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 March 31, 2002
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
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(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 May 7, 2002
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INDEX
COMMUNITY BANCORP OF NEW JERSEY
PART I. FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at March 31, 2002
(Unaudited) and December 31, 2001 3
Consolidated Condensed Statements of Income for the three
months ended March 31, 2002 and 2001 (Unaudited) 4
Consolidated Condensed Statement of Changes in Stockholders' 5
Equity at March 31, 2002 (Unaudited)
Consolidated Condensed Statements of Cash Flows for the three
months ended March 31, 2002 and 2001 (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 11-20
PART II. OTHER INFORMATION
- -------- ------------------
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - None 21
b. Reports on Form 8-K - None 21
SIGNATURES 22
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED BALANCE SHEETS
March 31,
2002 December 31,
(Unaudited) 2001
--------- ---------
(Dollars in thousands)
ASSETS
Cash and cash equivalents:
Cash and due from banks ...................................................... $ 5,726 $ 9,342
Federal funds sold ........................................................... 5,750 --
- ------------------------------------------------------------------------------------ --------- ---------
Total cash and cash equivalents 11,476 9,342
- ------------------------------------------------------------------------------------ --------- ---------
Investment securities available-for-sale ........................................... 56,901 65,439
Investment securities held-to-maturity (fair value of $12,397 at
March 31, 2002 and $15,217 at December 31, 2001) ............................. 12,535 15,310
Loans receivable ................................................................... 158,523 147,603
Allowance for loan loss ............................................................ (2,053) (1,964)
- ------------------------------------------------------------------------------------ --------- ---------
Net loans receivable 156,470 145,639
- ------------------------------------------------------------------------------------ --------- ---------
Premises and equipment, net ........................................................ 6,389 6,335
Accrued interest receivable ........................................................ 1,608 1,457
Other assets ....................................................................... 2,361 2,116
- ------------------------------------------------------------------------------------ --------- ---------
Total Assets $ 247,740 $ 245,638
- ------------------------------------------------------------------------------------ ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing demand .................................................. $ 43,895 $ 43,539
Interest bearing - NOW ....................................................... 17,853 24,741
Savings and money market ..................................................... 83,240 66,466
Certificates of deposit, under $100,000 ...................................... 48,965 47,894
Certificates of deposit, $100,000 and over ................................... 31,202 38,488
- ------------------------------------------------------------------------------------ --------- ---------
Total deposits 225,155 221,128
- ------------------------------------------------------------------------------------ --------- ---------
Short-term borrowings .............................................................. -- 1,600
Accrued interest payable ........................................................... 714 1,334
Other liabilities .................................................................. 467 433
- ------------------------------------------------------------------------------------ --------- ---------
Total liabilities 226,336 224,495
- ------------------------------------------------------------------------------------ --------- ---------
Stockholders' equity
Common stock - authorized 10,000,000 shares of
no par value; issued and outstanding, net of treasury
shares, 2,014,729 at March 31, 2002 and December
31, 2001 ............................................................... 23,147 23,147
Accumulated deficit .......................................................... (1,336) (1,889)
Accumulated other comprehensive income ....................................... (44) 248
Treasury stock, 22,357 shares, at cost ....................................... (363) (363)
- ------------------------------------------------------------------------------------ --------- ---------
Total stockholders' equity 21,404 21,143
- ------------------------------------------------------------------------------------ --------- ---------
Total Liabilities and Stockholder's Equity $ 247,740 $ 245,638
- ------------------------------------------------------------------------------------ ========= =========
See accompanying notes to consolidated condensed financial statements.
3
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended
March 31,
---------------------------
2002 2001
---------------------------
(Dollars in thousands, except per share data)
INTEREST INCOME
Loans, including Fees ......................... $2,792 $2,726
Federal funds sold ............................ 2 200
Investment securities - taxable ............... 962 543
- ---------------------------------------------------- ------ ------
Total interest income .............. 3,756 3,469
- ---------------------------------------------------- ------ ------
INTEREST EXPENSE
Interest bearing - NOW ........................ 42 62
Savings and money market ...................... 398 534
Certificates of deposit ....................... 811 936
Short-term borrowings ......................... 29 --
- ---------------------------------------------------- ------ ------
Total interest expense ............. 1,280 1,532
- ---------------------------------------------------- ------ ------
Net interest income ................ 2,476 1,937
Provision for loan losses .......................... 90 146
- ---------------------------------------------------- ------ ------
Net interest income after provision
for loan losses ............... 2,386 1,791
- ---------------------------------------------------- ------ ------
Non-interest income:
Service fees on deposit accounts .............. 96 102
Service fees on loans ......................... 136 186
Other fees and commissions .................... 154 70
- ---------------------------------------------------- ------ ------
Total non-interest income .......... 386 358
- ---------------------------------------------------- ------ ------
Non-interest expense:
Salaries and wages ............................ 795 649
Employee benefits ............................. 134 103
Occupancy expense ............................. 160 122
Depreciation - occupancy, furniture & equipment 217 146
Other ......................................... 621 603
- ---------------------------------------------------- ------ ------
Total non-interest expense ......... 1,927 1,623
- ---------------------------------------------------- ------ ------
Income before income taxes ......... 845 526
Income tax expense ................................. 292 192
- ---------------------------------------------------- ------ ------
Net Income ......................... $ 553 $ 334
- ---------------------------------------------------- ====== ======
Per Common Share:
Net income - basic ............................ $ 0.26 $ 0.16
Net income - diluted .......................... $ 0.25 $ 0.16
Weighted average shares outstanding (in thousands):
Basic ......................................... 2,115 2,116
Diluted ....................................... 2,193 2,143
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, 2001 ................... $23,147 $ (363) $(1,889) $ 248 $ 21,143
------- ------- ------- ----- --------
Comprehensive Income:
Net Income ............................ -- -- 553 -- $ 553 553
Decrease in unrealized holding
gains on securities, net........... -- -- -- (292) (292) (292)
-------- --------
Total Comprehensive Income .................. -- -- -- -- $ 261
------- ------- -------- -------- ========
Balance, March 31, 2002 (Unaudited) ......... $23,147 $ (363) $(1,336) $ (44) $ 21,404
======= ======= ======= ======== ========
See accompanying notes to consolidated condensed financial statements.
5
COMMUNITY BANCORP OF NEW JERSEY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31,
------------------------------
2002 2001
-------- --------
(Dollars in thousands)
Cash flows from operating activities:
Net income ..................................................... $ 553 $ 334
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ......................... 217 146
Provision for loan losses ............................. 90 146
Accretion of investment discount ...................... (9) (55)
Amortization of investment premium .................... 2 8
(Increase) decrease in accrued interest receivable..... (151) 475
(Increase) decrease other assets ...................... (78) 224
(Decrease) increase in accrued interest payable ....... (620) 21
Increase in other liabilities ......................... 34 97
-------- --------
Net cash provided by operating activities ....... 38 1,396
-------- --------
Cash flows from investing activities:
Purchases of investment securities available-for-sale .......... (3,069) (532)
Proceeds from maturities and calls of investment securities .... 13,930 27,430
Net increase in loans made to customers ........................ (10,921) (11,065)
Purchases of premises and equipment ............................ (271) (637)
-------- --------
Net cash used in investing activities ........... (331) 15,196
-------- --------
Cash flows from financing activities:
Net increase in demand deposits and savings accounts ........... 10,242 4,101
Net (decrease) increase in certificates of deposit ............. (6,215) 5,858
Decrease in short-term borrowings .............................. (1,600) --
-------- --------
Net cash provided by financing activities ....... 2,427 9,959
-------- --------
Net increase (decrease) in cash and cash equivalents ................... 2,134 26,551
Cash and cash equivalents as of beginning of year ...................... 9,342 9,624
-------- --------
Cash and cash equivalents as of end of period .......................... $ 11,476 $ 36,175
-------- ========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ....................... $ 1,900 $ 1,511
Cash paid during the period for income taxes ................... $ 100 $ 74
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, 2001. The results for the three months ended
March 31, 2002 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2002.
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
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 retains the existing requirements to
recognize and measure the impairment of long-lived assets to be held and used or
to be disposed of by sale. However, SFAS No. 144 makes changes to the scope and
certain measurement requirements of existing accounting guidance. SFAS No. 144
also changes the requirements relating to reporting the effects of a disposal or
discontinuation of a segment of a business. SFAS No. 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001
and interim periods within those fiscal years. The adoption of this statement is
not expected to have a significant impact on the financial condition or results
of operations of the Company.
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 loan 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.
7
NOTE D - STOCK DIVIDEND
On April 9, 2002 the Company's Board of Directors approved a 5% stock dividend
payable May 15, 2002 to shareholders of record as of April 23, 2002. Weighted
average shares outstanding and earnings per share were retroactively adjusted to
reflect the stock dividend.
NOTE E - SUBSEQUENT EVENT
Subsequent to the close of the first quarter. In May of 2002, the Company
received oral notice from the principals of a Borrower that the Borrower
expected to be unable to comply with the payment terms of Its loan agreements
with the Company. The Company has sold participatlon interests in these credit
facilities to several other financial institutions. At May 10, 2002, the Company
holds $2.4 million in direct obligations from this borrower, and acts as agent
for $11.9 million in non-recourse participations. All loans are secured by
payment bonds issued by a surety company unrelated to the borrower. The Company
has notified the bond issuer of these developments, and is continuing to
investigate and review this situation.
8
COMMUNITY BANCORP OF NEW JERSEY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Continued
NOTE F - INVESTMENT SECURITIES
The following tables present the book values, fair values and gross unrealized
gains and losses of the Company's investment securities portfolio as of March
31, 2002 and December 31, 2001 (Dollars in thousands).
March 31, 2002 (Unaudited)
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ----------- -----------
Securities available-for-sale:
U.S. Government and agency securities.... $56,458 $ 235 $ (305) $56,388
Other securities ........................ 513 -- -- 513
------- ----- -------- -------
$56,971 $ 235 $ (305) $56,901
======= ===== ======== =======
Securities held-to-maturity:
U.S. Government and agency securities ... $11,500 $ -- $ (173) $11,327
Other securities ........................ 1,035 35 -- 1,070
------- ----- -------- -------
$12,535 $ 35 $ (173) $12,397
======= ===== ======== =======
December 31, 2001
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ----------- -----------
Securities available-for-sale:
U.S. Government and agency securities $64,569 $ 510 $ (120) $64,959
Other securities .................... 480 -- -- 480
------- ----- -------- -------
$65,049 $ 510 $ (120) $65,439
======= ===== ======== =======
Securities held-to-maturity:
U.S. Government and agency securities $14,275 $ 6 $ (145) $14,136
Other securities .................... 1,035 46 -- 1,081
------- ----- -------- -------
$15,310 $ 52 $ (145) $15,217
======= ===== ======== =======
The following table sets forth as of March 31, 2002 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 .............. $ -- $ -- $ 535 $ 535
Due after one year through five years 56,458 56,388 11,500 11,327
Due after five years through ten years -- -- 500 535
Due after ten years .................. 513 513 -- --
------- ------- ------- -------
$56,971 $56,901 $12,535 $12,397
======= ======= ======= =======
9
COMMUNITY BANCORP OF NEW JERSEY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
Continued
NOTE G - LOANS RECEIVABLE and ALLOWANCE FOR LOAN LOSSES
The following table summarizes the components of the loan portfolio as of March
31, 2002 and December 31, 2001 (Dollars in thousands).
Loan Portfolio By Type of Loan
----------------------------------------------------
March 31, 2002
(Unaudited) December 31, 2001
------------------------ -------------------------
Amount Percent Amount Percent
----------- ---------- ----------- -----------
Commercial and industrial loans...... $ 27,833 17.56% $ 25,736 17.44%
Commercial mortgage loans ........... 77,094 48.63% 74,258 50.31%
Residential mortgages ............... 7,830 4.94% 6,970 4.72%
Construction loans .................. 26,683 16.83% 21,962 14.88%
Consumer loans ...................... 19,055 12.02% 18,559 12.57%
Other loans ......................... 28 0.02% 118 0.08%
-------- ------ -------- ------
$158,523 100.00% $147,603 100.00%
======== ====== ======== ======
The following table represents the activity in the allowance for loan losses for
the three month periods ended March 31, 2002 and 2001 and the year ended
December 31, 2001 (Dollars in thousands).
Allowance For Loan Losses
--------------------------------------
Three Months Ended
March 31,
(Unaudited) Year Ended
------------------------ December 31,
2002 2001 2001
----------- ---------- -----------
Balance - beginning of period ............... $ 1,964 $1,584 $ 1,584
Charge-offs ................................. (1) -- (6)
Provision for loan losses ................... 90 146 386
------- ------ -------
Balance - end of period ..................... $ 2,053 $1,730 $ 1,964
======= ====== =======
Balance of Allowance at period-end as a %
of loans at period-end .................. 1.30% 1.30% 1.33%
======= ====== =======
10
11
COMMUNITY BANCORP OF NEW JERSEY
Management's Discussion and Analysis of Financial Condition and Results of
Operations
This financial review presents management's discussion and analysis of financial
condition and results of operations. It should be read in conjunction with the
consolidated condensed financial statements and the accompanying notes included
elsewhere herein.
FINANCIAL CONDITION
Total assets at March 31, 2002 increased by $2.1 million, or 0.9%, to $247.7
million compared to $245.6 million at December 31, 2001. Total assets averaged
$250.0 million in the first three months of 2002, a $46.8 million, or 23.0%,
increase from the 2001 full year average of $203.2 million. Average loans
increased $14.2 million, or 10.3%, to $152.7 million in the first three months
of 2002, from the 2001 full year average of $138.5 million. Average investment
securities increased by $40.0 million, or 97.6%, to $81.0 million; average
Federal funds sold decreased by $10.2 million, or 95.3%, to $0.5 million; the
average of all other assets increased by $2.9 million, or 19.6%, to $17.7
million; and the loan loss reserve average increased $0.2 million, or 11.1%, to
$2.0 million during the first three months of 2002 compared to the full year
2001 averages.
These increases in average assets were funded primarily by a $40.6 million, or
22.6%, increase in average deposits, as average deposits for the first three
months of 2002 increased to $220.4 million from the full year 2001 average of
$179.8 million. Increases in average assets were further funded by a $5.1
million, or 463.6%, increase in average short-term borrowings, as average
short-term borrowings for the first three months of 2002 increased to $6.2
million from the full year 2001 average of $1.1 million.
Lending Activity
- ----------------
Total loans at March 31, 2002 were $158.5 million, a 7.4%, or $10.9 million
increase from December 31, 2001. The loan portfolio consists primarily of loans
secured by real estate, and, to a lesser extent, commercial, construction and
consumer loans. Changes in the composition of the loan portfolio during the
comparative periods included increases of $2.8 million in commercial mortgage
loans, $4.7 million in construction loans, $2.1 million in commercial and
industrial loans, $0.5 million in consumer and other loans and $0.8 million in
residential mortgage loans.
The 7.4% increase in loans at March 31, 2002 compared to December 31, 2001 is
partially attributable to greater penetration of our marketplace and continued
loan demand within our market area and targeted customer base. 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. Further enhancing loan growth has been
our desire to provide quality customer service. 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 $2.1 million, or 1.30% of total loans, at
March 31, 2002 compared to $2.0 million, or 1.30% of total loans, at December
31, 2001. At March 31, 2002 and December 31, 2001, 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 decreased by $11.3 million, or 14.0%, to $69.4 million at
March 31, 2002 compared to $80.7 million at December 31, 2001. During the last
three 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 2001 and
projected through 2002. During the first three months of 2002, forecasted
maturities and calls of $13.9 million in investment securities were used to fund
loan growth amounting to $10.9 million and additional purchases of investment
securities of $3.1 million.
Management determines the appropriate classification of securities at the time
of purchase. At March 31, 2002, investment securities of $56.9 million, or 82.0%
of the total investment securities portfolio, were classified as
available-for-sale and investment securities of $12.5
12
million, or 18.0% 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 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 $4.1
million, or 1.9%, to $225.2 million at March 31, 2002 compared to $221.1 million
at December 31, 2001. 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 we adjusted the mix of our deposit base through marketing and
pricing initiatives, lower costing demand deposits and savings accounts
increased by $10.2 million, while higher costing certificates of deposit
decreased by $6.2 million.
Average total deposits increased by $40.6 million, or 22.6%, to $220.4 million
for the three months ended March 31, 2002 compared to the 2001 full year average
of $179.8 million. Changes in the deposit mix averages for the three months
ended March 31 2002 compared to the 2001 full year averages include a $19.7
million, or 38.6%, increase in savings deposits; a $1.1 million, or 5.9%,
decrease in NOW account deposits; a $16.8 million, or 25.3%, increase in time
deposits; a $0.4 million, or 6.2%, increase in money market deposits; and a $4.8
million, or 13.2%, 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. 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 $76.0 million at March 31, 2002, 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.
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
4.6% and 3.8% of our total assets at March 31, 2002 and December 31, 2001,
respectively.
13
As shown in the Consolidated Condensed Statements of Cash Flows, our primary
source of funds at March 31, 2002 was increased targeted deposit products and
proceeds from maturities and calls of investment securities. Deposit increases
amounted to $4.1 million for the three months ended March 31, 2002 and proceeds
from maturities and calls of investment securities amounted to $13.9 million.
During the first three months of 2002, we utilized deposit growth and liquid
assets as funding sources for increased loans made to customers amounting to
$10.9 million and securities purchases amounting to $3.1 million.
We also have several additional sources of liquidity, including the
available-for-sale investment securities portfolio, which at March 31, 2002
amounted to $56.9 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 $11.0 million in Federal funds
and may borrow funds at the Federal Reserve discount window, subject to our
ability to supply collateral. We are also a member of the Federal Home Loan Bank
of New York and have an additional combined overnight borrowing line term line
of $21.4 million. In addition, subject to certain Federal Home Loan Bank
requirements, we may also obtain longer-term advances of up to 30% of our
assets. As of March 31, 2002, we had no borrowings.
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 $261 thousand at March 31, 2002 compared to
December 31, 2001. The changes in stockholders' equity during the three months
ended March 31, 2002 were comprised of an increase from net income of $553
thousand which was partially off-set by a decrease of $292 thousand in the
unrealized gains, net of taxes, in the available-for-sale investment securities
portfolio.
Our regulators, the Board of Governors of the Federal Reserve System (which
regulates bank holding companies), and the Federal Deposit Insurance
Corporation, have issued guidelines classifying and defining capital.
The following table summarizes the risk-based and leverage capital ratios for
the Company and the Bank at March 31, 2002 as well as the regulatory required
minimum and "well capitalized" capital ratios:
March 31, 2002 Regulatory Requirement
-------------- ----------------------
Company Bank Minimum "Well Capitalized"
------- ---- ------- ------------------
Risk-based Capital:
Tier I capital ratio...........11.84% 11.84% 4.00% 6.00%
Total capital ratio............12.97% 12.98% 8.00% 10.00%
Leverage ratio................ 8.58% 8.58% 3.00%-5.00% 5.00% or greater
14
In addition, pursuant to the order of the New Jersey Department of Banking and
Insurance approving the Bank's charter, as amended during April, 2001, for its
first five years of operation, the Bank is required to maintain a ratio of
equity to total assets of at least 8.00%. As of March 31, 2002 the Bank's ratio
of equity capital to total assets was 8.66%. The Bank will have been in
operation for five years in May 2002.
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 three months ended March 31, 2002 compared to the
three months ended March 31, 2001
Net Income
- ----------
For the three months ended March 31, 2002, we earned $553 thousand compared to
$334 thousand in net income for the same period last year. Basic and diluted net
income per share for the three months ended March 31, 2002 was $0.26 and $0.25,
respectively, compared to basic and diluted net income per share of $0.16 for
the same prior year period. The increase in net income was primarily due to a
$539 thousand, or 27.8%, increase in net interest income, a $28 thousand, or
7.8%, increase in non-interest income and a reduction in loan loss provision of
$56 thousand, or 38.4%. These items were partially offset by a $304 thousand, or
18.7% increase in non-interest expenses, and a $100 thousand, or 52.1% increase
in tax expense.
Net Interest Income
- -------------------
Net interest income increased $539 thousand, or 27.8%, to $2.5 million for the
three months ended March 31, 2002 from $1.9 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 $5.9 million, or 13.8%, for the first three months of
2002 compared to the same prior year period.
Our net interest margin (annualized net interest income divided by average
interest earning assets) for the three months ended March 31, 2002 decreased to
4.29% compared to 4.50% for the same prior year period. The decrease in net
interest margin of 21 basis points resulted from a change in the mix of average
interest earning assets, as average investment securities increased
15
by 147.4% to $81.0 million from $32.8 million. 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
to 1.75%.
Interest income increased $0.3 million, or 8.6%, to $3.8 million for the three
months ended March 31, 2002 compared to $3.5 million for the same period in
2001. The improvement in interest income was primarily due to volume related
increases in income from the loan portfolio of $0.6 million and volume related
increases in income of $0.8 million in investment securities and was off-set by
a reduction in Federal funds sold income of $0.2 million, as our growth resulted
in an increase in average earning assets of $59.8 million, or 34.3%, to $234.2
million for the three months ended March 31, 2002 compared to $174.4 million for
the same period in 2001.
In addition to the volume related net increase, total interest income decreased
by $0.9 million from rate related decreases as interest rates on earning assets
repriced to current lower yields compared to yields in the same period in 2001.
Interest expense for the first three months of 2002 decreased $0.2 million, or
13.3%, compared to the same prior year period. The decrease in interest expense
was due primarily to net rate related decreases in interest bearing deposits,
which accounted for $0.8 million of the expense decrease, and was partially
offset by $0.6 million attributable to net volume related increases. 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 changing market rates and the need to provide cost effective sources of
funds.
The following tables titled "Consolidated Average Balance Sheet with Resultant
Interest and Average Rates" and "Analysis of Changes in Consolidated Net
Interest Income" present by category the major factors that contributed to the
changes in net interest income for the quarter ended March 31, 2002 compared to
the quarter ended March 31, 2001.
16
CONSOLIDATED AVERAGE BALANCE SHEETS
With Resultant Interest And Average Rates
Three Months Ended Three Months Ended
March 31, 2002 March 31, 2001
------------------------------------- -------------------------------------
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 .......................... $ 456 $ 2 1.93% $ 15,094 $ 200 5.37%
Investment Securities ....................... 81,043 962 4.75% 32,754 543 6.63%
Loans (net of unearned income) (1) (2) ...... 152,719 2,792 7.41% 126,558 2,726 8.74%
--------- --------- --------- --------
Total Interest Earning Assets ........ 234,218 3,756 6.50% 174,406 3,469 8.07%
--------- --------- --------- --------
Non-Interest Earning Assets:
Loan Loss Reserve ........................... (1,978) (1,626)
All Other Assets ............................ 17,713 12,453
--------- ---------
Total Assets ......................... $ 249,953 $ 185,233
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-Bearing Liabilities:
NOW Deposits ................................ $ 18,432 42 0.93% $ 15,239 62 1.65%
Savings Deposits ............................ 70,712 360 2.06% 47,086 432 3.72%
Money Market Deposits ....................... 6,894 38 2.26% 9,927 102 4.17%
Time Deposits ............................... 83,245 811 3.95% 59,378 936 6.39%
Short-term Borrowings ....................... 6,201 29 1.90% -- -- 0.00%
--------- --------- --------- --------
Total Interest Bearing Liabilities.... 185,484 1,280 2.80% 131,630 1,532 4.72%
--------- --------- --------- --------
Non-Interest Bearing Liabilities:
Demand Deposits ............................. 41,136 31,765
Other Liabilities ........................... 1,859 2,186
--------- --------
Total Non-Interest Bearing Liabilities 42,995 33,951
--------- --------
Stockholders' Equity ............................... 21,474 19,652
--------- ---------
Total Liabilities and Stockholders'
Equity ............................... $ 249,953 $ 185,233
========= =========
NET INTEREST INCOME ................................ $ 2,476 $ 1,937
========= =========
NET INTEREST SPREAD (3) ............................ 3.70% 3.35%
NET INTEREST MARGIN (4) ............................ 4.29% 4.50%
(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.
17
ANALYSIS OF CHANGES IN CONSOLIDATED NET INTEREST INCOME
Three Months Ended March 31, 2002
Compared to Three Months Ended March 31, 2001
-------------------------------------------------
Increase (Decrease) Due To
-------------------------------------------------
Volume Rate Time Net
-------- -------- -------- --------
(In thousands)
Interest Earned On:
Federal Funds Sold .............. $ (194) $ (4) $ -- $ (198)
Investment Securities ........... 801 (382) -- 419
Loans (net of unearned income) .. 563 (497) -- 66
------- ------- ------- -------
Total Interest Incomennnnn 1,170 (883) -- 287
------- ------- ------- -------
Interest Paid On:
NOW Deposits .................... 13 (33) -- (20)
Savings Deposits ................ 217 (289) -- (72)
Money Market Deposits ........... (31) (33) -- (64)
Time Deposits ................... 376 (501) -- (125)
Short-term Borrowings ........... 29 -- -- 29
------- ------- ------- -------
Total Interest Expense ... 604 (856) -- (252)
------- ------- ------- -------
Net Interest Income ...... $ .566 $ (27) $ -- $ 539
======= ======= ======= =======
18
Provision for Loan Losses
- -------------------------
The provision for loan losses decreased to $90 thousand for the first three
months of 2002 compared to a provision of $146 thousand for the same period in
2001. The provision is the result of our review of several factors, including
increased loan balances and our assessment of economic conditions, credit
quality and other loss factors that may be inherent in the existing loan
portfolio. Although we had no non-accrual loans at March 31, 2002, 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 $2.1 million, or 1.30% of
total loans, at March 31, 2002.
Non-Interest Income
- -------------------
Total non-interest income was $386 thousand for the first three months of 2002
compared to $358 thousand for the first three months of 2001, an increase of $28
thousand, or 7.8%. The increase was attributable primarily to the continued
growth of the Company.
Non-Interest Expense
- --------------------
Total non-interest expense amounted to $1.9 million for the three months ended
March 31, 2002, an increase of $0.3 million, or 18.8%, over the same prior year
period. The increase was due primarily to increases in employment expenses as
well as increases in occupancy expenses, equipment expenses and other expenses
generally attributable to our growth. Of this increase, employment costs
increased $177 thousand, or 23.5%, and reflected increases in the number of
employees from 79 full-time equivalents for the period ended March 31, 2001 to
94 full-time equivalents for the period ended March 31, 2002. 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 and Shrewsbury, New
Jersey branches.
Occupancy and depreciation expenses increased $109 thousand, or 40.7%, for the
first three months of 2002 compared to the same period in 2001. The increase was
attributable primarily to increased lease expense and increased common area
maintenance costs due on new branch offices, in addition to increased
depreciation costs associated with new deposit services facilities and on
purchases of enhanced computer processing equipment.
Other expenses increased $18 thousand, or 3.0%, for the first three months of
2002 compared to the first three months of 2001. The increase was attributable
to increased other expenses resulting from our continued growth. In addition,
2001 expenses were increased by $70 thousand due to systems related conversion
costs as we prepared for a bank-wide operating systems conversion which was
successfully completed during July, 2001.
Income Tax Expense
- ------------------
For the three months ended March 31, 2002, we recognized $292 thousand in income
tax expense compared to $192 thousand in income tax expense during the first
three months of 2001. The effective tax rate for the first three months of 2002
was 34.6% compared to 36.5% for the same period during 2001.
19
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 three months ended
March 31, 2002, our ROA was 0.90% compared to 0.74% for the year ended December
31, 2001. 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 10.45% for the three months ended March 31, 2002, compared to 7.45%
for the year ended December 31, 2001.
20
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
- ------- -----------------
Subsequent to the close of the first quarter. In May of 2002, the
Company received oral notice from the principals of a Borrower that
the Borrower expected to be unable to comply with the payment terms
of Its loan agreements with the Company. The Company has sold
participatlon interests in these credit facilities to several other
financial institutions. At May 10, 2002, the Company holds $2.4
million in direct obligations from this borrower, and acts as agent
for $11.9 million in non-recourse participations. All loans are
secured by payment bonds issued by a surety company unrelated to the
borrower. The Company has notified the bond issuer of these
developments, and is continuing to investigate and review this
situation.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits - None
(b) Reports on Form 8-K - None
21
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY BANCORP OF NEW JERSEY
-------------------------------
(Issuer)
Date: May 7, 2002 By: /s/ Robert D. O'Donnell
------------ -----------------------
ROBERT D. O'DONNELL
President and Chief Executive Officer
By: /s/ Michael Bis
---------------
MICHAEL BIS
Sr. Vice President and Chief Financial Officer
22