loans is primarily attributable to an increase in loan participations
sold and the fees and commissions generated on these transactions. Other
increases in other fees and commissions, amounting to $41 thousand, resulted
primarily from the continued growth of the Company.
Non-Interest Expense
Total non-interest expense amounted to $1.62 million for the three months ended
March 31, 2001, an increase of $338 thousand, or 26.3%, over the same prior year
period. The increase was due primarily to increases in employment expenses as
well as increases in occupancy expenses, equipment expenses and other expenses
generally attributable to our growth. Of this increase, employment costs
increased $146 thousand, or 24.1%, and reflected increases in the number of
employees from 58 full-time equivalents for the period ended March 31, 2000 to
79 full-time equivalents for the period ended March 31, 2001. The increase in
personnel is primarily attributable to the acquisition of additional support
personnel required due to the Company's growth, including the transfer of
deposit services processing from a service bureau environment to an "in-house"
environment.
Occupancy expenses increased $18 thousand, or 17.3%, for the first three months
of 2001 compared to the same period in 2000. The increase was attributable
primarily to increased lease expense and increased common area maintenance costs
due on existing branch offices.
Depreciation expenses on leasehold improvements, furniture, and equipment
increased $30 thousand, or 25.9%, for the first three months of 2001 compared to
the first three months of 2000 due primarily to depreciation costs associated
with existing branch facilities, new deposit services facilities and on
purchases of enhanced computer processing equipment.
20
Other expenses increased $144 thousand, or 31.4%, for the first three months of
2001 compared to the first three months of 2000. The increase was attributable
to increased other expenses resulting from our continued growth, as costs of
data processing services paid to our third party processors amounted to $152
thousand, an increase of $33 thousand; professional and stockholder related
costs amounted to $84 thousand, an increase of $42 thousand; marketing and
advertising costs amounted to $73 thousand, a decrease of $13 thousand;
stationery, supplies and printing costs amounted to $65 thousand, an increase of
$4 thousand; communications expenses amounted to $35 thousand, an increase of $6
thousand; systems related conversion costs amounted to $70 thousand, compared to
no such expense the prior year; and all other expenses amounted to $124
thousand, an increase of $2 thousand.
Income Tax Expense
For the three months ended March 31, 2001, we recognized $192 thousand in income
tax expense and did not recognize any income tax expense during the first three
months of 2000. We were fully taxable in the first three months of 2001 while no
tax expense was recorded in the 2000 first quarter because of the utilization of
net operating loss carryforwards. The effective tax rate for the first three
months of 2001 was 36.5%.
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
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K dated
January 16, 2001 announcing results of its operations as
of December 31, 2000.
22
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, 2001 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
23