U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-QSB
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2001
-------------
[ ] Transition report under Section 13 or 15 (d) of the Exchange Act
For the transition period from ___________ to ___________
Commission file number 000-26587
---------
COMMUNITY BANCORP OF NEW JERSEY
-------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3666589
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3535 Highway 9 North, Freehold, New Jersey 07728
-------------------------------------------------
(Address of principal executive offices)
(732) 863-9000
--------------
(Issuer's telephone number, including area code)
Not Applicable
----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Common Stock, No Par Value - 2,014,729 shares outstanding as of August 6, 2001
- ------------------------------------------------------------------------------
INDEX
COMMUNITY BANCORP OF NEW JERSEY
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at June 30, 2001 (Unaudited)
and December 31, 2000 3
Consolidated Condensed Statements of Income for the three and six
months ended June 30, 2001 and 2000 (Unaudited) 4
Consolidated Condensed Statement of Changes in Stockholders' 5
Equity at June 30, 2001 (Unaudited)
Consolidated Condensed Statements of Cash Flows for the three and
six months ended June 30, 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 - 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - None 25
b. Reports on Form 8-K 25
SIGNATURES 26
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30,
2001 December 31,
(Unaudited) 2000
----------- -----------
(Dollars in thousands)
ASSETS
Cash and cash equivalents:
Cash and due from banks ..................................................... $ 13,073 $ 5,764
Federal funds sold .......................................................... 19,995 3,860
- ------------------------------------------------------------------------------------- --------- ---------
Total cash and cash equivalents ................................... 33,068 9,624
- ------------------------------------------------------------------------------------- --------- ---------
Investment securities available-for-sale ............................................ 33,533 34,106
Investment securities held-to-maturity (fair value of $1,543 at
June 30, 2001 and $10,469 at December 31, 2000) ............................. 1,500 10,498
Loans receivable .................................................................... 140,163 121,966
Allowance for loan loss ............................................................. (1,827) (1,584)
- ------------------------------------------------------------------------------------- --------- ---------
Net loans receivable .............................................. 138,336 120,382
- ------------------------------------------------------------------------------------- --------- ---------
Premises and equipment, net ......................................................... 6,006 5,002
Accrued interest receivable ......................................................... 991 1,497
Other assets ........................................................................ 713 943
- ------------------------------------------------------------------------------------- --------- ---------
Total Assets ...................................................... $ 214,147 $ 182,052
- ------------------------------------------------------------------------------------- ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand ................................................. $ 42,629 $ 30,090
Interest bearing - NOW ...................................................... 29,656 15,368
Savings and money market .................................................... 53,698 58,587
Certificates of deposit, under $100,000 ..................................... 40,320 34,291
Certificates of deposit, $100,000 and over .................................. 24,901 22,179
- ------------------------------------------------------------------------------------- --------- ---------
Total deposits .................................................... 191,204 160,515
- ------------------------------------------------------------------------------------- --------- ---------
Accrued interest payable ............................................................ 1,885 1,491
Other liabilities ................................................................... 925 631
- ------------------------------------------------------------------------------------- --------- ---------
Total liabilities ................................................. 194,014 162,637
- ------------------------------------------------------------------------------------- --------- ---------
Stockholders' equity
Commonstock - authorized 10,000,000 shares of no par value; issued and
outstanding, net of treasury shares, 2,014,729 at June 30, 2001
and 1,918,957
at December 31, 2000 .................................................. 23,147 21,663
Accumulated deficit ......................................................... (2,719) (1,913)
Accumulated other comprehensive income ...................................... 68 28
Treasury stock, 22,357 shares, at cost ...................................... (363) (363)
- ------------------------------------------------------------------------------------- --------- ---------
Total stockholders' equity ........................................ 20,133 19,415
- ------------------------------------------------------------------------------------- --------- ---------
Total Liabilities and Stockholders' Equity ........................ $ 214,147 $ 182,052
- ------------------------------------------------------------------------------------- ========= =========
See accompanying notes to consolidated condensed financial statements.
3
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2001 2000 2001 2000
--------------------- ---------------------
(Dollars in thousands, except per share data)
INTEREST INCOME
Loans, including Fees ............................... $2,847 $1,976 $5,573 $3,698
Federal funds sold .................................. 262 149 462 319
Investment securities - taxable ..................... 296 480 839 892
- ------------------------------------------------------------- ------ ------ ------ ------
Total interest income ............. 3,405 2,605 6,874 4,909
- ------------------------------------------------------------- ------ ------ ------ ------
INTEREST EXPENSE
Interest bearing - NOW .............................. 68 70 130 132
Savings and money market ............................ 410 491 944 943
Certificates of deposit ............................. 893 499 1,829 952
- ------------------------------------------------------------- ------ ------ ------ ------
Total interest expense ............ 1,371 1,060 2,903 2,027
- ------------------------------------------------------------- ------ ------ ------ ------
Net interest income ............... 2,034 1,545 3,971 2,882
Provision for loan losses ................................... 100 80 246 138
- ------------------------------------------------------------- ------ ------ ------ ------
Net interest income after provision
for loan losses .......... 1,934 1,465 3,725 2,744
- ------------------------------------------------------------- ------ ------ ------ ------
Non-interest income:
Service fees on deposit accounts .................... 94 93 196 179
Other fees and commissions .......................... 282 172 538 238
- ------------------------------------------------------------- ------ ------ ------ ------
Total non-interest income ......... 376 265 734 417
- ------------------------------------------------------------- ------ ------ ------ ------
Non-interest expense:
Salaries and wages .................................. 729 597 1,378 1,117
Employee benefits ................................... 113 98 216 184
Occupancy expense ................................... 122 93 244 197
Depreciation - occupancy, furniture & equipment ..... 146 124 292 240
Other ............................................... 658 578 1,261 1,037
- ------------------------------------------------------------- ------ ------ ------ ------
Total non-interest expense ........ 1,768 1,490 3,391 2,775
- ------------------------------------------------------------- ------ ------ ------ ------
Income before income taxes ........ 542 240 1,068 386
Income tax expense .......................................... 195 -- 387 --
- ------------------------------------------------------------- ------ ------ ------ ------
Net Income ........................ $ 347 $ 240 $ 681 $ 386
- ------------------------------------------------------------- ====== ====== ====== ======
Per Common Share:
Net income - basic .................................. $ 0.17 $ 0.12 $ 0.34 $ 0.19
Net income - diluted ................................ $ 0.17 $ 0.12 $ 0.33 $ 0.19
Weighted average shares outstanding (in thousands):
Basic ............................................... 2,015 2,015 2,015 2,015
Diluted ............................................. 2,060 2,026 2,050 2,025
See accompanying notes to consolidated condensed financial statements.
4
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
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
5% stock dividend (95,772 shares) ............. 1,484 -- (1,484) -- --
Cash in lieu of fractional shares ............. -- -- (3) -- (3)
Comprehensive Income:
Net Income .......................... -- -- 681 -- $ 681 681
Increase in unrealized holding
gains on securities, net..... -- -- -- 40 40 40
-------- --------
Total Comprehensive Income .................... -- -- -- -- $ 721
-------- -------- -------- -------- -------- ========
Balance, June 30, 2001 (Unaudited) ............ $ 23,147 $ (363) $ (2,719) $ 68 $ 20,133
======== ======== ======== ======== ========
See accompanying notes to consolidated condensed financial statements.
5
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30,
-----------------------
2001 2000
--------- ---------
(Dollars in thousands)
Cash flows from operating activities:
Net income ........................................................ $ 681 $ 386
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ..................... 292 240
Provision for loan losses ......................... 246 138
Accretion of investment discount .................. (71) (70)
Amortization of investment premium ................ 13 3
Decrease (increase) in accrued interest receivable 506 (287)
Decrease (increase in) other assets ............... 207 (265)
Increase in accrued interest payable .............. 394 528
Increase in other liabilities ..................... 294 119
- ------------------------------------------------------------------------------- -------- --------
Net cash provided by operating activities 2,562 792
- ------------------------------------------------------------------------------- -------- --------
Cash flows from investing activities:
Purchases of investment securities available-for-sale ............. (29,288) (14,315)
Proceeds from maturities and calls of investment securities ....... 38,980 2,000
Net increase in loans made to customers ........................... (18,200) (17,040)
Purchases of premises and equipment ............................... (1,296) (348)
- ------------------------------------------------------------------------------- -------- --------
Net cash used in investing activities ... (9,804) (29,703)
- ------------------------------------------------------------------------------- -------- --------
Cash flows from financing activities:
Net increase in demand deposits and savings accounts .............. 21,938 20,443
Net increase in certificates of deposit ........................... 8,751 2,665
Stock dividend - cash paid in lieu of fractional shares ........... (3) (3)
- ------------------------------------------------------------------------------- -------- --------
Net cash provided by financing activities 30,686 23,105
- ------------------------------------------------------------------------------- -------- --------
Net increase (decrease) in cash and cash equivalents .......................... 23,444 (5,806)
Cash and cash equivalents as of beginning of year ............................. 9,624 25,266
- ------------------------------------------------------------------------------- -------- --------
Cash and cash equivalents as of end of period ................................. $ 33,068 $ 19,460
- ------------------------------------------------------------------------------- ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest .......................... $ 2,509 $ 1,499
Cash paid during the period for income taxes ...................... $ 545 $ 167
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 and
six months ended June 30, 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.
7
NOTE C - RECENT ACCOUNTING PRONOUNCEMENT
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. We adopted SFAS No. 140 effective April 1,
2001. No adjustment was required as a result of the adoption of SFAS No. 140.
On June 29, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Intangible Assets. These statements
are expected to result in significant modifications relative to Company's
accounting for goodwill and other intangible assets. SFAS No. 141 requires that
all business combinations initiated after June 30, 2001 must be accounted for
under the purchase method of accounting. SFAS No. 141 was effective upon
issuance. SFAS No. 142 modifies the accounting for all purchased goodwill and
intangible assets. SFAS No. 142 includes requirements to test goodwill and
indefinite lived intangible assets for impairment rather than amortize them.
SFAS No. 142 will be effective for fiscal years beginning after December 31,
2001 and early adoption is not permitted except for business combinations
entered into after June 30, 2001. The Company is currently evaluating the
provisions of SFAS No. 142, but its preliminary assessment is that these
Statements will not have a material impact on the Company's financial position
or results of operations.
On July 6, 2001, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 102, Selected Loan Loss Allowance Methodology and
Documentation Issues. SAB No. 102 provides guidance on the development,
documentation, and application of a systematic methodology for determining the
allowance for loans and leases in accordance with US GAAP. The adoption of SAB
No. 102 is not expected to have a material impact on the Company's financial
position or results of operations.
NOTE D - STOCK DIVIDEND
On April 9, 2001 the Company's Board of Directors approved a 5% stock dividend
that was paid 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 June 30,
2001 and December 31, 2000 (Dollars in thousands).
June 30, 2001 (Unaudited)
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
Securities available-for-sale:
U.S. Government and agency securities $ 33,130 $ 107 $ (1) $ 33,236
Other securities .................... 297 -- -- 297
-------- -------- -------- --------
$ 33,427 $ 107 $ (1) $ 33,533
======== ======== ======== ========
Securities held-to-maturity:
U.S. Government and agency securities $ 1,000 $ 6 $ -- $ 1,006
Other securities .................... 500 37 -- 537
-------- -------- -------- --------
$ 1,500 $ 43 $ -- $ 1,543
======== ======== ======== ========
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 June 30, 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 .............. $ 3,126 $ 3,143 $ 1,000 $ 1,006
Due after one year through five years 30,004 30,093 -- --
Due after five years through ten years -- -- 500 537
Due after ten years .................. 297 297 -- --
------- ------- ------- -------
$33,427 $33,533 $ 1,500 $ 1,543
======= ======= ======= =======
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 June
30, 2001 and December 31, 2000 (Dollars in thousands).
Loan Portfolio By Type of Loan
-------------------------------------------------
June 30, 2001
(Unaudited) December 31, 2000
--------------------- ---------------------
Amount Percent Amount Percent
-------- --------- -------- ---------
Commercial and industrial loans $ 27,314 19.49% $ 24,865 20.39%
Commercial mortgage loans ..... 65,503 46.73% 56,849 46.61%
Residential mortgages ......... 8,350 5.96% 7,867 6.45%
Construction loans ............ 22,261 15.88% 17,046 13.98%
Consumer loans ................ 16,654 11.88% 14,275 11.70%
Other loans ................... 81 0.06% 1,064 0.87%
-------- ------ -------- ------
$140,163 100.00% $121,966 100.00%
======== ====== ======== ======
The following table represents the activity in the allowance for loan losses for
the six month periods ended June 30, 2001 and 2000 and the year ended December
31, 2000 (Dollars in thousands).
Allowance For Loan Losses
-------------------------------------
Six Months Ended
June 30,
(Unaudited) Year Ended
---------------------- December 31,
2001 2000 2000
------- ------- -------
Balance - beginning of period ........... $ 1,584 $ 1,237 $ 1,237
Charge-offs ............................. (3) -- (1)
Recoveries .............................. -- -- --
------- ------- -------
Net (charge-offs) recoveries ............ (3) -- (1)
Provision for loan losses ............... 246 138 348
------- ------- -------
Balance - end of period ................. $ 1,827 $ 1,375 $ 1,584
======= ======= =======
Balance of Allowance at period-end as a %
of loans at period-end .............. 1.30% 1.38% 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 June 30, 2001 increased by $32.0 million, or 17.6%, to $214.1
million compared to $182.1 million at December 31, 2000. Total assets averaged
$187.9 million in the first six months of 2001, a $34.9 million, or 22.8%,
increase from the 2000 full year average of $153.0 million. Average loans
increased $33.3 million, or 34.1%, to $131.0 million in the first six months of
2001, from the 2000 full year average of $97.7 million. Average investment
securities decreased by $6.0 million, or 18.7%, to $26.1 million; average
Federal funds sold increased by $6.2 million, or 47.0%, to $19.4 million; the
average of all other assets increased by $1.6 million, or 14.0%, to $13.0
million; and the loan loss reserve average increased $0.3 million, or 21.4%, to
$1.7 million during the first six months of 2001 compared to the full year 2000
averages.
These increases in average assets were funded primarily by a $33.1 million, or
25.0%, increase in average deposits, as the first six months of 2001 average
deposits increased to $165.7 million from the full year 2000 average of $132.6
million.
Lending Activity
Total loans at June 30, 2001 were $140.2 million, a 14.9%, or $18.2 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 $8.7 million in commercial mortgage
loans, $5.3 million in construction loans, $2.4 million in commercial and
industrial loans, $2.4 million in consumer loans and a decrease of $0.6 million
in residential mortgage and other loans.
The 14.9% increase in loans at June 30, 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. In addition, we opened or sisth branch in June,
2001. 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 $1.8 million, or 1.30% of total loans, at June
30, 2001 compared to $1.6 million, or 1.30% of total loans, at December 31,
2000. At June 30, 2001 and December 31, 2000, we had no non-performing loans.
The increase in the balance of the allowance for loan losses is the result of
our review of several factors including the continued growth of our loan
portfolio and our assessment of economic conditions, credit quality and other
loss factors that may be inherent in the existiong loan portfolilo.
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 $9.6 million, or 21.5%, to $35.0 million at
June 30, 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 expected to arise during
the third quarter of 2001, primarily anticipated loan growth and deposit
repricing opportunities, management has decided to retain planned, matured
investment securities proceeds of $9.7 million, net of investment securities
purchases of $29.3 million, for other funding purposes. Pending reinvestment,
these funds have been invested in Federal funds sold.,
Management determines the appropriate classification of securities at the time
of purchase. At June 30, 2001, investment securities of $33.5 million, or 95.7%
of the total investment securities portfolio, were classified as
available-for-sale and investment securities of $1.5 million, or 4.3% of the
total investment securities portfolio, were classified as held-to-maturity. We
had no investment securities classified as trading securities. The investment
portfolio is comprised primarily of U.S. Government and agency securities with
maturities of four 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 $30.7
million, or 19.1%, to $191.2 million at June 30, 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, as well as $5.0 million in broker deposits recorded on June 27,
2001.
Average total deposits increased by $33.1 million, or 25.0%, to $165.7 million
for the six months ended June 30, 2001 compared to the 2000 full year average of
$132.6 million. Changes in the deposit mix averages for the six months ended
June 30, 2001 compared to the 2000 full year averages include a $3.4 million, or
7.7%, increase in savings deposits; a $1.8 million, or 11.6%, increase in NOW
account deposits; a $19.0 million, or 47.1%, increase in time deposits; a $2.3
million, or 37.7%, increase in money market deposits; and a $6.6 million, or
24.9%, 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.
Additionally, as of June 30, 2001 we maintained $5.0 million in brokered
deposits, which were recorded on June 27, 2001 and will mature in one year.
These deposits were obtained in order to implement our third quarter 2001
asset/liability management strategies, as the promotional certificates of
deposit mature. 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 $49.3 million at June 30, 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, with the exception
of the brokered deposits discussed above.
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
15.5% and 5.3% of our total assets at June 30, 2001
13
and December 31, 2000, respectively. During the second quarter of 2001, liquid
assets were increased by deposit growth and planned investment securities
maturities in order to manage third 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 June 30, 2001 was increased deposits and proceeds from
maturities and calls of investment securities. Deposit increases amounted to
$30.7 million for the six months ended June 30, 2001 and proceeds from
maturities and calls of investment securities amounted to $39.0 million. During
the first six months of 2001, we utilized deposit growth and liquid assets as
funding sources for increased loans made to customers amounting to $18.2 million
and securities purchases amounting to $29.3 million. Cash and cash equivalents
as of June 30, 2001 increased by $13.6 million as we prepared 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 June 30, 2001
amounted to $33.5 million. Also, many of our loans are originated pursuant to
underwriting standards which make them readily marketable to other financial
institutions or investors in the secondary market. In addition, in order to meet
liquidity needs on a temporary basis, we have established lines of credit 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 June 30, 2001, we have no borrowed 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 $718 thousand at June 30, 2001 compared to
December 31, 2000. The changes in stockholders' equity during the six months
ended June 30, 2001 were comprised of an increase from net income of $681
thousand and an increase of $40 thousand in the unrealized gains, net of taxes,
in the available-for-sale investment securities portfolio. These increases were
partially offset by $3 thousand paid as cash in lieu of fractional shares for
our second quarter 5% stock dividend.
Our regulators, the Board of Governors of the Federal Reserve System (which
regulates bank holding companies), and the Bank's Federal regulator, the Federal
Deposit Insurance Corporation, have issued guidelines classifying and defining
capital into the following components: (1) Tier I Capital, which includes
tangible stockholders' equity for common stock and certain qualifying preferred
stock, and excludes net unrealized gains or losses on available-for-sale
securities and deferred tax assets that are dependent on projected taxable
income greater than one year in the future, and (2) Tier II Capital (Total
Capital), which includes a portion of the
14
allowance for loan losses and certain
qualifying long-term debt and preferred stock that does not qualify for Tier I
Capital. The risk-based capital guidelines require financial institutions to
apply certain risk factors ranging from 0% to 100%, against assets to determine
total risk-based assets. The minimum Tier I and the combined Tier I and Tier II
capital to risk-weighted assets ratios are 4.0% and 8.0%, respectively. Our
Regulators have also adopted regulations which supplement the risk-based capital
guidelines to include a minimum leverage ratio of Tier I Capital to total assets
of 3.0%. For those institutions with higher levels of risk or that are
experiencing or anticipating significant growth, the minimum leverage ratio will
be proportionately increased by 100 to 200 basis points.
The following table summarizes the risk-based and leverage capital ratios for
the Company and the Bank at June 30, 2001 as well as the regulatory required
minimum and "well capitalized" capital ratios:
June 30, 2001 Regulatory Requirement
--------------- --------------------------
Company Bank Minimum "Well Capitalized"
------- ----- --------- ------------------
Risk-based Capital:
Tier I capital ratio...........12.88% 12.88% 4.00% 6.00%
Total capital ratio............14.05% 14.05% 8.00% 10.00%
Leverage ratio.................10.53% 10.54% 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 June 30, 2001 the Bank's ratio
of equity capital to total assets was 9.37%.
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 six months ended June 30, 2001 compared to the six
months ended June 30, 2000
Net Income
For the six months ended June 30, 2001, we earned $681 thousand after $387
thousand of income tax expense compared to $386 thousand in net income after no
income tax expense for the same period last year. During 2000, we benefited from
the application of net operating loss carry-forwards which were not available in
2001. Basic and diluted net income per share for the six months ended June 30,
2001 was $0.34 and $0.33, respectively, compared to basic and diluted net income
per share of $0.19 for the same prior year period. The increase in net income
was primarily due to a $1.1 million, or 37.9%, increase in net interest income
and a $0.3 million, or 75.0%, increase in non-interest income. These items were
partially offset by a $0.1 million, or 100.0%, increase in the provision for
loan losses, a $0.6 million, or 21.4%, increase in non-interest expenses, and
$0.4 million in tax expense for the first six months of 2001 compared to no tax
expense for 2000.
Net Interest Income
Net interest income increased $1.1 million, or 37.9%, to $4.0 million for the
six months ended June 30, 2001 from $2.9 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 $9.5 million, or 27.5%, for the first six 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 six months ended June 30, 2001 was relatively
unchanged at 4.53% compared to 4.52% for the same prior year period. The
consistent net interest margin resulted primarily from timely implementation of
asset/liability management strategies as the Federal Reserve Bank reduced the
target funds rate by 275 basis points to 3.75%, in five 50 basis point and one
25 basis point reductions during the first six months of 2001.
Interest income increased $2.0 million, or 40.8%, to $6.9 million for the six
months ended June 30, 2001 compared to $4.9 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 $1.8 million, volume related increases in
income of $0.3 million in Federal funds sold, and volume related decreases in
income of $0.1 million in investment securities, as our growth resulted in an
increase in average earning assets of $48.7 million, or 38.1%, to $176.6 million
for the six months ended June 30, 2001 compared to $127.9 million for the same
period in 2000.
In addition to the volume related net increase, total interest income increased
by $22 thousand from rate related increases due to changes in the asset mix even
though interest rates on earning assets repriced to current lower yields
compared to first quarter 2000 yields. Total interest income also decreased by
$21 thousand as a result of one less day during the first six months of 2001
compared to the first six months of 2000.
Interest expense for the first six months of 2001 increased $0.9 million or
45.0%, compared to the same prior year period. The increase in interest expense
was due primarily to net volume increases in interest bearing deposits which
accounted for $1.0 million of the expense increase, and was partially offset by
$0.1 million attributable to net rate related decreases and by a decrease of $10
16
thousand due to one less day in the first six months of 2001. The volume related
increases in interest bearing liabilities and net expense rate decreases are the
result of marketing and pricing decisions made by management in response to the
need for cost effective sources of funds, primarily to provide for loan growth.
The following tables titled "Consolidated Average Balance Sheet with Resultant
Interest and Average Rates" and "Analysis of Changes in Consolidated Net
Interest Income" present by category the major factors that contributed to the
changes in net interest income for the quarter ended June 30, 2001 compared to
the quarter ended June 30, 2000 and the six months ended June 30, 2001 compared
to the same prior year period.
17
CONSOLIDATED AVERAGE BALANCE SHEETS
With Resultant Interest And Average Rates
Three Months Ended Three Months Ended
June 30, 2001 June 30, 2000
-------------------------------- --------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
--------- --------- ------ --------- --------- ------
(In thousands, except percentages)
ASSETS
Interest Earning Assets:
Federal Funds Sold ....................................... $ 23,694 $ 262 4.44% $ 9,507 $ 149 6.29%
Investment Securities .................................... 19,589 296 6.04% 31,101 480 6.17%
Loans (net of unearned income) (1) (2) ................... 135,481 2,847 8.43% 92,500 1,976 8.57%
--------- --------- -------- -------
Total Interest Earning Assets ........ 178,764 3,405 7.64% 133,108 2,605 7.85%
--------- --------- -------- -------
Non-Interest Earning Assets:
Loan Loss Reserve ........................................ (1,772) (1,342)
All Other Assets ......................................... 13,526 11,150
Total Assets ......................... $ 190,518 $ 142,916
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
NOW Deposits ............................................. $ 19,307 68 1.41% $ 16,683 70 1.68%
Savings Deposits ......................................... 48,113 356 2.97% 43,189 460 4.27%
Money Market Deposits .................................... 6,829 54 3.17% 3,209 31 3.87%
Time Deposits ............................................ 59,201 893 6.05% 33,794 499 5.92%
Short-term Borrowings .................................... -- -- 0.00% -- -- 0.00%
--------- --------- -------- -------
Total Interest Bearing Liabilities ... 133,450 1,371 4.12% 96,875 1,060 4.39%
--------- --------- -------- -------
Non-Interest Bearing Liabilities:
Demand Deposits .......................................... 34,466 26,229
Other Liabilities ........................................ 2,576 1,353
--------- ---------
Total Non-Interest Bearing Liabilities 37,042 27,582
--------- ---------
Stockholders' Equity ............................................ 20,026 18,459
--------- ---------
Total Liabilities and Stockholders'
Equity ............................... $ 190,518 $ 142,916
========= =========
NET INTEREST INCOME ............................................. $ 2,034 $ 1,545
========= =========
NET INTEREST SPREAD (3) ......................................... 3.52% 3.46%
NET INTEREST MARGIN (4) ......................................... 4.56% 4.66%
(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
CONSOLIDATED AVERAGE BALANCE SHEETS
With Resultant Interest And Average Rates
Six Months Ended Six Months Ended
June 30, 2001 June 30, 2000
------------------------------ ---------------------------
Interest Interest
Average Income/ Average Income/
Balance Expense Rate Balance Expense Rate
--------- -------- ---- --------- -------- ----
(In thousands, except percentages)
ASSETS
Interest Earning Assets:
Federal Funds Sold ....................................... $ 19,436 $ 462 4.79% $ 10,804 $ 319 5.92%
Investment Securities .................................... 26,113 839 6.43% 29,107 892 6.13%
Loans (net of unearned income) (1) (2) ................... 131,036 5,573 8.58% 87,944 3,698 8.43%
--------- --------- -------- --------
Total Interest Earning Assets ........ 176,585 6,874 7.85% 127,855 4,909 7.70%
--------- --------- -------- --------
Non-Interest Earning Assets:
Loan Loss Reserve ........................................ (1,700) (1,297)
All Other Assets ......................................... 12,992 10,678
Total Assets ......................... $ 187,877 $ 137,236
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
NOW Deposits ............................................. $ 17,284 130 1.52% $ 15,530 132 1.70%
Savings Deposits ......................................... 47,600 788 3.34% 42,096 885 4.22%
Money Market Deposits .................................... 8,372 156 3.76% 3,078 58 3.78%
Time Deposits ............................................ 59,286 1,829 6.22% 32,675 952 5.84%
Short-term Borrowings .................................... -- -- 0.00% -- -- 0.00%
Total Interest Bearing Liabilities ... 132,542 2,903 4.42% 93,379 2,027 4.35%
Non-Interest Bearing Liabilities:
Demand Deposits .................................. 33,114 24,233
Other Liabilities ................................ 2,381 1,234
--------- ---------
Total Non-Interest Bearing Liabilities 35,495 25,467
--------- ---------
Stockholders' Equity ............................................ 19,840 18,390
--------- ---------
Total Liabilities and Stockholders'
Equity ............................... $ 187,877 $ 137,236
========= =========
NET INTEREST INCOME ............................................. $ 3,971 $ 2,882
========= =========
NET INTEREST SPREAD (3) ......................................... 3.43% 3.35%
NET INTEREST MARGIN (4) ......................................... 4.53% 4.52%
(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.
19
ANALYSIS OF CHANGES IN CONSOLIDATED NET INTEREST INCOME
Three Months Ended June 30, 2001 Six Months Ended June 30, 2001
Compared to Three Months Ended Compared to Six Months Ended
June 30, 2000 June 30, 2000
----------------------------- --------------------------------------------
Increase (Decrease) Due To Increase (Decrease) Due To
----------------------------- --------------------------------------------
Volume Rate Net Volume Rate Time Net
------ ---- --- ------ ---- ---- ---
(In thousands) (In thousands)
Interest Earned On:
Federal Funds Sold ......................... $ 222 $ (109) $ 113 $ 253 $ (109) $ (1) $ 143
Investment Securities ...................... (177) (7) (184) (91) 38 -- (53)
Loans (net of unearned income) ............. 918 (47) 871 1,802 93 (20) 1,875
------- ------- ------- ------- ------- ------- -------
Total Interest Income 963 (163) 800 1,964 22 (21) 1,965
------- ------- ------- ------- ------- ------- -------
Interest Paid On:
NOW Deposits ............................... 11 (13) (2) 15 (16) (1) (2)
Savings Deposits ........................... 52 (156) (104) 115 (207) (5) (97)
Money Market Deposits ...................... 35 (12) 23 99 (1) -- 98
Time Deposits .............................. 375 19 394 771 111 (5) 877
Short-term Borrowings ...................... -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total Interest Expense 473 (162) 311 1,000 (113) (11) 876
------- ------- ------- ------- ------- ------- -------
Net Interest Income .. $ 490 $ (1) $ 489 $ 964 $ 135 $ (10) $ 1,089
======= ======= ======= ======= ======= ======= =======
20
Provision for Loan Losses
The provision for loan losses increased to $0.2 million for the first six months
of 2001 compared to a provision of $0.1 million 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 June 30, 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 $1.8 million, or
1.30% of total loans, at June 30, 2001.
Non-Interest Income
Total non-interest income was $0.7 million for the first six months of 2001
compared to $0.4 million for the first six months of 2000, an increase of $0.3
million, or 75.0%. The increase was attributable primarily to an increase in
other fees and commissions of $0.3 million, or 150.0%. The growth in other fees
and commissions is primarily due to higher non-yield related fee income on
loans, which increased by $0.2 million at June 30, 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 $0.1 million, resulted primarily from the
continued growth of the Company.
Non-Interest Expense
Total non-interest expense amounted to $3.4 million for the six months ended
June 30, 2001, an increase of $0.6 million, or 21.4%, over the same prior year
period. The increase was due primarily to increases in employment expenses as
well as increases in occupancy expenses, equipment expenses and other expenses
generally attributable to our growth. Of this increase, employment costs
increased $0.3 million, or 23.1%, and reflected increases in the number of
employees from 70 full-time equivalents for the period ended June 30, 2000 to 87
full-time equivalents for the period ended June 30, 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 and the opening of our Colts Neck, New Jersey branch.
Occupancy and depreciation expenses increased $0.1 million, or 25.0%, for the
first six 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, in addition to increased
depreciation costs associated with existing branch facilities, new deposit
services facilities and on purchases of enhanced computer processing equipment.
Other expenses increased $0.3 million, or 30.0%, for the first six months of
2001 compared to the first six months of 2000. The increase was attributable to
increased other expenses resulting from our continued growth, in addition to
$0.1 million of systems related conversion costs as we prepare for a bank-wide
operating systems conversion during July, 2001.
21
Income Tax Expense
For the six months ended June 30, 2001, we recognized $0.4 million in income tax
expense and did not recognize any income tax expense during the first six months
of 2000. We were fully taxable in the first six months of 2001 while no tax
expense was recorded in the 2000 first six months because of the utilization of
net operating loss carryforwards. These carryforwards are now exhausted. The
effective tax rate for the first six months of 2001 was 36.2%.
RESULTS OF OPERATIONS for the three months ended June 30, 2001 compared to the
three months ended June 30, 2000
Net Income
For the three months ended June 30, 2001, we earned $347 thousand after $195
thousand of income tax expense compared to $240 thousand in net income after no
income tax expense for the same period last year. During 2000, we benefited from
the application of net operating loss carry-forwards which were not available in
2001. Basic and diluted net income per share for the three months ended June 30,
2001 was $0.17, compared to basic and diluted net income per share of $0.12 for
the same prior year period. The increase in net income was primarily due to a
$489 thousand, or 31.7%, increase in net interest income and a $111 thousand, or
41.9%, increase in non-interest income. These items were partially offset by a
$20 thousand, or 25.0%, increase in the provision for loan losses, a $278
thousand, or 18.7%, increase in non-interest expenses, and $195 thousand in
income tax expense for the quarter ended June 30, 2001 compared to no tax
expense for the same prior year period.
Net Interest Income
Net interest income increased $489 thousand, or 31.7%, to $2.0 million for the
three months ended June 30, 2001 from $1.5 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 $9.1 million, or 25.1%, for the three months ended
June 30, 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 June 30, 2001 decreased to
4.56% from 4.66% for the same prior year period. The decrease in the net
interest margin resulted primarily from an increase in the percent of average
interest earning assets funded by average interest bearing liabilities, which
increased to 74.7% for the quarter ended June 30, 2001 compared to 72.8% for the
same prior year quarter.
Interest income increased $800 thousand, or 30.7%, to $3.4 million for the three
months ended June 30, 2001 compared to $2.6 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
22
of $918 thousand, volume related increases in income of $222 thousand in Federal
funds sold, and was offset by volume related decreases in income of $177
thousand due primarily to matured/called securities. Our growth resulted in an
increase in average earning assets of $45.7 million, or 34.3%, to $178.8 million
for the three months ended June 30, 2001 compared to $133.1 million for the same
period in 2000.
In addition to the volume related net increase, total interest income decreased
by $163 thousand from rate related decreases as interest rates on earning assets
repriced to current lower yields compared to second quarter 2000 yields.
Interest expense for the second quarter of 2001 increased $311 thousand, or
29.3%, 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 $473 thousand and was partially offset by a decrease of $162
thousand due to interest rate reductions . The volume related increases in
interest bearing liabilities and expense rate reductions 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, as we
adjust to the changing rate and competition environment.
Provision for Loan Losses
The provision for loan losses increased to $100 thousand for the second quarter
of 2001 compared to a provision of $80 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 June 30, 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 $1.8 million, or
1.30% of total loans, at June 30, 2001.
Non-Interest Income
Total non-interest income was $376 thousand for the second quarter of 2001
compared to $265 thousand for the second quarter of 2000, an increase of $111
thousand, or 41.9%. The increase was attributable primarily to an increase in
other fees and commissions of $110 thousand, or 64.0%. The growth in other fees
and commissions is primarily due to higher non-yield related fee income on
loans, which increased by $82 thousand for the second quarter of 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 $28 thousand, resulted primarily from
the continued growth of the Company.
Non-Interest Expense
Total non-interest expense amounted to $1.77 million for the three months ended
June 30, 2001, an increase of $278 thousand, or 18.7%, over the same prior year
period. The increase was due primarily to increases in employment expenses as
well as increases in occupancy expenses, equipment expenses and other expenses
generally attributable to our growth. Of this increase, employment costs
increased $147 thousand, or 21.2%, and reflected increases in the number of
23
employees from 70 full-time equivalents for the period ended June 30, 2000 to 87
full-time equivalents for the period ended June 30, 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 and the opening of our Colts Neck, New Jersey branch.
Occupancy expenses increased $29 thousand, or 31.2%, for the second quarter 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 $22 thousand, or 17.7%, for the second quarter of 2001 compared to the
second quarter of 2000 due primarily to depreciation costs associated with
existing branch facilities, new deposit services facilities and on purchases of
enhanced computer processing equipment.
Other expenses increased $80 thousand, or 13.8%, for the second quarter of 2001
compared to the same prior year period. 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 $160
thousand, an increase of $1 thousand; professional and stockholder related costs
amounted to $84 thousand, a decrease of $20 thousand; marketing and advertising
costs amounted to $96 thousand, a increase of $9 thousand; stationery, supplies
and printing costs amounted to $63 thousand, an increase of $23 thousand;
communications expenses amounted to $68 thousand, an increase of $2 thousand;
systems related conversion costs amounted to $60 thousand, compared to $-0- the
prior year; and all other expenses amounted to $127 thousand, an increase of $5
thousand.
Income Tax Expense
For the three months ended June 30, 2001, we recognized $195 thousand in income
tax expense and did not recognize any income tax expense during the same prior
year period. We were fully taxable in the first six months of 2001 while no tax
expense was recorded in the 2000 first six months because of the utilization of
net operating loss carryforwards. The effective tax rate for the second quarter
of 2001 was 36.0%.
24
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 19, 2001.
The following were the results of voting on the
one proposal presented:
Note: Shares Outstanding were...... 1,918,957
Shares Voted were............ 1,629,953
Proposal No. 1 - The re-election of three nominees to the Board of
Directors for a three year term.
Note: Each Director received at least 99% of the shares voted, in favor
of their appointment.
Elected Director Votes For Votes Withheld %
-------------------- --------- -------------- ------
Robert M. Kaye 1,652,228 5,506 99.7%
Howard M. Schoor 1,651,688 6,046 99.6%
Arnold G. Silverman 1,651,688 6,046 99.6%
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 no Form 8-K's
during the second quarter 2001.
25
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY BANCORP OF NEW JERSEY
(Issuer)
Date: August 9, 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