UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2007.
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ________.
Commission file number 0-49925
Central Jersey Bancorp
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(Exact name of registrant as specified in its charter)
New Jersey 22-3757709
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
627 Second Avenue, Long Branch, New Jersey 07740
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(Address of principal executive offices, including zip code)
(732) 571-1300
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(Registrant's telephone number, including area code)
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(Former name, former address and formal fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 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 | |
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Check one:
Large accelerated filer | | Accelerated filer |X| Non-accelerated filer | |
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes | | No |X|.
As of November 6, 2007, there were 8,744,990 shares of the registrant's common
stock, par value $.01 per share, outstanding.
Central Jersey Bancorp
INDEX TO FORM 10-Q
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition
as of September 30, 2007 (unaudited) and December 31, 2006 ................................. 1
Consolidated Statements of Income (unaudited)
for the three and nine months ended September 30, 2007 and 2006 ............................ 2
Consolidated Statements of Changes in Shareholders' Equity (unaudited)
for the nine months ended September 30, 2007 and 2006....................................... 3
Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 2007 and 2006 ...................................... 4
Notes to Unaudited Consolidated Financial Statements ....................................... 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations .......................................... 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk ................................ 25
Item 4. Controls and Procedures ................................................................... 26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ......................................................................... 27
Item 1A. Risk Factors .............................................................................. 27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ............................... 27
Item 3. Defaults Upon Senior Securities ........................................................... 27
Item 4. Submission of Matters to a Vote of Security Holders ....................................... 27
Item 5. Other Information ......................................................................... 27
Item 6. Exhibits .................................................................................. 27
Signatures ........................................................................................... 28
Index of Exhibits ................................................................................... E-1
Forward-Looking Statements
Statements contained in this report that are not historical fact are
forward-looking statements, as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such statements may be characterized as
management's intentions, hopes, beliefs, expectations or predictions of the
future. It is important to note that such forward-looking statements are subject
to risks and uncertainties that could cause actual results to differ materially
from those projected in such forward-looking statements. Factors that could
cause future results to vary materially from current expectations include, but
are not limited to, changes in interest rates, economic conditions, deposit and
loan growth, real estate values, loan loss provisions, competition, customer
retention, changes in accounting principles, policies or guidelines and
legislative and regulatory changes.
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 2007 AND DECEMBER 31, 2006
(dollars in thousands)
September 30, December 31,
2007 2006
------------- ------------
ASSETS (unaudited)
Cash and due from banks $ 11,015 $ 16,162
Federal funds sold 18,481 21,634
------------- ------------
Cash and cash equivalents 29,496 37,796
Investment securities available-for-sale, at market value 110,318 95,735
Investment securities held-to-maturity (market value of $17,353 (unaudited)
and $20,454 at September 30, 2007 and December 31, 2006, respectively) 17,712 20,820
Federal Reserve Bank Stock 1,956 1,952
Federal Home Loan Bank Stock 550 542
Loans held-for-sale 544 242
Loans 307,552 315,322
Less: Allowance for loan losses 3,489 3,229
------------- ------------
Loans, net 304,063 312,093
Accrued interest receivable 2,173 2,613
Premises and equipment 4,768 5,357
Bank owned life insurance 3,535 3,447
Goodwill 26,957 26,957
Core deposit intangible 2,064 2,478
Due from broker -- 3,527
Other assets 2,753 2,740
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Total assets $ 506,889 $ 516,299
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LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 76,647 $ 83,482
Interest bearing 329,369 343,795
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406,016 427,277
Other borrowings 27,075 17,099
Subordinated debentures 5,155 5,155
Accrued expenses and other liabilities 1,491 1,273
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Total liabilities 439,737 450,804
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Shareholders' equity:
Common stock, par value $0.01 per share. Authorized
100,000,000 shares and issued and outstanding
8,744,990 and 8,667,281 shares at September 30, 2007 and
December 31, 2006, respectively 87 87
Additional paid-in capital 60,786 60,501
Accumulated other comprehensive loss, net of tax benefit (141) (1,409)
Retained earnings 6,420 6,316
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Total shareholders' equity 67,152 65,495
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Total liabilities and shareholders' equity $ 506,889 $ 516,299
============= ============
See accompanying notes to consolidated financial statements.
1
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(dollars in thousands, except per share amounts)
Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
------------ ------------ ------------ ------------
(unaudited) (unaudited)
Interest and dividend income:
Interest and fees on loans $ 5,731 $ 5,859 $ 17,320 $ 17,346
Interest on securities available-for-sale 1,501 1,101 3,622 3,381
Interest on federal funds sold and due from banks 348 239 1,302 351
Interest on securities held-to-maturity 212 245 674 750
------------ ------------ ------------ ------------
Total interest and dividend income 7,792 7,444 22,918 21,828
Interest expense:
Interest expense on deposits 3,237 2,943 9,633 7,605
Interest expense on other borrowings 196 169 539 1,081
Interest expense on subordinated debentures 111 113 330 317
------------ ------------ ------------ ------------
Total interest expense 3,544 3,225 10,502 9,003
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Net interest income 4,248 4,219 12,416 12,825
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Provision for loan losses: -- 318 165 465
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 4,248 3,901 12,251 12,360
------------ ------------ ------------ ------------
Other income (loss):
Impairment on available-for-sale securities -- -- (1,957) --
Service charges on deposit accounts 373 367 1,093 1,048
Gain on sale of available-for-sale securities -- -- 87 --
Income on bank owned life insurance 30 27 88 82
Gain on sale of loans held-for-sale 14 28 47 189
Other service charges, commissions and fees -- -- -- 6
------------ ------------ ------------ ------------
Total other income (loss) 417 422 (642) 1,325
------------ ------------ ------------ ------------
Operating expenses:
Salaries and employee benefits 1,785 1,831 5,280 5,563
Net occupancy expenses 484 442 1,416 1,268
Data processing fees 219 205 663 604
Core deposit intangible amortization 138 155 414 464
Abandonment of leasehold improvements 137 -- 137 --
Other operating expenses 940 1,014 2,888 2,883
------------ ------------ ------------ ------------
Total other expenses 3,703 3,647 10,798 10,782
------------ ------------ ------------ ------------
Income before provision for income taxes 962 676 811 2,903
Income tax expense 331 239 707 1,066
------------ ------------ ------------ ------------
Net income $ 631 $ 437 $ 104 $ 1,837
============ ============ ============ ============
Basic earnings per share $ .07 $ .05 $ .01 $ .21
============ ============ ============ ============
Diluted earnings per share $ .07 $ .05 $ .01 $ .20
============ ============ ============ ============
Average basic shares outstanding 8,744,383 8,675,672 8,699,379 8,642,994
============ ============ ============ ============
Average diluted shares outstanding 9,154,818 9,156,902 9,130,577 9,154,218
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
2
CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(dollars in thousands)
Accumulated
Additional other
Common paid-in comprehensive Retained
stock capital (loss) income earnings Total
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Balance at December 31, 2005 $ 86 $ 59,995 $ (2,153) $ 3,850 $ 61,778
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Comprehensive income:
Net income -- -- -- 1,837 1,837
Unrealized loss on securities
available-for-sale, net of tax of $160 -- -- 277 -- 277
--------
Total comprehensive income -- -- -- -- 2,114
Exercise of stock options - 113,150 shares
(including tax benefit of $250) 1 724 -- -- 725
Common stock retired - 22,599 shares -- (217) -- -- (217)
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Balance at September 30, 2006 $ 87 $ 60,502 $ (1,876) $ 5,687 $ 64,400
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Balance at December 31, 2006 $ 87 $ 60,501 $ (1,409) $ 6,316 $ 65,495
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Comprehensive income:
Net income -- -- -- 104 104
Unrealized loss on securities
available-for-sale, net of tax of ($100) -- -- (93) -- (93)
Reclassification adjustment for gains
included in net income net of tax of ($37) -- -- 50 -- 50
Impairment on securities
available-for-sale, net of tax of ($646) -- -- 1,311 -- 1,311
--------
Total comprehensive income -- -- -- -- 1,372
Exercise of stock options - 78,223 shares -- 289 -- -- 289
(including tax benefit of $13)
Cash paid for fractional shares -- (4) -- -- (4)
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Balance at September 30, 2007 $ 87 $ 60,786 $ (141) $ 6,420 $ 67,152
===========================================================================================================
See accompanying notes to consolidated financial statements.
3
Central Jersey Bancorp and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(dollars in thousands)
Nine months ended
September 30,
2007 2006
------------ ------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net income $ 104 $ 1,837
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in cash surrender value of life insurance (88) (82)
Deferred taxes 286 416
Tax benefit of stock option exercises (13) --
Provision for loan losses 165 465
Depreciation and amortization 541 647
Net discount accretion on held-to-maturity securities (8) (5)
Net premium amortization on available-for-sale securities 43 129
Core deposit intangible amortization 414 464
Impairment on available-for-sale securities 1,957 --
Abandonment of leasehold improvements 137 --
Gain on sale of securities available-for-sale (87) --
Gain on the sale of loans held-for-sale (47) (189)
Originations of loans held-for-sale (16,935) (18,623)
Proceeds from the sale of loans held-for-sale 16,680 21,939
Decrease (increase) in accrued interest receivable 440 (72)
(Increase) decrease in other assets (311) 1,034
Increase (decrease) in accrued expenses and other liabilities 218 (370)
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Net cash provided by operating activities 3,496 7,590
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Cash flows from investing activities:
Proceeds from maturities of and paydowns on investment securities held-to-maturity 3,116 1,361
Proceeds from sales, maturities of and paydowns on investment securities available-for-sale 93,747 10,258
Purchases of investment securities available-for-sale (108,975) --
Decrease in due from broker 3,527 --
Net decrease (increase) in loans 7,865 (3,538)
Purchases of premises and equipment, net (89) (193)
------------ ------------
Net cash (used in) provided by investment activities (809) 7,888
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Cash flows from financing activities:
Net proceeds from stock options exercised 302 508
Net decrease in non-interest bearing deposits (6,835) (4,215)
Net (decrease) increase in interest bearing deposits (14,426) 28,015
Net increase (decrease) in other borrowings 9,976 (23,356)
Cash paid for fractional shares (4) --
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Net cash (used in) provided by financing activities (10,987) 952
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(Decrease) increase in cash and cash equivalents (8,300) 16,430
Cash and cash equivalents at beginning of period 37,796 21,228
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Cash and cash equivalents at end of period $ 29,496 $ 37,658
============ ============
Cash paid during the period for:
Interest $ 9,620 $ 8,970
============ ============
Income taxes $ 1,270 $ 1,197
============ ============
See accompanying notes to consolidated financial statements.
4
Central Jersey Bancorp and Subsidiary
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
Note 1. Basis of Presentation
- -----------------------------
The accompanying unaudited consolidated financial statements include the
accounts of Central Jersey Bancorp and its wholly-owned subsidiary, Central
Jersey Bank, N.A., which are sometimes collectively referred to herein as the
"Company."
The interim consolidated financial statements reflect all normal and recurring
adjustments that are, in the opinion of management, considered necessary for a
fair presentation of the financial condition and results of operations for the
periods presented. The results of operations for the three and nine months ended
September 30, 2007 are not necessarily indicative of the results of operations
that may be expected for all of 2007.
Certain information and note disclosures normally included in financial
statements prepared in accordance with U.S. generally accepted accounting
principles ("GAAP") have been condensed or omitted, pursuant to the rules and
regulations of the Securities and Exchange Commission.
The number of shares outstanding and earnings per share amounts set forth herein
for all periods presented have been adjusted to reflect the 5% stock dividends
paid on July 2, 2007 and July 1, 2006.
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
Central Jersey Bancorp's annual report on Form 10-K for the year ended December
31, 2006.
Certain prior period amounts have been reclassified to correspond with the
current period presentation.
Note 2. Earnings Per Share
- --------------------------
The following table reconciles shares outstanding for basic and diluted earnings
per share for the three and nine months ended September 30, 2007 and 2006:
Three months ended Nine months ended
September 30, September 30,
2007 2006 2007 2006
---------------------------------------------
Average basic shares outstanding 8,744,383 8,675,672 8,699,379 8,642,994
Add effect of dilutive securities:
Stock options 410,435 481,230 431,198 511,224
---------------------------------------------
Average diluted shares outstanding 9,154,818 9,156,902 9,130,577 9,154,218
---------------------------------------------
5
Central Jersey Bancorp and Subsidiary
Stock Appreciation Rights
On January 31, 2006, the Company granted under its 2005 Equity Incentive Plan
165,375 Stock Appreciation Rights ("SARS") (93,713 were granted to employees and
71,662 were granted to directors), each with an exercise price of $9.87. Of this
amount, 5,513 SARS were subsequently forfeited. These SARS can only be settled
in cash. The SARS vest over a four year period and expire February 1, 2016. The
fair value of SARS granted was estimated on September 30, 2007 using the
Black-Scholes option pricing model with the following weighted-average
assumptions used: stock price $7.75, dividend yield of 0%; expected volatility
of 41.17%; risk free interest rate of 4.23%; and expected lives of seven years.
These SARS had a fair value of approximately $3.32 per share at September 30,
2007. The Company recorded share based payment expense of $1,000 and $93,000,
pre-tax, respectively, for the three and nine months ended September 30, 2007,
related to the grant of SARS on January 31, 2006. As of September 30, 2007,
total unvested compensation expense was approximately $310,000, pre-tax, and
will vest over 28 months.
A summary of the status of the Company's SARS for the nine months ended
September 30, 2007 is presented below:
For the nine months ended
September 30, 2007
- --------------------------------------------------------------------------------
Weighted
average
exercise
SARS price
- --------------------------------------------------------------------------------
Outstanding at beginning of year 159,862 $ 9.87
Granted -- --
Forfeited -- --
Exercised -- --
================================================================================
Outstanding at period end 159,862 $ 9.87
================================================================================
SARS exercisable at period end 39,965 $ 9.87
Weighted average fair value of
SARs granted $ 3.32
================================================================================
6
Central Jersey Bancorp and Subsidiary
Stock Option Plan
In 2000, the Company established its Employee and Director Stock Option Plan
(the "Plan"). The Plan currently provides for the granting of stock options to
purchase in aggregate up to 1,458,605 shares of the Company's common stock,
subject to adjustment for certain dilutive events such as stock distributions.
During the nine months ended September 30, 2007, no options were granted. As a
result of the January 1, 2005 combination with Allaire Community Bank, all
outstanding options granted under the Plan became fully vested. In addition,
options to purchase 763,551 shares of Allaire Community Bank common stock were
converted into options to purchase 763,551 shares of the Company's common stock,
all of which are fully vested.
A summary of the status of the Company's stock options as of and for the nine
months ended September 30, 2007 is presented below:
For the nine months ended
September 30, 2007
- --------------------------------------------------------------------------------
Weighted
average
exercise
Shares price
- --------------------------------------------------------------------------------
Outstanding at beginning of year 1,429,803 $ 4.94
Granted -- --
Forfeited (2,222) 8.54
Exercised (78,223) 3.52
================================================================================
Outstanding at period end 1,349,358 $ 5.02
================================================================================
Options exercisable at period end 1,349,358 $ 5.02
Weighted average fair value of
options granted n/a(1)
================================================================================
__________________________________
(1) No stock options were granted in 2007.
7
Central Jersey Bancorp and Subsidiary
Note 3. Loans Receivable, Net and Loans Held-for-Sale
- -----------------------------------------------------
Loans receivable net and loans held-for-sale, at September 30, 2007 and December
31, 2006, consisted of the following (in thousands):
September 30, December 31,
Loan Type 2007 2006
- --------- ------------- ------------
Real estate loans - commercial $ 236,547 $ 237,015
Home equity and second mortgages 36,356 35,573
Commercial and industrial loans 27,226 35,476
1-4 family real estate loans 3,873 4,182
Consumer loans 3,363 2,857
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Subtotal $ 307,365 $ 315,103
Less:
Deferred loan costs, net 187 219
Allowance for loan losses 3,489 3,229
------------- ------------
Net loans $ 304,063 $ 312,093
============= ============
Loans held-for-sale $ 544 $ 242
============= ============
Non-Performing Loans
Loans are considered to be non-performing if they (a) are on a non-accrual
basis, (b) are past due 90 days or more and still accruing interest, or (c) have
been renegotiated to provide a reduction or deferral of interest because of a
weakening in the financial position of the borrowers. A loan, which is past due
ninety days or more and still accruing interest, remains on accrual status only
when it is both adequately secured as to principal and is in the process of
collection. Central Jersey Bancorp had non-accrual loans totaling $2.1 million
at September 30, 2007, as compared to $91,000 at December 31, 2006. The increase
in non-performing loans is due primarily to one commercial mortgage loan
totaling $2.0 million, which was placed on non-accrual status in April 2007.
Loan charge-offs during the three and nine months ended September 30, 2007
totaled $4,000, as compared to $0 and $46,000, respectively, for the same
periods in 2006. Recoveries totaled $99,000 during the nine months ended
September 30, 2007, as compared to $5,000 for the same period in 2006.
Note 4. Deposits
- ----------------
The major types of deposits at September 30, 2007 and December 31, 2006 were as
follows (in thousands):
September 30, December 31,
Deposit Type 2007 2006
- ------------ ------------- ------------
Demand deposits, non-interest bearing $ 76,647 $ 83,482
Savings, N.O.W. and money market accounts 185,453 202,650
Certificates of deposit of less than $100,000 81,318 75,842
Certificates of deposit of $100,000 or more 62,598 65,303
------------- ------------
Total $ 406,016 $ 427,277
============= ============
8
Central Jersey Bancorp and Subsidiary
Note 5. Subordinated Debentures
- --------------------------------
In March 2004, MCBK Capital Trust I, a special purpose business trust of Central
Jersey Bancorp, issued an aggregate of $5.0 million of trust preferred
securities to ALESCO Preferred Funding III, a pooled investment vehicle. Sandler
O'Neill & Partners, L.P. acted as placement agent in connection with the
offering of the trust preferred securities. The securities issued by MCBK
Capital Trust I are fully guaranteed by Central Jersey Bancorp with respect to
distributions and amounts payable upon liquidation, redemption or repayment.
These securities have a floating interest rate equal to the three-month LIBOR
plus 285 basis points, which resets quarterly. The securities mature on April 7,
2034 and may be called at par by Central Jersey Bancorp any time after April 7,
2009. These securities were placed in a private transaction exempt from
registration under the Securities Act of 1933, as amended.
The entire proceeds to MCBK Capital Trust I from the sale of the trust preferred
securities were used by MCBK Capital Trust I in order to purchase $5.1 million
of subordinated debentures from Central Jersey Bancorp. The subordinated
debentures bear a variable interest rate equal to LIBOR plus 285 basis points.
Although the subordinated debentures are treated as debt of Central Jersey
Bancorp, they currently qualify as Tier I Capital investments, subject to the
25% limitation under risk-based capital guidelines of the Federal Reserve. The
portion of the trust preferred securities that exceeds this limitation qualifies
as Tier II Capital of Central Jersey Bancorp. At September 30, 2007, $5.0
million of the trust preferred securities qualified for treatment as Tier I
Capital. Central Jersey Bancorp is using the proceeds it received from the
subordinated debentures to support the general balance sheet growth of Central
Jersey Bancorp and to maintain Central Jersey Bank, N.A.'s required regulatory
capital ratios.
On March 1, 2005, the Federal Reserve adopted a final rule that allows the
continued inclusion of outstanding and prospective issuances of trust preferred
securities in the Tier I Capital of bank holding companies, subject to stricter
quantitative limits and qualitative standards. The new quantitative limits
become effective after a five-year transition period ending March 31, 2009.
Under the final rules, trust preferred securities and other restricted core
capital elements are limited to 25% of all core capital elements. Amounts of
restricted core capital elements in excess of these limits may be included in
Tier II Capital. At September 30, 2007, the only restricted core capital element
owned by Central Jersey Bancorp is trust preferred securities. Central Jersey
Bancorp believes that its trust preferred issues qualify as Tier I Capital.
However, in the event that the trust preferred issues do not qualify as Tier I
Capital, Central Jersey Bank, N.A. would remain well capitalized.
Note 6. Other-Than-Temporary Impairment
- ----------------------------------------
During the nine months ended September 30, 2007, Central Jersey Bancorp executed
a balance sheet restructuring strategy involving approximately $88.6 million of
investment securities held in the available-for-sale investment portfolio. The
restructuring resulted in a one-time pre-tax impairment charge of approximately
$1.96 million, which was reflected in Central Jersey Bancorp's consolidated
financial statements for the three months ended March 31, 2007.
Available-for-sale investment securities, consisting primarily of lower yielding
fixed rate callable agency investment securities were sold during the second
quarter of 2007 and replaced with higher yielding investment securities with a
comparable to modestly shorter aggregate weighted average life. The market value
loss that these investment securities carried at March 31, 2007, was recorded as
an other-than-temporary impairment since Central Jersey Bancorp did not have the
intent to hold these securities to recovery. The investment securities the
Company identified as impaired were primarily fixed rate government sponsored
agency bonds that either had a below market interest rate coupon or a longer
than desired maturity term. Central Jersey Bancorp realized a gain on the sale
of available-for-sale securities of $87,000, pre-tax, in conjunction with the
balance sheet restructuring during the nine months ended September 30, 2007.
9
Central Jersey Bancorp and Subsidiary
Note 7. Income Taxes
- ---------------------
The Company recorded an income tax expense of $331,000 for the three months
ended September 30, 2007 on income before taxes of $962,000, resulting in an
effective tax rate of 34.41%, as compared to income tax expense of $239,000 on
income before taxes of $676,000 for the same period in 2006, resulting in an
effective tax rate of 35.36%.
The Company recorded an income tax expense of $707,000 for the nine months ended
September 30, 2007 on income before taxes of $811,000, resulting in an effective
tax rate of 87.18%, as compared to income tax expense of $1.1 million on income
before taxes of $2.9 million for the same period in 2006, resulting in an
effective tax rate of 36.72%.
The Company's effective tax rate of 87.18% for the nine months ended September
30, 2007, resulted from the fact that the majority of the investment securities
for which the previously-mentioned $1.96 million other-than-temporary impairment
was recorded were held by CJB Investment Company, a wholly-owned subsidiary of
Central Jersey Bank, N.A. A full valuation allowance was recorded for the
impairment of the investment securities sold by CJB Investment Company. The
impairment of the investment securities at the investment company level was
considered a capital loss for tax purposes while the impairment of the
investment securities held by Central Jersey Bank, N.A. was considered an
ordinary loss for tax purposes. CJB Investment Company does not, at this time,
have the ability to generate capital gains and utilize the capital losses and
thus a full valuation allowance was required for the investment company
available-for-sale securities which were identified as other-than-temporarily
impaired.
Note 8. Branch Office Closings
- ------------------------------
Effective September 14, 2007, Central Jersey Bancorp closed two of its branch
offices - Route 35, Neptune City and Highway 33, Neptune Township. The customer
relationships from both of these branch offices were moved to the West Sylvania,
Neptune City branch office. As a result of the closing of these two branch
offices, the Company recorded one-time charges for the abandonment of leasehold
improvements totaling $137,000, pre-tax, and lease payment accruals totaling
$53,000, pre-tax (included in net occupancy expense), in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, during the three and nine
months ended September 30, 2007. In addition, for the nine months ended
September 30, 2007, the Company recorded $35,000, pre-tax (included in salaries
and employee benefits expense), in one-time termination benefits related to the
branch office consolidations in accordance with SFAS No. 146.
Note 9. Recent Accounting Pronouncements
- -----------------------------------------
In March 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No.
156, Accounting for Servicing of Financial Assets. Prior thereto, SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, established, among other things, the accounting for all
separately recognized servicing assets and servicing liabilities. SFAS No. 156
amends SFAS No. 140 to require that all separately recognized servicing assets
and servicing liabilities be initially measured at fair value, if practicable.
SFAS No. 156 permits, but does not require, the subsequent measurement of
separately recognized servicing assets and servicing liabilities at fair value.
Under SFAS No. 156, an entity can elect subsequent fair value measurement to
account for its separately recognized servicing assets and servicing
liabilities. By electing that option, an entity may simplify its accounting
because SFAS No. 156 permits income statement recognition of the potential
offsetting changes in fair value of those servicing assets and servicing
liabilities and derivative instruments in the same accounting period. SFAS No.
156 was effective in the first fiscal year beginning after September 15, 2006
with earlier adoption permitted. Central Jersey Bancorp's adoption of SFAS No.
156 on January 1, 2007 did not have a material impact on its consolidated
financial statements.
10
Central Jersey Bancorp and Subsidiary
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes ("FIN 48"). FIN 48 establishes a recognition
threshold and measurement for income tax positions recognized in an enterprise's
financial statements in accordance with SFAS No. 109, Accounting for Income
Taxes. FIN 48 also prescribes a two-step evaluation process for tax positions.
The first step is recognition and the second is measurement. For recognition, an
enterprise judgmentally determines whether it is more-likely-than-not that a tax
position will be sustained upon examination, including resolution of related
appeals or litigation processes, based on the technical merits of the position.
If the tax position meets the more-likely-than-not recognition threshold it is
measured and recognized in the financial statements as the largest amount of tax
benefit that is greater than 50% likely of being realized. If a tax position
does not meet the more-likely-than-not recognition threshold, the benefit of
that position is not recognized in the financial statements.
Tax positions that meet the more-likely-than-not recognition threshold at the
effective date of FIN 48 may be recognized, or continue to be recognized, upon
adoption of this Interpretation. The cumulative effect of applying the
provisions of FIN 48 shall be reported as an adjustment to the opening balance
of retained earnings for that fiscal year. FIN 48 was effective for fiscal years
beginning after December 15, 2006. Central Jersey Bancorp's adoption of FIN 48
on January 1, 2007 did not have a material impact on its consolidated financial
statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This
Statement defines fair value, establishes a framework for measuring fair value
in GAAP, and enhances disclosures about fair value measurements. This Statement
applies when other accounting pronouncements require fair value measurements; it
does not require new fair value measurements. This Statement is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those years. Earlier application is encouraged,
provided the entity has not yet issued financial statements, including financial
statements for any interim period for that fiscal year. Central Jersey Bancorp
does not expect the adoption of SFAS No. 157 to have a material impact on its
consolidated financial statements.
In September 2006, the Emerging Issues Task Force ("EITF") of the FASB discussed
public comments received on two issues: (1) EITF Issue No. 06-4, Accounting for
Deferred Compensation and Post-Retirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements, and (2) EITF Issue 06-5, Accounting
for Purchases of Life Insurance -- Determining the Amount that could be Realized
in Accordance with FASB Technical Bulletin 85-4 (Accounting for Purchases of
Life Insurance). On September 7, the EITF agreed to clarify certain points based
on public comments. The EITF reached a consensus that an employer should
recognize a liability for future benefits under SFAS No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, or APB Opinion No.
12, Omnibus Opinion - 1967, for an endorsement split-dollar life insurance
arrangement subject to the EITF Issue No. 06-4. This liability is to be based on
the substantive agreement with the employee. The consensus is effective for
fiscal years beginning after December 15, 2007. Early adoption is permitted as
of the beginning of an entity's fiscal year. Entities should recognize the
effects of applying the consensus on this issue as a change in accounting
principle through a cumulative-effect adjustment to retained earnings or to
other components of equity or net assets in the statement of financial position
as of the beginning of the year of adoption. Retrospective application to all
prior periods is permitted. Central Jersey Bancorp is evaluating the impact of
adoption of EITF 06-4 on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities. Under this Statement, Central Jersey
Bancorp may elect to report financial instruments and certain other items at
fair value on a contract-by-contract basis with changes in value reported in
earnings. This election is irrevocable. SFAS No. 159 provides an opportunity to
mitigate volatility in reported earnings that is caused by measuring hedged
assets and liabilities that were previously required to use a different
accounting method than the related hedging contracts when the complex provisions
of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
are
11
Central Jersey Bancorp and Subsidiary
not met.
SFAS No. 159 is effective for years beginning after November 15, 2007.
Consequently, Central Jersey Bancorp will be required to adopt the provisions of
SFAS No. 159, as applicable, beginning January 1, 2008. Central Jersey Bancorp
does not expect the adoption of SFAS No. 159 to have a material impact on its
consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
----------------------------------------------------------------------
of Operations
-------------
General
The following discussion and analysis is intended to provide information about
the Company's financial condition as of September 30, 2007 and results of
operations for the three and nine months ended September 30, 2007 and 2006. The
following information should be read in conjunction with the Company's unaudited
consolidated financial statements for the three and nine months ended September
30, 2007 and 2006, including the related notes thereto, contained elsewhere in
this document.
Critical Accounting Policies
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as disclosures found elsewhere in this quarterly report on
Form 10-Q, are based upon the Company's unaudited consolidated financial
statements, which have been prepared in accordance with GAAP. The preparation of
these consolidated financial statements requires the Company to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses. Note 1 to Central Jersey Bancorp's audited consolidated financial
statements for the year ended December 31, 2006, included with Central Jersey
Bancorp's annual report on Form 10-K for the year ended December 31, 2006,
contains a summary of the Company's significant accounting policies. Management
believes the Company's policies with respect to the methodology for the
determination of the allowance for loan losses and the impairment of investment
securities requires management to make difficult and subjective judgments that
often require assumptions or estimates about uncertain matters. Changes in these
judgments, assumptions or estimates could materially impact results of
operations. These critical policies and their application are periodically
reviewed with the Company's Audit Committee and its Board of Directors.
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and overnight federal funds sold. Federal funds
sold are generally sold for one-day periods.
Investment securities held-to-maturity are comprised of debt securities that the
Company has the positive intent and ability to hold to maturity. Such securities
are stated at cost, adjusted for amortization of premiums and accretion of
discounts over the estimated remaining lives of the securities as an adjustment
to the yield using the level-yield method. Securities to be held for indefinite
periods of time and not intended to be held-to-maturity, including all equity
securities, are classified as available-for-sale. Securities available-for-sale
include securities that management intends to use as part of its asset/liability
management strategy and that may be sold in response to changes in interest
rates, resultant prepayment risk and other factors related to interest rate and
resultant prepayment risk changes. Securities available-for-sale are carried at
estimated fair value. Unrealized holding gains and losses on such securities
available-for-sale are excluded from earnings and reported as a separate
component of shareholders' equity. Gains and losses on sales of securities are
based on the specific identification method and are accounted for on a trade
date basis.
On a quarterly basis, the Company evaluates investment securities for
other-than-temporary impairment. For individual investment securities classified
as either available-for-sale or held-to-maturity, a determination is made as to
whether a decline in fair value below the amortized cost basis is other than
temporary. If the decline in fair value is judged to be other than temporary,
the cost basis of the individual investment security shall be written down to
fair value as a new cost basis and the amount of the write-down
12
shall be included in earnings (that is, accounted for as a realized loss). The
new cost basis shall not be changed for subsequent recoveries in fair value.
Subsequent increases in the fair value of available-for-sale securities shall be
included as a separate component of equity; subsequent decreases in fair value,
if not an other-than-temporary impairment, also shall be included as a separate
component of equity.
Loans are stated at unpaid principal balances, less unearned income and deferred
loan fees and costs.
Interest on loans is credited to operations based upon the principal amount
outstanding.
Loan origination and commitment fees and certain direct loan origination costs
are deferred, and the net amount is amortized over the estimated life of the
loan as an adjustment to the loan's yield using the level-yield method.
A loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect all amounts due according
to the contractual terms of the loan agreement. Impaired loans are measured
based on the present value of expected future cash flows, or, as a practical
expedient, at the loan's observable market price, or the fair value of the
underlying collateral, if the loan is collateral dependent. Conforming
residential mortgage loans, home equity and second mortgages, and loans to
individuals are excluded from the definition of impaired loans as they are
characterized as smaller balance, homogeneous loans and are collectively
evaluated.
The accrual of income on loans, including impaired loans, is generally
discontinued when a loan becomes more than 90 days delinquent as to principal or
interest or when other circumstances indicate that collection is questionable,
unless the loan is well secured and in the process of collection. Income on
non-accrual loans, including impaired loans, is recognized only in the period in
which it is collected, and only if management determines that the loan principal
is fully collectible. Loans are returned to an accrual status when a loan is
brought current as to principal and interest and reasons indicating doubtful
collection no longer exists.
A loan is considered past due when a payment has not been received in accordance
with the contractual terms. Generally, commercial loans are placed on
non-accrual status when they are 90 days past due unless they are well secured
and in the process of collection or, regardless of the past due status of the
loan, when management determines that the complete recovery of principal and
interest is in doubt. Commercial loans are generally charged off after an
analysis is completed which indicates that collectibility of the full principal
balance is in doubt. Consumer loans are generally charged off after they become
120 days past due. Mortgage loans are not generally placed on a non-accrual
status unless the value of the real estate has deteriorated to the point that a
potential loss of principal or interest exists. Subsequent payments are credited
to income only if collection of principal is not in doubt. If principal and
interest payments are brought contractually current and future collectibility is
reasonably assured, loans are returned to accrual status. Mortgage loans are
generally charged off when the value of the underlying collateral does not cover
the outstanding principal balance. Loan origination and commitment fees less
certain costs are deferred and the net amount amortized as an adjustment to the
related loan's yield. Loans held-for-sale are recorded at the lower of aggregate
cost or market value.
The allowance for loan losses is based upon management's evaluation of the
adequacy of the allowance, including an assessment of: (a) known and inherent
risks in the loan portfolio, (b) the size and composition of the loan portfolio,
(c) actual loan loss experience, (d) the level of delinquencies, (e) the
individual loans for which full collectibility may not be assured, (f) the
existence and estimated net realizable value of any underlying collateral and
guarantees securing the loans, and (g) the current economic and market
conditions. Although management uses the best information available, the level
of the allowance for loan losses remains an estimate that is subject to
significant judgment and short-term change. Various regulatory agencies, as an
integral part of their examination process, periodically review the Company's
allowance for loan losses. Such agencies may require the Company to make
additional provisions for loan losses based
13
upon information available to them at the time of their examination.
Furthermore, the majority of the Company's loans are secured by real estate in
the State of New Jersey. Accordingly, the collectibility of a substantial
portion of the carrying value of the Company's loan portfolio is susceptible to
changes in local market conditions and may be adversely affected should real
estate values decline or the Central New Jersey area experience an adverse
economic climate. Future adjustments to the allowance for loan losses may be
necessary due to economic, operating, regulatory and other conditions beyond the
Company's control. Management believes that the allowance for loan losses is
adequate.
Income taxes are accounted for under the asset and liability method. Current
income taxes are provided for based upon amounts estimated to be currently
payable, for both federal and state income taxes. Deferred federal and state tax
assets and liabilities are recognized for the expected future tax consequences
of existing differences between financial statement and tax basis of existing
assets and liabilities. Deferred tax assets are recognized for future deductible
temporary differences and tax loss carry forwards if their realization is
"more-likely-than-not." The effect of a change in the tax rate on deferred taxes
is recognized in the period of the enactment date.
Comprehensive income is segregated into net income and other comprehensive
income. Other comprehensive income includes items previously recorded directly
to equity, such as unrealized gains and losses on securities available-for-sale.
Comprehensive income is presented in the Statements of Changes in Shareholders'
Equity.
The Company's operations are solely in the financial services industry and
include providing to its customers traditional banking and other financial
services. The Company operates primarily in the geographical region of Central
New Jersey. Management makes operating decisions and assesses performance based
on an ongoing review of the Company's consolidated financial results. Therefore,
the Company has a single operating segment for financial reporting purposes.
Intangible assets of the Company, consists of goodwill and core deposit
premiums. Goodwill represents the excess of the purchase price over the
estimated fair value of identifiable net assets acquired through purchase
acquisitions. In accordance with SFAS No. 142, goodwill with an indefinite
useful life is not amortized, but is evaluated for impairment on an annual
basis.
Core deposit premiums represent the intangible value of depositor relationships
assumed in purchase acquisitions and are amortized on an accelerated basis over
a period of ten years. The amortization of the core deposit premium is recorded
in other operating expenses.
Long-lived assets including goodwill and certain identifiable intangibles are
periodically evaluated for impairment in value. Long-lived assets and deferred
costs are typically measured whenever events or circumstances indicate that the
carrying amount may not be recoverable. No such events have occurred during the
periods reported. Certain identifiable intangibles and goodwill are evaluated
for impairment at least annually utilizing the "market approach" as prescribed
by SFAS No. 142, Goodwill and Other Intangible Assets. Asset impairment is
recorded when required.
The determination of whether deferred tax assets will be realizable is predicted
on estimates of future taxable income. Such estimates are subject to
management's judgment. A valuation reserve is established when management is
unable to conclude that it is more likely than not that it will realize deferred
tax assets based on the nature and timing of these items.
Overview
Central Jersey Bancorp reported net income of $631,000 for the three months
ended September 30, 2007, as compared to $437,000 for the same period in 2006.
This represents an increase of $194,000, or 44.4%. Basic and diluted earnings
per share were both $0.07 and $0.05 for the three months ended September 30,
14
2007 and 2006, respectively. Per share earnings have been adjusted in all
periods to reflect the 5% stock dividends paid on July 2, 2007 and July 1, 2006.
Central Jersey Bancorp reported net income of $104,000 for the nine months ended
September 30, 2007, as compared to net income of $1.84 million for the same
period in 2006. Basic and diluted earnings per share for the nine months ended
September 30, 2007 were both $0.01, as compared to basic and diluted earnings
per share of $0.21 and $0.20, respectively, for the same period in 2006. The
modest net income reported for the nine months ended September 30, 2007 is due
to the balance sheet restructuring initiative announced on April 30, 2007, which
resulted in a one-time pre-tax charge of approximately $1.96 million and was
reflected in Central Jersey Bancorp's first quarter 2007 consolidated financial
statements.
Total assets of $506.9 million at September 30, 2007 were comprised primarily of
$128.0 million in investment securities, $304.1 million in net loans, $544,000
in loans held-for-sale and $29.5 million in cash and cash equivalents, as
compared to total assets of $516.3 million at December 31, 2006, which primarily
consisted of $116.6 million in investment securities, $312.1 million in net
loans, $242,000 in loans held-for-sale and $37.8 million in cash and cash
equivalents. Total assets at September 30, 2007 were funded primarily through
deposits totaling $406.0 million and other borrowings totaling $27.1 million, as
compared to $427.3 million and $17.1 million, respectively, at December 31,
2006.
At September 30, 2007, non-accrual loans totaled $2.1 million as compared to
$91,000 at December 31, 2006. The increase in non-performing loans is due
primarily to one commercial mortgage loan totaling $2.0 million, which was
placed on non-accrual status in April 2007. Loan charge-offs during the nine
months ended September 30, 2007 totaled $4,000, as compared to $46,000 for the
same period in 2006. Recoveries totaled $99,000 during the nine months ended
September 30, 2007, as compared to $5,000 for the same period in 2006.
Results of Operations
General
Central Jersey Bancorp's principal source of revenue is derived from its bank
subsidiary's net interest income, which is the difference between interest
income on earning assets and interest expense on deposits, borrowed funds and
subordinated debentures. Interest-earning assets consist principally of loans,
investment securities and federal funds sold, while the sources used to fund
such assets consist primarily of deposits and other borrowings. Central Jersey
Bancorp's net income is also affected by its bank subsidiary's provision for
loan losses, other-than-temporary impairment of investment securities, other
income and other expenses. Other income consists primarily of service charges
and fees. Other expenses consist primarily of salaries and employee benefits,
occupancy costs and other operating related expenses.
For the three and nine months ended September 30, 2007 and 2006
Net Interest Income
Net interest income was $4.2 million for the three months ended September 30,
2007 and 2006. Net interest income for the three months ended September 30, 2007
was comprised primarily of $5.7 million of interest and fees on loans, $1.7
million of interest on securities, and $348,000 of interest on federal funds
sold and due from banks, less interest expense on deposits of $3.2 million,
interest expense on borrowed funds of $196,000 and interest expense on
subordinated debentures of $111,000. The average net interest margin for the
three months ended September 30, 2007 was 3.62%, as compared to 3.54% for the
same period in 2006.
Net interest income was $12.4 million for the nine months ended September 30,
2007, as compared to $12.8 million for the same period in 2006. Net interest
income for the nine months ended September 30, 2007 was comprised primarily of
$17.3 million of interest and fees on loans, $4.3 million of interest on
securities,
15
and $1.3 million of interest on federal funds sold and due from banks, less
interest expense on deposits of $9.6 million, interest expense on borrowed funds
of $539,000 and interest expense on subordinated debentures of $330,000. The
average net interest margin for the nine months ended September 30, 2007 was
3.54%, as compared to 3.68% for the same period in 2006.
Interest and dividend income was $7.8 million for the three months ended
September 30, 2007, as compared to $7.4 million for the same period in 2006.
This represents an increase of $400,000, or 5.4%, which is due primarily to the
previously mentioned balance sheet restructuring. The average yield on
interest-earning assets increased to 6.59% for the three months ended September
30, 2007, as compared to 6.31% for the same period in 2006. Average
interest-earning assets, which were 90.7% of average total assets, totaled
$466.1 million for the three months ended September 30, 2007, as compared to
90.3% and $462.5 million, respectively, for the same period in 2006. Average
interest-earning assets for the three months ended September 30, 2007 and 2006
were comprised primarily of $309.1 million and $316.5 million in loans,
respectively, $129.5 million and $127.7 million in investment securities,
respectively, $23.8 million and $13.8 million in federal funds sold,
respectively, and $3.8 million and $4.6 million in other interest-bearing
deposits, respectively.
Interest and dividend income was $22.9 million for the nine months ended
September 30, 2007, as compared to $21.8 million for the same period in 2006.
This represents an increase of $1.1 million, or 5.0%, which is due primarily to
the previously mentioned balance sheet restructuring. The average yield on
interest-earning assets increased to 6.48% for the nine months ended September
30, 2007, as compared to 6.30% for the same period in 2006. Average
interest-earning assets, which were 90.9% of average total assets, totaled
$468.6 million for the nine months ended September 30, 2007, as compared to
89.5% and $458.6 million, respectively, for the same period in 2006. Average
interest-earning assets for the nine months ended September 30, 3007 and 2006
were comprised primarily of $314.9 million and $317.5 million in loans,
respectively, $119.3 million and $131.4 million in investment securities,
respectively, $30.7 million and $4.7 million in federal funds sold,
respectively, and $3.7 million and $5.0 million in other interest bearing
deposits, respectively.
Interest expense was $3.5 million for the three months ended September 30, 2007,
as compared to $3.2 million for the same period in 2006. This represents an
increase of $300,000, or 9.4%. The increase was due primarily to the cost of
deposits and interest bearing liabilities which increased to an average cost of
3.15% for the three months ended September 30, 2007, from an average cost of
2.86% for the same period in 2006. Average interest-bearing deposits totaled
$335.0 million for the three months ended September 30, 2007, as compared to
$340.4 million for the same period in 2006, representing a decrease of $5.4
million, or 1.6%, and were comprised of $115.3 million in interest-bearing
checking and money market deposits, $71.2 million in savings deposits and $148.5
million in time deposits. Interest expense associated with borrowings and
subordinated debentures totaled $196,000 and $111,000, respectively, for the
three months ended September 30, 2007, as compared to $170,000 and $113,000,
respectively, for the same period in 2006. Borrowings for the three months ended
September 30, 2007 averaged $23.7 million, as compared to $16.2 million for the
same period in 2006. The increase is due to growth in the bank subsidiary's
sweep account product for business customers.
Interest expense was $10.5 million for the nine months ended September 30, 2007,
as compared to $9.0 million for the same period in 2006. This represents an
increase of $1.5 million, or 16.7%. The increase was due primarily to the cost
of deposits and interest bearing liabilities which increased to an average cost
of 3.14% for the nine months ended September 30, 2007 from an average cost of
2.69% for the same period in 2006. Average interest-bearing deposits totaled
$339.9 million for the nine months ended September 30, 2007, as compared to
$325.4 million for the same period in 2006, representing an increase $14.5
million, or 4.5%, and were comprised of $118.7 million in interest-bearing
checking and money market deposits, $72.5 million in savings deposits and $148.7
million in time deposits. Interest expense associated with borrowings and
subordinated debentures totaled $539,000 and $330,000, respectively, for the
nine months ended September 30, 2007, as compared to $1.1 million and $317,000,
respectively, for the same period in 2006.
16
Borrowings for the nine months ended September 30, 2007 averaged $20.8 million,
as compared to $32.0 million for the same period in 2006. The decrease in
borrowings was primarily attributable to an increase in deposits and cash flows
derived from the Company's normal business activities.
17
Average Balance Sheet
The following tables present a summary of the principal components of average
interest-earning assets and average interest-earning liabilities with the
related interest income and interest expense for the three and nine months ended
September 30, 2007 and 2006. No tax equivalent adjustments were made (in
thousands):
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------
2007 2006
-------- --------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
--------- -------- ---------- ---------- -------- ----------
Interest earning assets:
Federal funds sold $ 23,759 $ 308 5.16% $ 13,820 $ 176 5.05%
Loans receivable, gross 309,057 5,731 7.27% 316,495 5,859 7.26%
Deposits with banks 3,759 40 4.22% 4,561 63 5.48%
Securities 129,513 1,713 5.29% 127,652 1,346 4.12%
--------- -------- ---------- ---------- -------- ----------
Total interest earning assets 466,088 7,792 6.59% 462,528 7,444 6.31%
Cash and due from banks 10,770 12,945
Allowance for loan losses (3,491) (3,287)
Other assets 40,514 40,271
--------- ----------
Total assets $ 513,881 $ 512,457
========= ==========
Interest bearing liabilities:
Interest bearing demand $ 88,234 $ 705 3.17% $ 85,554 $ 637 2.95%
Money market 27,115 345 5.05% 38,070 377 3.93%
Savings 71,176 375 2.09% 72,881 346 1.88%
Time 148,511 1,812 4.84% 143,870 1,583 4.37%
--------- -------- ---------- ---------- -------- ----------
Total interest bearing deposits 335,036 3,237 3.83% 340,375 2,943 3.43%
Other borrowings 23,650 196 3.29% 16,235 169 4.13%
Subordinated debentures 5,155 111 8.54% 5,155 113 8.70%
--------- -------- ---------- ---------- -------- ----------
Total interest-bearing liabilities 363,841 3,544 3.86% 361,765 3,225 3.54%
Non-interest bearing demand 82,097 85,242
Other liabilities 1,907 1,853
63,597
----------
Shareholders' equity 66,036
---------
Total liabilities and shareholders'
equity $ 513,881 $ 512,457
========= ==========
Net interest income $ 4,248 $ 4,219
======== ========
Net interest rate spread(1) 2.73% 2.77%
Net interest margin(2) 3.62% 3.54%
(1) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(2) Net interest margin represents net interest income divided by average
interest-earning assets.
18
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
2007 2006
-------- --------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
--------- -------- ---------- ---------- -------- ----------
Interest earning assets:
Federal funds sold $ 30,738 $ 1,182 5.14% $ 4,657 $ 176 5.05%
Loans receivable, gross 314,852 17,320 7.27% 317,543 17,346 7.22%
Deposits with banks 3,729 120 4.30% 4,991 175 4.69%
Securities 119,278 4,296 4.80% 131,378 4,131 4.19%
--------- -------- ---------- ---------- -------- ----------
Total interest earning assets 468,597 22,918 6.48% 458,569 21,828 6.30%
Cash and due from banks 8,971 16,242
Allowance for loan losses (3,401) (3,238)
Other assets 41,071 40,772
--------- ----------
Total assets $ 515,238 $ 512,345
========= ==========
Interest bearing liabilities:
Interest bearing demand $ 90,094 $ 2,170 3.22% $ 81,902 $ 1,622 2.65%
Money market 28,626 967 4.52% 31,405 736 3.13%
Savings 72,465 1,130 2.08% 70,172 859 1.64%
Time 148,728 5,366 4.82% 141,895 4,388 4.13%
--------- -------- ---------- ---------- -------- ----------
Total interest bearing deposits 339,913 9,633 3.79% 325,374 7,605 3.12%
Other borrowings 20,806 539 3.46% 32,023 1,081 4.51%
Subordinated debentures 5,155 330 8.56% 5,155 317 8.22%
--------- -------- ---------- ---------- -------- ----------
Total interest-bearing liabilities 365,874 10,502 3.84% 362,552 9,003 3.32%
Non-interest bearing demand 81,602 84,852
Other liabilities 1,880 1,867
Shareholders' equity 65,882 63,074
--------- ----------
Total liabilities and shareholders'
equity $ 515,238 $ 512,345
========= ==========
Net interest income $ 12,416 $ 12,825
======== ========
Net interest rate spread(1) 2.64% 2.98%
Net interest margin(2) 3.54% 3.68%
(1) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(2) Net interest margin represents net income divided by average
interest-earning assets.
19
Provision for Loan Losses
There were no provisions for loan losses recorded for the three months ended
September 30, 2007 as Central Jersey Bancorp experienced no growth in
outstanding loan balances during the period, as compared to $318,000 for the
same period in 2006. For the nine months ended September 30, 2007, the provision
for loan losses was $165,000, as compared to $465,000 for the same period in
2006. The provision for loan losses recorded during the nine months ended
September 30, 2007 is a direct result of the change in risk rating of certain
commercial loans. The provision for loan losses recorded during the nine months
ended September 30, 2006 was primarily due to $409,000 in unsecured loans which
were placed on non-accrual status during the period and subsequently charged-off
during the three months ended December 31, 2006. Total gross loans outstanding
have declined by approximately $7.8 million for the nine months ended September
30, 2007. Loan charge-offs during the three and nine months ended September 30,
2007 totaled $4,000, as compared to $0 and $46,000, respectively, for the same
periods in 2006. Recoveries totaled $99,000 during the nine months ended
September 30, 2007, as compared to $5,000 for the same period in 2006.
Non-Interest Income (Loss)
Non-interest income (loss), which consists of service charges on deposit
accounts, income from bank owned life insurance, gains on the sale of
residential mortgages, gains on the sale of available-for-sale investment
securities, and the impairment of available-for-sale investment securities, was
$417,000 for the three months ended September 30, 2007, as compared to $422,000
for the same period in 2006.
Non-interest income (loss) was ($642,000) for the nine months ended September
30, 2007, as compared to income of $1.3 million, for the same period in 2006.
The non-interest income loss for the nine months ended September 30, 2007, is
directly related to the previously-disclosed $1.96 million, pre-tax, other than
temporary impairment recorded in conjunction with the one-time balance sheet
restructuring charge.
Non-Interest Expense
Non-interest expense was $3.7 million and $10.8 million, for the three and nine
months ended September 30, 2007, respectively, as compared to $3.6 million and
$10.8 million, for the same periods in 2006, respectively. Non-interest expense
generally includes costs associated with employee salaries and benefits,
occupancy expenses, data processing fees, professional fees and other operating
expenses.
20
The table below present's non-interest expense, by major category, for the three
and nine months ended September 30, 2007 and 2006 (in thousands):
Three months ended Nine months ended
September 30, September 30,
Non-Interest Expense 2007 2006 2007 2006
- -------------------------------------------------------------------------------------------
Salaries and employee benefits $ 1,785 $ 1,831 $ 5,280 $ 5,563
Net occupancy expenses 484 442 1,416 1,268
Outside service fees 225 230 641 662
Data processing fees 219 205 663 604
Core deposit intangible amortization 138 155 414 464
Abandonment of leasehold improvements 137 -- 137 --
Audit and tax fees 90 130 355 286
Legal fees and expenses 58 59 240 130
Printing, stationery, and supplies 56 72 172 195
Advertising and marketing expenses 41 32 115 117
Other operating expenses 470 491 1,365 1,493
-------------------- ------------------------
Total $ 3,703 $ 3,647 $ 10,798 $ 10,782
==================== ========================
Effective September 14, 2007, Central Jersey Bancorp closed two of its branch
offices - Route 35, Neptune City and Highway 33, Neptune Township. The customer
relationships from both of these branch offices were moved to the West Sylvania,
Neptune City branch office. As a result of the closing of these two branch
offices, the Company recorded one-time charges for the abandonment of leasehold
improvements totaling $137,000, pre-tax (included in net occupancy expenses),
and lease payment accruals totaling $53,000, pre-tax (included in salaries and
employee benefits expense), in accordance with SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, during the three and nine
months ended September 30, 2007. In addition, for the nine months ended
September 30, 2007, the Company recorded $35,000, pre-tax, in one-time
termination benefits related to the branch office consolidations in accordance
with SFAS No. 146.
Income Tax Expense
The Company recorded an income tax expense of $331,000 for the three months
ended September 30, 2007 on income before taxes of $962,000, resulting in an
effective tax rate of 34.41%, as compared to income tax expense of $239,000 on
income before taxes of $676,000 for the same period in 2006, resulting in an
effective tax rate of 35.36%.
The Company recorded an income tax expense of $707,000 for the nine months ended
September 30, 2007 on income before taxes of $811,000, resulting in an effective
tax rate of 87.18%, as compared to income tax expense of $1.1 million on income
before taxes of $2.9 million for the same period in 2006, resulting in an
effective tax rate of 36.72%.
The Company's effective tax rate of 87.18% for the nine months ended September
30, 2007, resulted from the fact that the majority of the investment securities
for which the previously-mentioned $1.96 million other-than-temporary impairment
was recorded were held by CJB Investment Company, a wholly-owned subsidiary of
Central Jersey Bank, N.A. A full valuation allowance was recorded for the
impairment of the investment securities sold by CJB Investment Company. The
impairment of the investment securities at the investment company level was
considered a capital loss for tax purposes while the impairment of the
investment securities held by Central Jersey Bank, N.A. was considered an
ordinary loss for tax purposes. CJB Investment Company does not, at this time,
have the ability to generate capital gains and utilize the capital losses and
thus a full valuation allowance was required for
21
the investment company available-for-sale securities which were identified as
other-than-temporarily impaired.
Financial Condition
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash on hand, due from banks and
federal funds sold. At September 30, 2007, cash and cash equivalents were $29.5
million, a decrease of $8.3 million, or 22.0%, from the December 31, 2006 total
of $37.8 million. During this period, federal funds sold decreased by $3.1
million. This decrease was due primarily to the timing of cash flows related to
the Company's business activities.
Investment Portfolio
Investment securities totaled $128.0 million at September 30, 2007, an increase
of $11.4 million, or 9.8%, over the December 31, 2006 total of $116.6 million.
The increase in investment securities is due to purchases of mortgage-backed
securities made during the nine months ended September 30, 2007. For the nine
months ended September 30, 2007, principal pay downs of mortgage-backed
securities totaled $7.6 million and $2.0 million of government-sponsored agency
securities matured.
Loan Portfolio
Loans held-for-sale totaled $544,000 at September 30, 2007, as compared to
$242,000 at December 31, 2006. The increase in loans held-for-sale is due
primarily to the timing of residential mortgage loan closings.
Loans, net of the allowance for loan losses, closed the nine months ended
September 30, 2007 at $304.1 million, a decrease of $8.0 million, or 2.6%, from
the $312.1 million balance at December 31, 2006. The decrease in loan balances
is reflective of the general slowdown in loan origination volume being
experienced throughout the banking industry.
The allowance for loan losses, which began the year at $3.23 million, or 1.02%
of total loans, was $3.49 million at September 30, 2007, or 1.13% of total
loans. The increase in the allowance for loan losses ratio is due primarily to
the incremental loan loss provision recorded in conjunction with the downgrade
in risk rating of certain commercial loans. Loan charge-offs during the three
and nine months ended September 30, 2007 totaled $4,000, as compared to $0 and
$46,000, respectively, for the same periods in 2006. Recoveries totaled $99,000
during the nine months ended September 30, 2007, as compared to $5,000 for same
period in 2006.
Non-performing Loans
A loan is considered to be non-performing if it (1) is on a non-accrual basis,
(2) is past due 90 days or more and still accruing interest, or (3) has been
renegotiated to provide a reduction or deferral of interest or principal because
of a weakening in the financial position of the borrower. A loan, which is past
due ninety days or more and still accruing interest, remains on accrual status
only where it is both adequately secured as to principal and is in the process
of collection. The Company, at September 30, 2007, had non-performing loans
totaling $2.1 million, as compared to $91,000 at December 31, 2006. The increase
in non-performing loans is due primarily to one commercial mortgage loan
totaling $2.0 million, which was placed on non-accrual status in April 2007.
22
Potential Problem Loans
In addition to non-performing loans, the Company maintains a "watch list" of
loans which are subject to heightened scrutiny and more frequent review by
management. Loans may be placed on the "watch list" because of documentation
deficiencies, or because management has identified "structural weakness" which
potentially could cause such loans to become non-performing in future periods.
As of September 30, 2007, loans on the watch list totaled $10.0 million, as
compared to $5.0 million at December 31, 2006. The increase in loans on the
"watch list" is due primarily to the previously-disclosed $2.0 million
commercial mortgage loan which was placed on non-accrual status in April 2007
and several other commercial loans which were recently downgraded due to the
financial weakness of certain borrowers.
Allowance for Loan Losses and Related Provision
There were no provisions for loan losses recorded for the three months ended
September 30, 2007 as Central Jersey Bancorp experienced no loan growth during
the period, as compared to $318,000 for the same period in 2006. For the nine
months ended September 30, 2007, the provision for loan losses was $165,000, as
compared to $465,000 for the same period in 2006. The provision for loan losses
recorded during the nine months ended September 30, 2007 is a direct result of
the change in risk rating of certain commercial loans.
Loan portfolio composition remained consistent at September 30, 2007, as
compared to December 31, 2006, with commercial loans comprising 85.8% of total
loans outstanding at September 30, 2007, as compared to 86.5% at December 31,
2006. In addition, the Company had non-accrual loans totaling $2.1 million at
September 30, 2007, as compared to $91,000 at December 31, 2006. Net loans
totaled $304.1 million at September 30, 2007, as compared to $312.1 million at
December 31, 2006, a decrease of $8.0 million, or 2.6%. The allowance for loan
losses increased to $3.49 million, or 1.13% of total gross loans, at September
30, 2007, as compared to $3.23 million, or 1.02% of total gross loans, at
December 31, 2006. The increase in the allowance for loan losses ratio is due
primarily to the incremental loan loss provision recorded in conjunction with
the downgrade in risk rating of certain commercial loans during the nine months
ended September 30, 2007.
Deposits
One of the Company's primary strategies is the accumulation and retention of
core deposits. Core deposits are defined as all deposits with the exception of
certificates of deposits in excess of $100,000. Deposits, at September 30, 2007,
totaled $406.0 million, a decrease of $21.3 million, or 5.0%, from the December
31, 2006 total of $427.3 million. Core deposits as a percentage of total
deposits were 84.6% and 84.7%, respectively, at September 30, 2007 and December
31, 2006.
Borrowings
Other borrowings were $27.1 million at September 30, 2007, as compared to $17.1
million at December 31, 2006, representing an increase of $10.0 million, or
58.5%. These borrowings are short-term in nature. The increase is due to growth
in Central Jersey Bank, N.A.'s sweep account product for business customers.
Liquidity and Capital Resources
Liquidity defines the ability of Central Jersey Bank, N.A. to generate funds to
support asset growth, meet deposit withdrawals, maintain reserve requirements
and otherwise operate on an ongoing basis. An important component of a bank's
asset and liability management structure is the level of liquidity, which are
net liquid assets available to meet the needs of its customers and regulatory
requirements. The liquidity needs of Central Jersey Bank, N.A. have been
primarily met by cash on hand, loan and
23
investment amortizations and borrowings. Central Jersey Bank, N.A. invests funds
not needed for operations (excess liquidity) primarily in daily federal funds
sold. During the nine months ended September 30, 2007, Central Jersey Bank, N.A.
continued to maintain a large secondary source of liquidity known as investment
securities available-for-sale. The market value of that portfolio was $110.3
million and $95.7 million, respectively, at September 30, 2007 and December 31,
2006.
It has been Central Jersey Bank, N.A.'s experience that its core deposit base
(which is defined as transaction accounts and term deposits of less than
$100,000) is primarily relationship-driven. Non-core deposits (which are defined
as term deposits of $100,000 or greater) are much more interest rate sensitive.
In any event, adequate sources of reasonably priced on-balance sheet funds, such
as overnight federal funds sold, due from banks and short-term investments
maturing in less than one year, must be continually accessible for contingency
purposes. This is accomplished primarily by the daily monitoring of certain
accounts for sufficient balances to meet future loan commitments, as well as
measuring Central Jersey Bank, N.A.'s liquidity position on a monthly basis.
Supplemental sources of liquidity include large certificates of deposit,
wholesale and retail repurchase agreements, and lines of credit with
correspondent banks. Correspondent banks, which are typically referred to as
"banker's banks," offer essential services such as cash letter processing,
investment services, loan participation support, wire transfer operations and
other traditional banking services. Brokered deposits, which are deposits
obtained, directly or indirectly, from or through the mediation or assistance of
a deposit broker, may be utilized as supplemental sources of liquidity in
accordance with Central Jersey Bank, N.A.'s balance sheet management policy.
Contingent liquidity sources may include off-balance sheet funds, such as
advances from both the Federal Home Loan Bank and the Federal Reserve Bank, and
federal funds purchase lines with "upstream" correspondents. An additional
source of liquidity is made available by curtailing loan activity and instead
using the available cash to fund short-term investments such as overnight
federal funds sold or other approved investments maturing in less than one year.
In addition, future expansion of Central Jersey Bank, N.A.'s retail banking
network is expected to create additional sources of liquidity from new deposit
customer relationships.
Central Jersey Bank, N.A. is subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on Central Jersey Bank, N.A.'s financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, Central Jersey Bank, N.A. must meet specific capital guidelines that
involve quantitative measures of Central Jersey Bank, N.A.'s assets, liabilities
and certain off-balance-sheet items as calculated under regulatory accounting
practices. Central Jersey Bank, N.A.'s capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Central Jersey Bank, N.A. to maintain minimum amounts and ratios (set
forth in the following table) of Total Capital and Tier 1 Capital to risk
weighted assets and of Tier 1 Capital to average assets (leverage ratio). As of
September 30, 2007, Central Jersey Bank, N.A. met all capital adequacy
requirements to which it is subject.
24
The following is a summary of Central Jersey Bank, N.A.'s and Central Jersey
Bancorp's actual capital ratios as of September 30, 2007 and December 31, 2006,
compared to the minimum capital adequacy requirements and the requirements for
classification as a "well-capitalized" institution:
Tier I Tier I
Capital to Capital to Total Capital to
Average Assets Ratio Risk Weighted Risk Weighted
(Leverage Ratio) Asset Ratio Asset Ratio
September 30, December 31, September 30, December 31, September 30, December 31,
2007 2006 2007 2006 2007 2006
------------- ------------ ------------- ------------ ------------- ------------
Central Jersey Bancorp 8.76% 8.38% 12.42% 11.71% 13.45% 12.62%
Central Jersey Bank, N.A. 8.91% 8.47% 12.65% 11.81% 13.67% 12.72%
"Adequately capitalized"
institution (under federal
regulations) 4.00% 4.00% 4.00% 4.00% 8.00% 8.00%
"Well capitalized" institution
(under federal regulations) 5.00% 5.00% 6.00% 6.00% 10.00% 10.00%
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Qualitative Analysis. Interest rate risk is the exposure of a bank's current and
future earnings and capital arising from the adverse movements in interest
rates. Central Jersey Bank, N.A.'s most significant risk exposure is interest
rate risk. The guidelines of Central Jersey Bank, N.A.'s interest rate risk
policy seek to limit the exposure to changes in interest rates that affect the
underlying economic value of assets and liabilities, earnings and capital.
The ALCO/Investment Committee of Central Jersey Bank, N.A. meets on a quarterly
basis to review the impact of interest rate changes on net interest income, net
interest margin and the economic value of equity. Members of the ALCO/Investment
Committee include Central Jersey Bancorp's President and Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer and Chief Lending
Officer. The ALCO/Investment Committee reviews a variety of strategies that
project changes in asset or liability mix and the impact of those changes on
projected net interest income.
Central Jersey Bank, N.A.'s strategy for liabilities has been to maintain a
stable core-funding base by focusing on core deposit account acquisition and
increasing products and services per household. Time deposits as a percentage of
total deposits were 35.5% at September 30, 2007, as compared to 33.0% at
December 31, 2006. Time deposits are generally short term in nature. As of
September 30, 2007, 97.2% of all time deposits had maturities of one year or
less, as compared to 85.7% at December 31, 2006. Central Jersey Bank, N.A.'s
ability to retain maturing time deposit accounts is the result of a strategy to
remain competitively priced within the marketplace. Central Jersey Bank, N.A.'s
pricing strategy may vary depending upon funding needs and Central Jersey Bank,
N.A.'s ability to fund operations through alternative sources, primarily by
accessing short term lines of credit with the Federal Home Loan Bank during
periods of pricing dislocation.
Quantitative Analysis. Central Jersey Bank, N.A. measures sensitivity to changes
in interest rates through the use of balance sheet and income simulation models.
The analyses capture changes in net interest income using flat rates as a base
case and rising and declining interest rate forecasts. Central Jersey Bank, N.A.
measures changes in net interest income for the forecast period, generally
twelve to twenty-four months, within set limits for acceptable change.
25
The following table sets forth the results of the projected net interest income
simulation model for the twelve month period commencing October 1, 2007 and
ending September 30, 2008:
Net Interest Income
-------------------
Change in Interest Rates
In Basis Points (Rate Shock) Amount ($) Change ($) Change (%)
- --------------------------------------------------------------------------------
+200 $ 17,266 $ (69) (.40%)
+100 17,297 (38) (.22%)
Base Case 17,335 -- --
- -100 17,284 (51) (.29%)
- -200 $ 16,875 $ (460) (2.65%)
The preceding table indicates that for the twelve month period ending September
30, 2008, in the event of an immediate 200 basis point parallel increase in
interest rates, Central Jersey Bank, N.A. would experience a (.40%), or $69,000,
decrease in net interest income for the period. In the event of a 200 basis
point decrease in interest rates, Central Jersey Bank, N.A. would experience a
(2.65%), or $460,000, decrease in net interest income for the twelve month
period ending September 30, 2008.
Item 4. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as of the end of the period covered by this quarterly
report, the Company carried out an evaluation of the effectiveness of the design
and operation of its disclosure controls and procedures. This evaluation was
carried out under the supervision and with the participation of the Company's
management, including its President and Chief Executive Officer and Executive
Vice President and Chief Financial Officer, who concluded that the Company's
disclosure controls and procedures are effective. The Company's Internal
Auditors also participated in this evaluation. There has been no change in the
Company's internal controls during the last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in the Company's
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in the Company's reports filed under the
Exchange Act is accumulated and communicated to management, including its
President and Chief Executive Officer and Executive Vice President and Chief
Financial Officer, to allow timely decisions regarding required disclosure.
26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is not engaged in any legal proceedings of a material
nature at the present time. From time to time, the Company is a
party to routine legal proceedings within the normal course of
business. Such routine legal proceedings in the aggregate are
believed by management to be immaterial to the Company's financial
condition or results of operations.
Item 1A. Risk Factors
------------
There have been no material changes to the risk factors that were
previously disclosed in the Company's annual report on Form 10-K for
the fiscal year ended December 31, 2006.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
-----------------------------------------------------------
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
--------
See Index of Exhibits commencing on page E-1.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Central Jersey Bancorp
------------------------------------
Registrant
Date: November 9, 2007 /s/ James S. Vaccaro
------------------------------------
James S. Vaccaro
President and
Chief Executive Officer
(Principal Executive Officer)
Date: November 9, 2007 /s/ Anthony Giordano, III
------------------------------------
Anthony Giordano, III
Executive Vice President,
Chief Financial Officer,
Treasurer and Assistant Secretary
(Principal Financial and
Accounting Officer)
28
INDEX OF EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
2.1 Plan of Acquisition of all of the outstanding stock of Monmouth
Community Bank by the Registrant, entered into as of March 16,
2000 by Monmouth Community Bank and the Registrant (Incorporated
by reference to Exhibit 2.1 to the Registrant's Registration
Statement on Form SB-2 (Registration No. 333-87352), effective
July 23, 2002).
2.2 Agreement and Plan of Acquisition, dated as of June 30, 2004, by
and between the Registrant and Allaire Community Bank ("Allaire"):
Upon the request of the Securities and Exchange Commission, the
Registrant agrees to furnish a copy of Exhibit A - Voting
Agreement of Allaire Stockholders and Voting Agreement of the
Registrant's Shareholders; Exhibit B - Allaire Affiliate
Agreement, Exhibit C - Opinion of Giordano, Halleran & Ciesla,
P.C., as counsel to the Registrant, and Exhibit D - Opinion of
Frieri Conroy & Lombardo, LLC, as counsel to Allaire, and the
following Schedules: Schedule 1.10(a) - Composition of the
Registrant's Board of Directors; Schedule 1.10(b) - Composition of
Allaire and Monmouth Community Bank Boards of Directors; Schedule
1.10(c) - Executive Officers of the Registrant, Allaire and
Monmouth Community Bank; Schedule 3.02(a) - Stock Options
(Allaire); Schedule 3.02(b) - Subsidiaries (Allaire); Schedule
3.08 - Absence of Changes or Events (Allaire); Schedule 3.09 -
Loan Portfolio (Allaire); Schedule 3.10 - Legal Proceedings
(Allaire); Schedule 3.11 - Tax Information (Allaire); Schedule
3.12(a) - Employee Benefit Plans (Allaire); Schedule 3.12(b) -
Defined Benefit Plans (Allaire); Schedule 3.12(h) - Payments or
Obligations (Allaire); Schedule 3.12(m) - Grantor or "Rabbi"
Trusts (Allaire); Schedule 3.12(n) - Retirement Benefits
(Allaire); Schedule 3.13(c) - Buildings and Structures (Allaire);
Schedule 3.14(a) - Real Estate (Allaire); Schedule 3.14(b) -
Leases (Allaire); Schedule 3.16(a) - Material Contracts (Allaire);
Schedule 3.16(c) - Certain Other Contracts (Allaire); Schedule
3.16(d) - Effect on Contracts and Consents (Allaire); Schedule
3.18 - Registration Obligations (Allaire); Schedule 3.20 -
Insurance (Allaire); Schedule 3.21(b) - Benefit or Compensation
Plans (Allaire); Schedule 3.21(d) - Labor Relations (Allaire);
Schedule 3.22 - Compliance with Applicable Laws (Allaire);
Schedule 3.23 - Transactions with Management (Allaire); Schedule
3.25 - Deposits (Allaire); Schedule 4.02(a) - Stock Options
(Registrant); Schedule 4.02(b) - Subsidiaries (Registrant);
Schedule 4.08 - Absence of Changes or Events (Registrant);
Schedule 4.09 - Loan Portfolio (Registrant); Schedule 4.10 - Legal
Proceedings (Registrant); Schedule 4.11 - Tax Information
(Registrant); Schedule 4.12(a) - Employee Benefit Plans
(Registrant); Schedule 4.12(b) - Defined Benefit Plans
(Registrant); Schedule 4.12(g) - Payments or Obligations
(Registrant); Schedule 4.12(l) - Grantor or "Rabbi" Trusts
(Registrant); Schedule 4.12(m) - Retirement Benefits (Registrant);
Schedule 4.13(c) - Buildings and Structures; (Registrant) Schedule
4.14(a) and 4.14(b) - Real Estate and Leases (Registrant);
Schedule 4.16(a) - Material Contracts (Registrant); Schedule
4.16(c) - Certain Other Contracts (Registrant); Schedule 4.16(d) -
Effect on Contracts and Consents (Registrant); Schedule 4.18 -
Registration Obligations (Registrant); Schedule 4.20 - Insurance
(Registrant); Schedule 4.21(b) - Benefit or Compensation Plans
(Registrant); Schedule 4.21(d) - Labor Relations (Registrant);
Schedule 4.22 - Compliance with Applicable Laws (Registrant);
Schedule 4.23 - Transactions with Management (Registrant);
Schedule 4.25 - Deposits (Registrant); Schedule 6.18(a) - Notice
of Deadlines (Allaire); and Schedule 6.18(b) - Notice of Deadlines
(Registrant) (Incorporated by reference to Exhibit 2.2 to the
Registrant's Quarterly Report on Form
E-1
10-QSB for the quarter ended June 30, 2004).
3.1 Certificate of Incorporation of the Registrant, as amended and
restated on January 1, 2005 (Incorporated by reference to Exhibit
3.1 to the Registrant's Annual Report on Form 10-KSB for the year
ended December 31, 2004).
3.2 By-laws of the Registrant, as amended and restated on January 1,
2005 (Incorporated by reference to Exhibit 3.2 to the Registrant's
Annual Report on Form 10-KSB for the year ended December 31,
2004).
4. Specimen certificate representing the Registrant's common stock,
par value $0.01 per share (Incorporated by reference to Exhibit 4
to Amendment No. 1 to the Registrant's Registration Statement on
Form SB-2 (Registration No. 333-87352), effective July 23, 2002).
10.1.1 Registrant's Stock Option Plan (Incorporated by reference to
Exhibit 10.1 to the Registrant's Registration Statement on Form
SB-2 (Registration No. 333-87352), effective July 23, 2002).
10.1.2 The Allaire Community Bank 1999 Director Stock Option Plan
(Incorporated by reference to Exhibit 4.4 to the Registrant's
Registration Statement on Form S-8 (Registration No. 333-122468),
effective February 2, 2005).
10.1.3 The Allaire Community Bank 2000 Director Stock Option Plan
(Incorporated by reference to Exhibit 4.5 to the Registrant's
Registration Statement on Form S-8 (Registration No. 333-122468),
effective February 2, 2005).
10.1.4 The Allaire Community Bank 2001 Director Stock Option Plan
(Incorporated by reference to Exhibit 4.6 to the Registrant's
Registration Statement on Form S-8 (Registration No. 333-122468),
effective February 2, 2005).
10.2 Indenture between Registrant and Wilmington Trust Company, dated
March 25, 2004 (Incorporated by reference to Exhibit 10.10 to the
Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 2003).
10.3 Amended and Restated Declaration of Trust of MCBK Capital Trust I,
dated March 25, 2004 (Incorporated by reference to Exhibit 10.11
to the Registrant's Annual Report on Form 10-KSB for the year
ended December 31, 2003).
10.4 Guarantee Agreement by Registrant and Wilmington Trust Company,
dated March 25, 2004 (Incorporated by reference to Exhibit 10.12
to the Registrant's Annual Report on Form 10-KSB for the year
ended December 31, 2003).
10.5 Change of Control Agreement, dated as of August 1, 2006, by and
between the Registrant and Robert S. Vuono (Incorporated by
reference to Exhibit 10.13 to the Registrant's Current Report on
Form 8-K dated August 1, 2006).
10.5.1 Amendment No. 1 to Change of Control Agreement, dated as of
February 21, 2007, between the Registrant and Robert S. Vuono
(Incorporated by reference to Exhibit 10.5.1 to the Registrant's
Annual Report on Form 10-K for the year ended December
E-2
31, 2006).
10.6 Change of Control Agreement, dated as of January 1, 2005, between
the Registrant and Robert K. Wallace (Incorporated by reference to
Exhibit 10.8 to the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 2004).
10.7 Severance Agreement, dated as of January 1, 2005, between the
Registrant and Carl F. Chirico (Incorporated by reference to
Exhibit 10.9 to the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 2004).
10.8 Change of Control Agreement, dated as of August 1, 2006, by and
between the Registrant and James S. Vaccaro (Incorporated by
reference to Exhibit 10.11 to the Registrant's Current Report on
Form 8-K dated August 1, 2006).
10.8.1 Amendment No. 1 to Change of Control Agreement, dated as of
February 21, 2007, between the Registrant and James S. Vaccaro
(Incorporated by reference to Exhibit 10.8.1 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 2006).
10.9 Change of Control Agreement, dated as of August 1, 2006, by and
between the Registrant and Anthony Giordano, III (Incorporated by
reference to Exhibit 10.12 to the Registrant's Current Report on
Form 8-K dated August 1, 2006).
10.9.1 Amendment No. 1 to Change of Control Agreement, dated as of
February 21, 2007, between the Registrant and Anthony Giordano,
III (Incorporated by reference to Exhibit 10.9.1 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 2006).
10.10 Change of Control Agreement, dated as of February 21, 2007,
between the Registrant and Thomas J. Garrity (Incorporated by
reference to Exhibit 10.10 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 2006).
10.11 Change of Control Agreement, dated as of February 21, 2007 between
the Registrant and Lisa A. Borghese (Incorporated by reference to
Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 2006).
10.12 Central Jersey Bancorp 2005 Equity Incentive Plan (Incorporated by
reference to Exhibit 10.10 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2005).
31.1 Section 302 Certification of Chief Executive Officer.
31.2 Section 302 Certification of Chief Financial Officer.
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350.
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350.
E-3