U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-QSB
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
3535 Highway 9 North, Freehold, New Jersey 07728
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(Address of principal executive offices)
(732) 863-9000
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(Issuer's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Common Stock, No Par Value-2,014,729 shares outstanding as of November 7, 2001
INDEX
COMMUNITY BANCORP OF NEW JERSEY
PART I. FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at September 30, 2001
(Unaudited) and December 31, 2000 3
Consolidated Condensed Statements of Income for the three and nine
months ended September 30, 2001 and 2000 (Unaudited) 4
Consolidated Condensed Statement of Changes in Stockholders' 5
Equity at September 30, 2001 (Unaudited)
Consolidated Condensed Statements of Cash Flows for
the three and nine months ended September 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 - 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - None 24
b. Reports on Form 8-K 24
SIGNATURES 25
2
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED BALANCE SHEETS
September 30,
2001 December 31,
(Unaudited) 2000
--------- ---------
(Dollars in thousands)
ASSETS
Cash and cash equivalents:
Cash and due from banks .................................................. $ 8,161 $ 5,764
Federal funds sold ....................................................... -- 3,860
- ---------------------------------------------------------------------------------- --------- ---------
Total cash and cash equivalents ................................ 8,161 9,624
- ---------------------------------------------------------------------------------- --------- ---------
Investment securities available-for-sale ......................................... 53,401 34,106
Investment securities held-to-maturity (fair value of $559 at
September 30, 2001 and $10,469 at December 31, 2000) ..................... 500 10,498
Loans receivable ................................................................. 147,362 121,966
Allowance for loan loss .......................................................... (1,919) (1,584)
- ---------------------------------------------------------------------------------- --------- ---------
Net loans receivable ........................................... 145,443 120,382
- ---------------------------------------------------------------------------------- --------- ---------
Premises and equipment, net ...................................................... 6,254 5,002
Accrued interest receivable ...................................................... 1,203 1,497
Other assets ..................................................................... 1,871 943
- ---------------------------------------------------------------------------------- --------- ---------
Total Assets ................................................... $ 216,833 $ 182,052
- ---------------------------------------------------------------------------------- ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand .............................................. $ 37,591 $ 30,090
Interest bearing - NOW ................................................... 23,283 15,368
Savings and money market ................................................. 57,712 58,587
Certificates of deposit, under $100,000 .................................. 44,587 34,291
Certificates of deposit, $100,000 and over ............................... 29,487 22,179
- ---------------------------------------------------------------------------------- --------- ---------
Total deposits ................................................. 192,660 160,515
- ---------------------------------------------------------------------------------- --------- ---------
Short-term borrowings ............................................................ 1,500 --
Accrued interest payable ......................................................... 1,425 1,491
Other liabilities ................................................................ 318 631
- ---------------------------------------------------------------------------------- --------- ---------
Total liabilities .............................................. 195,903 162,637
- ---------------------------------------------------------------------------------- --------- ---------
Stockholders' equity
Commonstock - authorized 10,000,000 shares of no par value; issued and
outstanding, net of treasury shares, 2,014,729 at September 30,
2001 and
1,918,957 at December 31, 2000 ..................................... 23,147 21,663
Accumulated deficit ...................................................... (2,346) (1,913)
Accumulated other comprehensive income ................................... 492 28
Treasury stock, 22,357 shares, at cost ................................... (363) (363)
- ---------------------------------------------------------------------------------- --------- ---------
Total stockholders' equity ..................................... 20,930 19,415
- ---------------------------------------------------------------------------------- --------- ---------
Total Liabilities and Stockholders' Equity ..................... $ 216,833 $ 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 Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2001 2000 2001 2000
---------------------- ----------------------
(Dollars in thousands, except per share data)
INTEREST INCOME
Loans, including Fees ............................... $ 2,948 $ 2,233 $ 8,521 $ 5,931
Federal funds sold .................................. 34 299 496 618
Investment securities - taxable ..................... 651 516 1,490 1,408
- ------------------------------------------------------------- ------- ------- ------- -------
Total interest income ............. 3,633 3,048 10,507 7,957
- ------------------------------------------------------------- ------- ------- ------- -------
INTEREST EXPENSE
Interest bearing - NOW .............................. 71 75 201 207
Savings and money market ............................ 388 596 1,332 1,539
Certificates of deposit ............................. 894 704 2,723 1,656
Short-term borrowings ............................... 10 -- 10 --
- ------------------------------------------------------------- ------- ------- ------- -------
Total interest expense ............ 1,363 1,375 4,266 3,402
- ------------------------------------------------------------- ------- ------- ------- -------
Net interest income ............... 2,270 1,673 6,241 4,555
Provision for loan losses ................................... 95 55 341 193
- ------------------------------------------------------------- ------- ------- ------- -------
Net interest income after provision
for loan losses .......... 2,175 1,618 5,900 4,362
- ------------------------------------------------------------- ------- ------- ------- -------
Non-interest income:
Service fees on deposit accounts .................... 103 88 299 267
Other fees and commissions .......................... 186 108 724 346
- ------------------------------------------------------------- ------- ------- ------- -------
Total non-interest income ......... 289 196 1,023 613
- ------------------------------------------------------------- ------- ------- ------- -------
Non-interest expense:
Salaries and wages .................................. 766 588 2,144 1,705
Employee benefits ................................... 107 89 323 273
Occupancy expense ................................... 165 86 409 283
Depreciation - occupancy, furniture & equipment ..... 161 117 453 357
Other ............................................... 677 571 1,938 1,608
- ------------------------------------------------------------- ------- ------- ------- -------
Total non-interest expense ........ 1,876 1,451 5,267 4,226
- ------------------------------------------------------------- ------- ------- ------- -------
Income before income taxes ........ 588 363 1,656 749
Income tax expense .......................................... 214 12 601 12
- ------------------------------------------------------------- ------- ------- ------- -------
Net Income ........................ $ 374 $ 351 $ 1,055 $ 737
- ------------------------------------------------------------- ======= ======= ======= =======
Per Common Share:
Net income - basic .................................. $ 0.18 $ 0.18 $ 0.52 $ 0.37
Net income - diluted ................................ $ 0.18 $ 0.17 $ 0.51 $ 0.36
Weighted average shares outstanding (in thousands):
Basic ............................................... 2,015 2,015 2,015 2,015
Diluted ............................................. 2,065 2,034 2,055 2,025
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
5% stock dividend (95,772 shares) ........ 1,484 -- (1,484) -- --
Cash in lieu of fractional shares ........ -- -- (4) -- (4)
Comprehensive Income:
Net Income ..................... -- -- 1,055 -- $ 1,055 1,055
Increase in unrealized holding
gains on securities, net -- -- -- 464 464 464
-------- --------
Total Comprehensive Income ............... -- -- -- -- $ 1,519
-------- -------- -------- -------- ========
Balance, Sept. 30, 2001 (Unaudited) ...... $ 23,147 $ (363) $ (2,346) $ 492 $ 20,930
======== ======== ======== ======== ========
See accompanying notes to consolidated condensed financial statements.
5
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30,
---------------------------------
2001 2000
----------- ----------
(Dollars in thousands)
Cash flows from operating activities:
Net income ........................................................ $ 1,055 $ 737
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ..................... 453 357
Provision for loan losses ......................... 341 193
Accretion of investment discount .................. (82) (113)
Amortization of investment premium ................ 23 3
Decrease (increase) in accrued interest receivable 294 (407)
Decrease (increase in) other assets ............... 308 (325)
(Decrease) increase in accrued interest payable ... (66) 736
(Decrease) increase in other liabilities .......... (313) 150
- ------------------------------------------------------------------------------- -------- --------
Net cash provided by operating activities 2,013 1,331
- ------------------------------------------------------------------------------- -------- --------
Cash flows from investing activities:
Purchases of investment securities available-for-sale ............. (75,820) (14,661)
Proceeds from maturities and calls of investment securities ....... 67,310 2,940
Net increase in loans made to customers ........................... (25,402) (22,666)
Purchase of bank owned life insurance ............................. (1,500) --
Purchases of premises and equipment ............................... (1,705) (575)
- ------------------------------------------------------------------------------- -------- --------
Net cash used in investing activities ... (37,117) (34,962)
- ------------------------------------------------------------------------------- -------- --------
Cash flows from financing activities:
Net increase in demand deposits and savings accounts .............. 14,541 17,376
Net increase in certificates of deposit ........................... 17,604 13,221
Increase in short-term borrowings ................................. 1,500 --
Stock dividend - cash paid in lieu of fractional shares ........... (4) (2)
- ------------------------------------------------------------------------------- -------- --------
Net cash provided by financing activities 33,641 30,595
- ------------------------------------------------------------------------------- -------- --------
Net increase (decrease) in cash and cash equivalents .......................... (1,463) (3,036)
Cash and cash equivalents as of beginning of year ............................. 9,624 25,266
- ------------------------------------------------------------------------------- -------- --------
Cash and cash equivalents as of end of period ................................. $ 8,161 $ 22,230
- ------------------------------------------------------------------------------- ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest .......................... $ 4,332 $ 2,666
Cash paid during the period for income taxes ...................... $ 732 $ 288
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
nine months ended September 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.
NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS
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 evaluated the provisions of SFAS
No. 142, and this Statement will not have an impact on the Company's
consolidated financial position or results of operations.
7
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 did not have an impact on the Company's consolidated 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
September 30, 2001 and December 31, 2000 (Dollars in thousands).
September 30, 2001 (Unaudited)
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ --------- --------- ----------
Securities available-for-sale:
U.S. Government and agency securities $52,215 $ 771 $ -- $52,986
Other securities .................... 415 -- -- 415
------- ------- ------- -------
$52,630 $ 771 $ -- $53,401
======= ======= ======= =======
Securities held-to-maturity:
U.S. Government and agency securities $ -- $ -- $ -- $ --
Other securities .................... 500 59 -- 559
------- ------- ------- -------
$ 500 $ 59 $ -- $ 559
======= ======= ======= =======
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 September 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 .............. $ 250 $ 251 $ -- $ --
Due after one year through five years 51,965 52,735 -- --
Due after five years through ten years -- -- 500 559
Due after ten years .................. 415 415 -- --
------- ------- ------- -------
$52,630 $53,401 $ 500 $ 559
======= ======= ======= =======
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
September 30, 2001 and December 31, 2000 (Dollars in thousands).
Loan Portfolio By Type of Loan
-----------------------------------------------------------
September 30, 2001
(Unaudited) December 31, 2000
--------------------------- ---------------------------
Amount Percent Amount Percent
------ ------- ------ -------
Commercial and industrial loans $ 25,077 17.02% $ 24,865 20.39%
Commercial mortgage loans ..... 73,723 50.03% 56,849 46.61%
Residential mortgages ......... 8,280 5.62% 7,867 6.45%
Construction loans ............ 22,318 15.14% 17,046 13.98%
Consumer loans ................ 17,896 12.14% 14,275 11.70%
Other loans ................... 68 0.05% 1,064 0.87%
-------- ------ -------- ------
$147,362 100.00% $121,966 100.00%
======== ====== ======== ======
The following table represents the activity in the allowance for loan losses for
the nine month periods ended September 30, 2001 and 2000 and the year ended
December 31, 2000 (Dollars in thousands).
Allowance For Loan Losses
-----------------------------------------------
Nine Months Ended
September 30, Year Ended
(Unaudited) December 31,
----------------------------------------------
2001 2000 2000
---- ---- ----
Balance - beginning of period ........... $ 1,584 $ 1,237 $ 1,237
Charge-offs ............................. (6) -- (1)
Provision for loan losses ............... 341 193 348
------- ------- -------
Balance - end of period ................. $ 1,919 $ 1,430 $ 1,584
======= ======= =======
Balance of Allowance at period-end as a %
of loans at period-end .............. 1.30% 1.36% 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 September 30, 2001 increased by $34.7 million, or 19.1%, to
$216.8 million compared to $182.1 million at December 31, 2000. Total assets
averaged $194.9 million in the first nine months of 2001, a $41.9 million, or
27.4%, increase from the 2000 full year average of $153.0 million. Average loans
increased $37.7 million, or 38.6%, to $135.4 million in the first nine months of
2001, from the 2000 full year average of $97.7 million. Average investment
securities increased by $1.2 million, or 3.7%, to $33.3 million; average Federal
funds sold increased by $0.9 million, or 6.8%, to $14.1 million; the average of
all other assets increased by $2.5 million, or 21.9%, to $13.9 million; and the
loan loss reserve average increased $0.4 million, or 28.6%, to $1.8 million
during the first nine months of 2001 compared to the full year 2000 averages.
These increases in average assets were funded primarily by a $39.7 million, or
29.9%, increase in average deposits, as average deposits for the first nine
months of 2001 increased to $172.3 million from the full year 2000 average of
$132.6 million.
Lending Activity
Total loans at September 30, 2001 were $147.4 million, a 20.8%, or $25.4 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 $16.9 million in commercial mortgage
loans, $5.3 million in construction loans, $0.2 million in commercial and
industrial loans, $3.6 million in consumer loans and a decrease of $0.6 million
in residential mortgage and other loans.
The 20.8% increase in loans at September 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,
through the third quarter of 2001. However, competition due to decreasing
interest rates and weaker loan demand resulting from a weakening economy and the
events of September 11 will suppress growth during the fourth quarter of 2001.
Since September 1997, we have opened six new offices. 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 focus is on
the continued origination, retention and service of a high quality loan
portfolio.
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
11
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.
Allowance for Loan Losses
The allowance for loan losses was $1.9 million, or 1.30% of total loans, at
September 30, 2001 compared to $1.6 million, or 1.30% of total loans, at
December 31, 2000. At September 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 existing loan
portfolio.
We attempt to maintain an allowance for loan losses at a sufficient level to
provide for potential losses in the loan portfolio. Loan losses are charged
directly to the allowance when they occur and any recovery is credited to the
allowance. Risks within the loan portfolio are analyzed on a continuous basis by
our officers, by outside, independent loan review auditors, our Directors Loan
Review Committee and the Board of Directors. A risk system, consisting of
multiple grading categories, is utilized as an analytical tool to assess risk
and set appropriate reserves. Along with the risk system, management further
evaluates risk characteristics of the loan portfolio under current and
anticipated economic conditions and considers such factors as the financial
condition of the borrower, past and expected loss experience, and other factors
we feel deserve recognition in establishing an appropriate reserve. These
estimates are reviewed at least quarterly, and, as adjustments become necessary,
they are realized in the periods in which they become known. Additions to the
allowance are made by provisions charged to expense and the allowance is reduced
by net charge-offs (i.e. - loans judged to be uncollectible and charged against
the reserve, less any recoveries on such loans). Although we attempt to maintain
the allowance at a level deemed adequate, future additions to the allowance may
be necessary based upon changes in market conditions. In addition, various
regulatory agencies periodically review our allowance for loan losses. These
agencies may require us to take additional provisions based on their judgements
about information available to them at the time of their examination.
Investment Securities Activity
Investment securities increased by $9.3 million, or 20.9%, to $53.9 million at
September 30, 2001 compared to $44.6 million at December 31, 2000. During the
second and third quarters of 2001, we utilized our liquidity in excess of loan
demand to fund additional purchases of investment securities available-for-sale.
This strategy resulted from Asset/Liability management considerations arising
from our analysis of several economic scenarios including reduced loan growth
and deposit repricing opportunities starting within the second quarter of this
year.
Management determines the appropriate classification of securities at the time
of purchase. At September 30, 2001, investment securities of $53.4 million, or
99.1% of the total investment securities portfolio, were classified as
available-for-sale and investment securities of $500 thousand, or 0.9% 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
12
comprised primarily of U.S. Government and agency securities with
maturities of four years or less and with call features of two years 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.
Deposits
Deposits are our primary source of funds. Total deposits increased by $32.2
million, or 20.1%, to $192.7 million at September 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 brokered deposits.
Average total deposits increased by $39.7 million, or 29.9%, to $172.3 million
for the nine months ended September 30, 2001 compared to the 2000 full year
average of $132.6 million. Changes in the deposit mix averages for the nine
months ended September 30, 2001 compared to the 2000 full year averages include
a $4.7 million, or 10.6%, increase in savings deposits; a $3.4 million, or
21.9%, increase in NOW account deposits; a $22.1 million, or 54.8%, increase in
time deposits; a $1.0 million, or 16.4%, increase in money market deposits; and
a $8.5 million, or 32.1%, 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.
Additionally, as of September 30, 2001 we maintained $5.0 million in brokered
deposits, which will mature in nine months. These deposits were obtained as part
of our third quarter 2001 asset/liability management strategies, as promotional
certificates of deposit matured. 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 $53.3 million at September 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
13
and Federal funds sold) comprised 3.8% and 5.3% of our total assets at September
30, 2001 and December 31, 2000, respectively. During the third quarter of 2001,
liquid assets were decreased primarily by investment securities purchases in
order to implement third quarter 2001 asset/liability management strategies
arising from reduced loan growth and deposit repricing opportunities.
As shown in the Consolidated Condensed Statements of Cash Flows, our primary
source of funds at September 30, 2001 was increased deposits and proceeds from
maturities and calls of investment securities. Deposit increases amounted to
$32.1 million for the nine months ended September 30, 2001 and proceeds from
maturities and calls of investment securities amounted to $67.3 million. During
the first nine months of 2001, we utilized deposit growth and liquid assets as
funding sources for increased loans made to customers amounting to $25.4 million
and securities purchases amounting to $75.8 million. Cash and cash equivalents
as of September 30, 2001 decreased by $14.0 million as we instituted
asset/liability management strategies as previously discussed.
We also have several additional sources of liquidity, including the
available-for-sale investment securities portfolio, which at September 30, 2001
amounted to $53.4 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. 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 September 30,
2001, we had $1.5 million in over-night borrowings which were used to support
short-term liquidity needs.
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 $1.5 million at September 30, 2001 compared to
December 31, 2000. The changes in stockholders' equity during the nine months
ended September 30, 2001 were comprised of an increase from net income of $1.1
million and an increase of $464 thousand in the unrealized gains, net of taxes,
in the available-for-sale investment securities portfolio. These increases were
partially offset by $4 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 Federal Deposit Insurance
Corporation, have issued guidelines classifying and defining capital.
14
The following table summarizes the risk-based and leverage capital ratios for
the Company and the Bank at September 30, 2001 as well as the regulatory
required minimum and "well capitalized" capital ratios:
September 30, 2001 Regulatory Requirement
------------------- ----------------------------------
Company Bank Minimum "Well Capitalized"
------- ------ --------- ------------------
Risk-based Capital:
Tier I capital ratio...........12.78% 12.78% 4.00% 6.00%
Total capital ratio............13.98% 13.98% 8.00% 10.00%
Leverage ratio.................. 9.79% 9.80% 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 September 30, 2001 the Bank's
ratio of equity capital to total assets was 9.46%.
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.
RESULTS OF OPERATIONS for the nine months ended September 30, 2001 compared to
the nine months ended September 30, 2000
Net Income
For the nine months ended September 30, 2001, we earned $1.1 million after $0.6
million of income tax expense compared to $737 thousand in net income after $12
thousand in income tax expense for the same period last year. During 2000, we
benefited from the utilization of net operating loss carry-forwards which were
not available in 2001. Basic and diluted net income per share for the nine
months ended September 30, 2001 was $0.52 and $0.51, respectively, compared to
basic and diluted net income per share of $0.37 and $0.36, respectively, for the
same prior year period. The increase in net income was primarily due to a $1.7
million, or 37.0%, increase in net interest income and a $0.4 million, or 66.9%,
increase in non-interest
15
income. These items were partially offset by a $0.1
million, or 76.7%, increase in the provision for loan losses, a $1.0 million, or
24.6%, increase in non-interest expenses, and $0.6 million in tax expense for
the first nine months of 2001 compared to $12 thousand in tax expense for 2000.
Net Interest Income
Net interest income increased $1.7 million, or 37.0%, to $6.2 million for the
nine months ended September 30, 2001 from $4.6 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 $9.3 million, or 26.2%, for the first nine months of
2001 compared to the same prior year period. The volume related increases in net
interest income were partially offset by a 10 basis point reduction in yield on
earning assets in 2001 compared to 2000.
Our net interest margin (annualized net interest income divided by average
interest earning assets) for the nine months ended September 30, 2001 increased
to 4.57% compared to 4.46% for the same prior year period. The relatively
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 350 basis points to 3.00%, in six 50 basis point and two 25
basis point reductions during the first nine months of 2001.
Interest income increased $2.6 million, or 32.0%, to $10.5 million for the nine
months ended September 30, 2001 compared to $8.0 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 $2.7 million and volume related
increases in income of $0.2 million in investment securities and Federal funds
sold, as our growth resulted in an increase in average earning assets of $46.6
million, or 34.2%, to $182.7 million for the nine months ended September 30,
2001 compared to $136.1 million for the same period in 2000.
In addition to the volume related net increase, total interest income decreased
by $337 thousand from rate related decreases as interest rates on earning assets
repriced to current lower yields compared to yields in the same period in 2000.
Total interest income also decreased by $25 thousand as a result of one less day
during the first nine months of 2001 compared to the first nine months of 2000.
Interest expense for the first nine months of 2001 increased $0.9 million, or
25.4%, 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 $1.5 million of the expense increase, and was partially offset by
$597 thousand attributable to net rate related decreases and by a decrease of
$12 thousand due to one less day in the first nine 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 September 30, 2001 compared
to the quarter ended September 30, 2000 and the nine months ended September 30,
2001 compared to the same prior year period.
16
CONSOLIDATED AVERAGE BALANCE SHEETS
With Resultant Interest And Average Rates
Three Months Ended Three Months Ended
September 30, 2001 September 30, 2000
----------------------------------- -----------------------------------
Average Interest Average Average Interest Average
Balance Income/Expense Rate Balance Income/Expense Rate
--------- -------------- ------- -------- -------------- -------
(In thousands, except percentages)
ASSETS
Interest Earning Assets:
Federal Funds Sold ............................. $ 3,564 $ 34 3.78% $ 18,043 $ 299 6.57%
Investment Securities .......................... 47,311 651 5.50% 32,946 516 6.26%
Loans (net of unearned income) (1) (2) ......... 143,916 2,948 8.13% 101,494 2,233 8.73%
--------- --------- --------- ---------
Total Interest Earning Assets ........ 194,791 3,633 7.40% 152,483 3,048 7.93%
--------- --------- --------- ---------
Non-Interest Earning Assets:
Loan Loss Reserve .............................. (1,852) (1,394)
All Other Assets ............................... 15,738 11,777
---------
Total Assets ......................... $ 208,677 $ 162,866
=========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
NOW Deposits ................................... $ 22,089 71 1.28% $ 16,442 75 1.81%
Savings Deposits ............................... 51,565 354 2.72% 46,105 498 4.29%
Money Market Deposits .......................... 4,505 34 2.99% 7,667 98 5.07%
Time Deposits .................................. 68,533 894 5.18% 44,216 704 6.32%
Short-term Borrowings .......................... 1,145 10 3.46% -- -- 0.00%
--------- --------- --------- ---------
Total Interest Bearing Liabilities ... 147,837 1,363 3.66% 114,430 1,375 4.77%
--------- --------- --------- ---------
Non-Interest Bearing Liabilities:
Demand Deposits ................................ 38,544 27,727
Other Liabilities .............................. 1,879 1,948
---------
Total Non-Interest Bearing Liabilities 40,423 29,675
--------- ---------
Stockholders' Equity .................................. 20,417 18,761
--------- ---------
Total Liabilities and Stockholders'
Equity ......................................... $ 208,677 $ 162,866
========= =========
NET INTEREST INCOME ................................... $ 2,270 $ 1,673
========= =========
NET INTEREST SPREAD (3) ............................... 3.74% 3.16%
NET INTEREST MARGIN (4) ............................... 4.62% 4.35%
(1) Included in interest income on loans are loan fees of $68 thousand and $20
thousand for the three months ended September 30, 2001 and 2000,
respectively.
(2) Includes non-performing loans.
(3) The interest rate spread is the difference between the weighted average
yield on average interest earning assets and the weighted average cost of
average interest bearing liabilities.
(4) The interest rate margin is calculated by dividing annualized net interest
income by average interest earning assets.
17
CONSOLIDATED AVERAGE BALANCE SHEETS
With Resultant Interest And Average Rates
Nine Months Ended Nine Months Ended
September 30, 2001 September 30, 2000
----------------------------------- -----------------------------------
Average Interest Average Average Interest Average
Balance Income/Expense Rate Balance Income/Expense Rate
--------- -------------- ------- -------- -------------- -------
(In thousands, except percentages)
ASSETS
Interest Earning Assets:
Federal Funds Sold ............................ $ 14,087 $ 496 4.71% $ 13,235 $ 618 6.22%
Investment Securities ......................... 33,257 1,490 5.97% 30,396 1,408 6.18%
Loans (net of unearned income) (1) (2) ........ 135,376 8,521 8.42% 92,494 5,931 8.54%
--------- --------- --------- ---------
Total Interest Earning Assets ........ 182,720 10,507 7.69% 136,125 7,957 7.79%
--------- --------- --------- ---------
Non-Interest Earning Assets:
Loan Loss Reserve ............................. (1,751) (1,330)
All Other Assets .............................. 13,938 11,047
--------- ---------
Total Assets ......................... $ 194,907 $ 145,842
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
NOW Deposits .................................. $ 18,903 201 1.42% $ 15,836 207 1.74%
Savings Deposits .............................. 48,937 1,142 3.12% 43,442 1,383 4.24%
Money Market Deposits ......................... 7,068 190 3.59% 4,619 156 4.50%
Time Deposits ................................. 62,402 2,723 5.83% 36,550 1,656 6.04%
Short-term Borrowings ......................... 386 10 3.46% -- -- 0.00%
--------- --------- --------- ---------
Total Interest Bearing Liabilities ... 137,696 4,266 4.14% 100,447 3,402 4.51%
--------- --------- --------- ---------
Non-Interest Bearing Liabilities:
Demand Deposits ............................... 34,973 25,406
Other Liabilities ............................. 2,212 1,474
---------
Total Non-Interest Bearing Liabilities 37,185 26,880
---------
Stockholders' Equity ................................. 20,026 18,515
---------
Total Liabilities and Stockholders'
Equity ............................... $ 194,907 $ 145,842
=========
NET INTEREST INCOME .................................. $ 6,241 $ 4,555
=========
NET INTEREST SPREAD (3) .............................. 3.55% 3.28%
NET INTEREST MARGIN (4) .............................. 4.57% 4.46%
(1) Included in interest income on loans are loan fees of $165 thousand and $47
thousand for the nine months ended September 30, 2001 and 2000,
respectively.
(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 September 30, 2001 Nine Months Ended September 30, 2001
Compared to Three Months Ended Compared to Nine Months Ended
September 30, 2000 September 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 ............ $ (240) $ (25) $ (265) $ 40 $ (159) $ (3) $ (122)
Investment Securities ......... 227 (92) 135 132 (50) -- 82
Loans (net of unearned income) 933 (218) 715 2,740 (128) (22) 2,590
------- ------- ------- ------- ------- ------- -------
Total Interest Income 920 (335) 585 2,912 (337) (25) 2,550
------- ------- ------- ------- ------- ------- -------
Interest Paid On:
NOW Deposits .................. 26 (30) (4) 40 (45) (1) (6)
Savings Deposits .............. 59 (203) (144) 174 (410) (5) (241)
Money Market Deposits ......... (40) (24) (64) 82 (48) -- 34
Time Deposits ................. 387 (197) 190 1,167 (94) (6) 1,067
Short-term Borrowings ......... 10 -- 10 10 -- -- 10
------- ------- ------- ------- ------- ------- -------
Total Interest Expense 442 (454) (12) 1,473 (597) (12) 864
------- ------- ------- ------- ------- ------- -------
Net Interest Income .. $ 478 $ 119 $ 597 $ 1,439 $ 260 $ (13) $ 1,686
======= ======= ======= ======= ======= ======= =======
19
Provision for Loan Losses
The provision for loan losses increased to $341 thousand for the first nine
months of 2001 compared to a provision of $193 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 September 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 and current economic
conditions. The allowance for loan losses totaled $1.9 million, or 1.30% of
total loans, at September 30, 2001.
Non-Interest Income
Total non-interest income was $1.0 million for the first nine months of 2001
compared to $613 thousand for the first nine months of 2000, an increase of $0.4
million, or 66.9%. The increase was attributable primarily to an increase in
other fees and commissions of $378 thousand, or 109.2%. The growth in other fees
and commissions is primarily due to higher non-yield related fee income on
loans, which increased by $296 thousand at September 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 $82 thousand, resulted primarily from the
continued growth of the Company.
Non-Interest Expense
Total non-interest expense amounted to $5.3 million for the nine months ended
September 30, 2001, an increase of $1.0 million, or 24.6%, 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 $489 thousand, or 24.7%, and reflected increases in the number
of employees from 70 full-time equivalents for the period ended September 30,
2000 to 86 full-time equivalents for the period ended September 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 $222 thousand, or 34.7%, for the
first nine 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 $330 thousand, or 20.5%, for the first nine months of
2001 compared to the first nine months of 2000. The increase was attributable to
increased other expenses resulting from our continued growth, in addition to
$195 thousand of systems related conversion costs as we prepared for a bank-wide
operating systems conversion which was successfully completed during July, 2001.
20
Income Tax Expense
For the nine months ended September 30, 2001, we recognized $601 thousand in
income tax expense compared to $12 thousand in income tax expense during the
first nine months of 2000. We were fully taxable in the first nine months of
2001 while during 2000 we were able to utilize our net operating loss
carryforwards. These carryforwards are now exhausted. The effective tax rate for
the first nine months of 2001 was 36.3%.
Return on Average Assets and Average Equity
Two industry measures of performance by a banking institution are its return on
average assets and return on average equity. Return on average assets ("ROA")
measures net income in relation to total average assets and indicates a
company's ability to employ its resources profitably. For the nine months ended
September 30, 2001, our ROA was 0.72% compared to 0.50% for the year ended
December 31, 2000. Return on average equity ("ROE") is determined by dividing
annual net income by average stockholders' equity and indicates how effectively
a company can generate net income on the capital invested by its stockholders.
ROE increased to 7.04% for the nine months ended September 30, 2001, compared to
4.13% for the year ended December 31, 2000.
RESULTS OF OPERATIONS for the three months ended September 30, 2001 compared to
the three months ended September 30, 2000
Net Income
For the three months ended September 30, 2001, we earned $374 thousand after
$214 thousand of income tax expense compared to $351 thousand in net income
after $12 thousand in income tax expense for the same period last year. During
2000, we benefited from the utilization of net operating loss carry-forwards
which were not available in 2001. Basic and diluted net income per share for the
three months ended September 30, 2001 were $0.18, compared to basic and diluted
net income per share of $0.18 and $0.17, respectively, for the same prior year
period. The increase in net income was primarily due to a $597 thousand, or
35.7%, increase in net interest income and a $93 thousand, or 47.4%, increase in
non-interest income. These items were partially offset by a $40 thousand, or
72.7%, increase in the provision for loan losses, a $425 thousand, or 29.3%,
increase in non-interest expenses, and an increase of $202 thousand in income
tax expense for the quarter ended September 30, 2001 compared to the same prior
year period.
Net Interest Income
Net interest income increased $597 thousand, or 35.7%, to $2.3 million for the
three months ended September 30, 2001 from $1.7 million for the same prior year
period. The increase in net interest income was due primarily to volume
increases as average interest earning assets, net of average interest bearing
liabilities, increased by $8.9 million, or 23.4%, for the three months ended
September 30, 2001 compared to the same prior year period. These volume related
21
increases were partially offset by a decline of 53 basis points in average yield
on interest earning assets in the third quarter of 2001 compared to the prior
year period.
Our net interest margin (annualized net interest income divided by average
interest earning assets) for the three months ended September 30, 2001 increased
to 4.62% from 4.35% for the same prior year period. The increase in the net
interest margin resulted primarily from repricing opportunities and timely
implementation of asset/liability management strategies as the Federal Reserve
Bank continued to reduce the target funds rate to 3.00% at September 30, 2001
from 6.5% at September 30, 2000.
Interest income increased $585 thousand, or 19.2%, to $3.6 million for the three
months ended September 30, 2001 compared to $3.0 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 $933 thousand and volume related
increases in income of $227 thousand in investment securities, partially offset
by volume related decreases in income of $240 thousand in Federal funds as these
assets were deployed to other areas. Our growth resulted in an increase in
average earning assets of $42.3 million, or 27.7%, to $194.8 million for the
three months ended September 30, 2001 compared to $152.5 million for the same
period in 2000.
In addition to the volume related net increase, total interest income decreased
by $335 thousand from rate related decreases as interest rates on earning assets
repriced to current lower yields compared to third quarter 2000 yields.
Interest expense for the third quarter of 2001 decreased $12 thousand, or 0.9%,
compared to the same prior year period. The decrease in interest expense was due
primarily to net volume increases in interest bearing deposits which accounted
for an increase in interest expense of $442 thousand and was offset by a
decrease of $454 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 adjusted to the changing rate and competition environment.
Provision for Loan Losses
The provision for loan losses increased to $95 thousand for the third quarter of
2001 compared to a provision of $55 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 September 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 and current economic conditions. The allowance for loan
losses totaled $1.9 million, or 1.30% of total loans, at September 30, 2001.
Non-Interest Income
Total non-interest income was $289 thousand for the third quarter of 2001
compared to $196 thousand for the third quarter of 2000, an increase of $93
thousand, or 47.4%. The increase was attributable primarily to an increase in
other fees and commissions of $78 thousand, or 72.2%. The growth in other fees
and commissions is primarily due to higher non-yield related fee income on
loans. The increase in non-yield related fee income on loans is primarily
attributable
22
to an increase in loan participations sold and the fees and commissions
generated on these transactions.
Non-Interest Expense
Total non-interest expense amounted to $1.9 million for the three months ended
September 30, 2001, an increase of $425 thousand, or 29.3%, 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 $196 thousand, or 29.0%, and reflected increases in the number
of employees from 70 full-time equivalents for the period ended September 30,
2000 to 86 full-time equivalents for the period ended September 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 $79 thousand, or 91.9%, for the third 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 and two additional branch facilities.
Depreciation expenses on leasehold improvements, furniture, and equipment
increased $44 thousand, or 37.6%, for the third quarter of 2001 compared to the
third quarter of 2000 due primarily to depreciation costs associated with
existing branch facilities, new deposit services facilities and purchases of
enhanced computer processing equipment.
Other expenses increased $106 thousand, or 18.6%, for the third 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 $129
thousand, a decrease of $55 thousand, as we moved to "in-house" processing;
professional and stockholder related costs amounted to $101 thousand, a decrease
of $3 thousand; marketing and advertising costs amounted to $89 thousand, a
increase of $22 thousand; stationery, supplies and printing costs amounted to
$88 thousand, an increase of $19 thousand; communications expenses amounted to
$60 thousand, a decrease of $4 thousand; systems related conversion costs
amounted to $65 thousand, compared to $-0- the prior year; and all other
expenses amounted to $145 thousand, an increase of $62 thousand.
Income Tax Expense
For the three months ended September 30, 2001, we recognized $214 thousand in
income tax expense compared to $12 thousand in income tax expense during the
same prior year period. We were fully taxable in the first nine months of 2001
while during 2000 we were able to utilize our net operating loss carryforwards.
The effective tax rate for the third quarter of 2001 was 36.4%.
Return on Average Assets and Average Equity
For the three months ended September 30, 2001, our ROA was 0.71% compared to
0.50% for the year ended December 31, 2000. ROE was 7.27% for the quarter ended
September 30, 2001, compared to 4.13% for the year ended December 31, 2000.
23
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 no Form 8-K's during the third quarter 2001.
24
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY BANCORP OF NEW JERSEY
(Issuer)
Date: November 7, 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
25