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 June 30, 2008.
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
-------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3757709
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
627 Second Avenue, Long Branch, New Jersey 07740
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(732) 571-1300
----------------------------------------------------
(Registrant's telephone number, including area code)
---------------------------------------------------------------------
(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, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [X]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if smaller reporting company)
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 August 1, 2008, there were 9,079,648 shares of the registrant's common
stock, par value $.01 per share, outstanding.
1
Central Jersey Bancorp
INDEX TO FORM 10-Q
------------------
PAGE
----
PART I. FINANCIAL INFORMATION
- ------ ---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition (unaudited)
as of June 30, 2008 and December 31, 2007 ............................... 1
Consolidated Statements of Income (unaudited)
for the three and six months ended June 30, 2008 and 2007 ............... 2
Consolidated Statements of Changes in Shareholders' Equity (unaudited)
for the three and six months ended June 30, 2008 and 2007 ............... 3
Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 30, 2008 and 2007 ......................... 4
Notes to Unaudited Consolidated Financial Statements .................... 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations ........................ 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk .............. 34
Item 4. Controls and Procedures ................................................. 34
PART II. OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings ....................................................... 35
Item 1A. Risk Factors ............................................................ 35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ............. 35
Item 3. Defaults Upon Senior Securities ......................................... 36
Item 4. Submission of Matters to a Vote of Security Holders ..................... 36
Item 5. Other Information ....................................................... 36
Item 6. Exhibits ................................................................ 36
Signatures ......................................................................... 37
Index of Exhibits .................................................................. E-1
Forward-Looking Statements
Certain information included in this Quarterly Report on Form 10-Q and other
filings of the Registrant under the Securities Act of 1933, as amended (the
"Securities Act"), and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as well as information communicated orally or in writing
between the dates of such filings, contains or may contain "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Such statements are subject to certain risks, trends
and uncertainties that could cause actual results to differ materially from
expected results. Among these risks, trends and uncertainties are the effect of
governmental regulation on Central Jersey Bank, National Association, a
nationally chartered commercial bank and wholly-owned subsidiary of the
Registrant, interest rate fluctuations, regional economic and other conditions,
the availability of working capital, the cost of personnel and technology and
the competitive markets in which Central Jersey Bank, N.A. operates.
i
In some cases, forward-looking statements can be identified by terminology such
as "may," "will," "should," "could," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential" or "continue" or the negative
of such terms or other comparable terminology. Although the Registrant believes
that the expectations reflected in the forward-looking statements contained
herein are reasonable, the Registrant cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither the Registrant, nor any
other person, assumes responsibility for the accuracy and completeness of such
statements. The Registrant is under no duty to update any of the forward-looking
statements contained herein after the date of this Quarterly Report on Form
10-Q.
ii
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CENTRAL JERSEY BANCORP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(unaudited)
(dollars in thousands, except share amounts)
June 30, December 31,
2008 2007
--------- ------------
ASSETS
- ------
Cash and due from banks $ 11,300 $ 11,198
Federal funds sold 1,378 3,679
--------- ------------
Cash and cash equivalents 12,678 14,877
Investment securities available-for-sale, at fair value 127,305 114,824
Investment securities held-to-maturity (fair value
of $13,136 and $17,379, respectively, at June 30, 2008
and December 31, 2007) 13,356 17,430
Federal Reserve Bank stock 1,960 1,960
Federal Home Loan Bank stock 1,704 550
Loans held-for-sale -- 658
Loans 329,658 315,173
Less: Allowance for loan losses 3,560 3,408
--------- ------------
Loans, net 326,098 311,765
Accrued interest receivable 1,932 2,218
Premises and equipment 5,691 4,626
Bank owned life insurance 3,624 3,565
Goodwill 26,957 26,957
Core deposit intangible 1,685 1,926
Due from broker 8,472 --
Other assets 2,273 2,150
--------- ------------
Total assets $ 533,735 $ 503,506
========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits:
Non-interest bearing $ 81,705 $ 73,955
Interest bearing 324,458 329,335
--------- ------------
406,163 403,290
Borrowings 53,096 24,564
Subordinated debentures 5,155 5,155
Accrued expenses and other liabilities 1,358 1,611
--------- ------------
Total liabilities 465,772 434,620
--------- ------------
Shareholders' equity:
Common stock, par value $0.01 per share. Authorized
100,000,000 shares and issued and outstanding
9,109,848 and 9,183,290 shares, respectively, at
June 30, 2008 and December 31, 2007 91 91
Additional paid-in capital 64,344 60,787
Accumulated other comprehensive (loss) income (544) 848
Treasury stock - at cost, 102,653 shares at June 30, 2008 (762) --
Retained earnings 4,834 7,160
--------- ------------
Total shareholders' equity 67,963 68,886
--------- ------------
Total liabilities and shareholders' equity $ 533,735 $ 503,506
========= ============
See accompanying notes to unaudited consolidated financial statements.
1
CENTRAL JERSEY BANCORP
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(dollars in thousands, except per share amounts)
Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
------------------------------------------
Interest and dividend income:
Interest and fees on loans $ 5,087 $ 5,804 $ 10,425 $ 11,590
Interest on securities available for sale 1,704 1,080 3,273 2,120
Interest on securities held to maturity 153 226 306 462
Interest on federal funds sold and due from banks 79 619 271 954
------------------------------------------
Total interest and dividend income 7,023 7,729 14,275 15,126
Interest expense:
Interest expense on deposits 2,167 3,293 4,903 6,397
Interest expense on other borrowings 311 184 560 343
Interest expense on subordinated debentures 66 110 173 218
------------------------------------------
Total interest expense 2,544 3,587 5,636 6,958
------------------------------------------
Net interest income 4,479 4,142 8,639 8,168
------------------------------------------
Provision for loan losses 81 40 146 165
------------------------------------------
Net interest income after provision for loan losses 4,398 4,102 8,493 8,003
------------------------------------------
Other income:
Service charges on deposit accounts 381 367 763 720
Gain on the sale of loans held-for-sale 66 26 267 33
Gain on the sale of securities available-for-sale 63 87 63 87
Income on bank owned life insurance 29 29 59 58
Impairment on available-for-sale securities -- -- -- (1,957)
------------------------------------------
Total other income (loss) 539 509 1,152 (1,059)
Operating expenses:
Salaries and employee benefits 1,900 1,676 3,866 3,494
Net occupancy expenses 512 459 1,009 932
Outside service fees 220 214 426 416
Data processing fees 212 215 436 444
Core deposit intangible amortization 121 138 241 276
Premises and equipment depreciation 115 105 220 212
Audit and accounting services 85 150 160 265
Other operating expenses 711 488 1,342 1,056
------------------------------------------
Total other expenses 3,876 3,445 7,700 7,095
------------------------------------------
Income (loss) before provision for income taxes 1,061 1,166 1,945 (151)
Income taxes 350 431 653 376
------------------------------------------
Net income (loss) $ 711 $ 735 $ 1,292 $ (527)
==========================================
Basic earnings (loss) per share $ 0.08 $ 0.08 $ 0.14 $ (0.06)
==========================================
Diluted earnings (loss) per share $ 0.07 $ 0.08 $ 0.14 $ (0.06)
==========================================
See accompanying notes to unaudited consolidated financial statements.
2
CENTRAL JERSEY BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
(dollars in thousands, except share amounts)
Accumulated
Additional other
Common paid-in comprehensive Treasury Retained
stock capital (loss) income stock earnings Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2006 $ 91 $ 60,497 $ (1,409) -- $ 6,316 $ 65,495
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss:
Net loss -- -- -- -- (527) (527)
Unrealized loss on securities
available-for-sale, net of tax of $743 -- -- (1,311) -- -- (1,311)
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 loss -- -- -- -- -- (477)
Exercise of stock options -38,473 shares,
including tax benefit of $13 -- 130 -- -- -- 130
Cash paid for fractional shares -- (4) -- -- -- (4)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2007 $ 91 $ 60,623 $ (1,359) -- $ 5,789 $ 65,144
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2007 $ 91 $ 60,787 $ 848 -- $ 7,160 $ 68,886
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss:
Net income -- -- -- -- 1,292 1,292
Unrealized loss on securities
available-for-sale, net of tax of $840 -- -- (1,392) -- -- $ (1,392)
---------
Total comprehensive loss -- -- -- -- -- (100)
Exercise of stock options - 29,699 shares,
including tax benefit of $41 -- 171 -- -- -- 171
Purchase of 102,653 shares outstanding
stock; placed in treasury -- -- -- (762) -- (762)
5% stock dividend -- 3,390 -- -- (3,390) --
Cash paid for fractional shares -- (4) -- -- -- (4)
Cumulative effect adjustment
adoption of EITF 06-4 -- -- -- -- (228) (228)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2008 $ 91 $ 64,344 $ (544) $ (762) $ 4,834 $ 67,963
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements.
3
CENTRAL JERSEY BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
Six months ended
June 30,
2008 2007
----------------------
Cash flows from operating activities:
Net income (loss) $ 1,292 $ (527)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Increase in cash surrender value of life insurance (59) (58)
Deferred taxes 109 245
Provision for loan losses 146 165
Tax benefit of stock option exercises (41) (13)
Depreciation and amortization 326 375
Net discount accretion on held-to-maturity securities (8) (6)
Net (discount accretion) premium amortization on available-for-sale securities (6) 51
Core deposit intangible amortization 241 276
Impairment on available-for-sale securities -- 1,957
Gain on sale of securities available-for-sale (63) (87)
Gain on the sale of loans held-for-sale (267) (33)
Originations of loans held-for-sale (2,795) (13,151)
Proceeds from the sale of loans held-for-sale 3,464 12,060
Decrease in accrued interest receivable 286 562
Increase in other assets (1,386) (387)
(Decrease) increase in accrued expenses and other liabilities (481) 236
---------- ----------
Net cash provided by operating activities 758 1,665
---------- ----------
Cash flows from investing activities:
Maturities of and paydowns on investment securities held-to-maturity 7,067 2,727
Maturities, sales of and paydowns on investment securities available-for-sale 28,445 91,223
Purchase of investment securities available-for-sale (42,249) (106,005)
Purchase of investment securities held-to-maturity (2,985) --
(Increase) decrease in due from broker (8,472) 3,527
Net (increase) decrease in loans (14,223) 595
Purchases of premises and equipment, net (1,391) (67)
---------- ----------
Net cash used in investment activities (33,808) (8,000)
---------- ----------
Cash flows from financing activities:
Net proceeds from stock options exercised 212 143
Net increase (decrease) in non-interest bearing deposits 7,750 (1,288)
Net (decrease) increase in interest bearing deposits (4,877) 13,710
Net increase in other borrowings 7,292 7,169
Proceeds from Federal Home Loan Bank advances 21,240 --
Purchase of outstanding stock; placed in treasury (762) --
Cash paid for fractional shares (4) (4)
---------- ----------
Net cash provided by financing activities 30,851 19,730
---------- ----------
(Decrease) increase in cash and cash equivalents (2,199) 13,395
Cash and cash equivalents at beginning of period 14,877 37,796
---------- ----------
Cash and cash equivalents at end of period $ 12,678 $ 51,191
========== ==========
Cash paid during the period for:
Interest $ 5,636 $ 6,727
========== ==========
Income taxes $ 1,162 $ 442
========== ==========
See accompanying notes to unaudited 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 unaudited 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 six months ended June 30, 2008 are not necessarily indicative of the results
of operations that may be expected for all of 2008.
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 "SEC").
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 1, 2008 and July 2, 2007.
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, 2007.
Certain prior period amounts have been reclassified to correspond with the
current period presentation.
On January 1, 2008, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 157, Fair Value Measurements. SFAS No. 157 defines fair
value, establishes a framework for measuring fair value in GAAP and expands
disclosures about fair value measurements (see Note 8 - Fair Value
Measurements).
On January 1, 2008, the Company changed its accounting policy and recognized a
cumulative-effect adjustment to retained earnings totaling $228,000. This
adjustment, related to accounting for certain endorsements split-dollar
insurance arrangements, was made in accordance with Emerging Issues Task Force
("EITF") Issue No. 06-4, Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements (see
Note 9 - Post Retirement Benefits).
5
Central Jersey Bancorp and Subsidiary
Note 2. Earnings Per Share
- --------------------------
The following tables reconcile shares outstanding for basic and diluted earnings
per share for the three and six months ended June 30, 2008 and 2007:
Three months ended June 30, 2008
Income Average shares Per share
(dollars in thousands, except for per share data) (numerator) (denominator) amount
-----------------------------------------
Basic EPS
Income available to common shareholders $ 711 9,117 $ 0.08
Effect of dilutive securities:
Stock options -- 433 --
-----------------------------------------
Diluted EPS
Income available to common shareholders, plus
assumed exercise of options $ 711 9,550 $ 0.07
=========================================
Six months ended June 30, 2008
Income Average shares Per share
(dollars in thousands, except for per share data) (numerator) (denominator) amount
-----------------------------------------
Basic EPS
Income available to common shareholders $ 1,292 9,141 $ 0.14
Effect of dilutive securities:
Stock options -- 414 --
-----------------------------------------
Diluted EPS
Income available to common shareholders, plus
assumed exercise of options $ 1,292 9,555 $ 0.14
=========================================
6
Central Jersey Bancorp and Subsidiary
Three months ended June 30, 2007
Income Average shares Per share
(dollars in thousands, except for per share data) (numerator) (denominator) amount
-----------------------------------------
Basic EPS
Income available to common shareholders $ 735 9,120 $ 0.08
Effect of dilutive securities:
Stock options -- 493 --
-----------------------------------------
Diluted EPS
Income available to common shareholders, plus
assumed exercise of options $ 735 9,613 $ 0.08
=========================================
Six months ended June 30, 2007
Income Average shares Per share
(dollars in thousands, except for per share data) (numerator) (denominator) amount
-----------------------------------------
Basic EPS
Income available to common shareholders $ (527) 9,111 $(0.06)
Effect of dilutive securities:
Stock options -- -- --
-----------------------------------------
Diluted EPS
Income available to common shareholders, plus
assumed exercise of options $ (527) 9,111 $(0.06)
=========================================
For the three months ended June 30, 2008, dilutive securities relating to the
Company's Employee and Director Stock Option plan totaled 433,063, which, when
added to the average basic shares outstanding of 9,116,813, resulted in average
diluted shares outstanding of 9,549,876. For the six months ended June 30, 2008,
dilutive securities relating to the Company's Employee and Director Stock Option
plan totaled 413,685, which, when added to the average basic shares outstanding
of 9,141,078, resulted in average diluted shares outstanding of 9,554,763. For
the three months ended June 30, 2007, dilutive securities relating to the
Company's Employee and Director Stock Option plan totaled 493,393, which, when
added to the average basic shares outstanding of 9,119,695, resulted in average
diluted shares outstanding of 9,613,088. However, in accordance with SFAS No.
128, Earnings Per Share, due to the Company reporting a net loss for the six
months ended June 30, 2007, including dilutive securities in the denominator of
a diluted per-share computation would result in an antidilutive per-share
amount.
7
Central Jersey Bancorp and Subsidiary
Stock Appreciation Rights
On January 31, 2006, the Company granted under its 2005 Equity Incentive Plan,
173,646 Stock Appreciation Rights ("SARS") (98,389 were granted to employees and
75,257 were granted to directors), each with an exercise price of $9.40. 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 June
30, 2008 using the Black-Scholes option pricing model with the following
weighted-average assumptions used: stock price $8.02; dividend yield of 0%;
expected volatility of 47.66%; risk free interest rate of 3.34%; and expected
lives of seven years. These SARS had a fair value of approximately $3.94 per
share at June 30, 2008. The Company recorded share based payment expense of
approximately $50,000 and $68,700, (pre-tax), respectively, related to the
granting of SARS during the three and six months ended June 30, 2008. As of June
30, 2008, total unvested compensation expense was approximately $213,000
(pre-tax), which will vest over 19 months.
A summary of the status of the Company's SARS as of and for the six months ended
June 30, 2008 is presented below:
As of and for the six months ended
June 30, 2008
----------------------------------------------------------------------
Weighted
average
exercise
SARS price
----------------------------------------------------------------------
Outstanding at beginning of year 167,857 $ 9.40
Granted -- --
Forfeited (31,258) $ 9.40
Exercised -- --
======================================================================
Outstanding at period end 136,599 $ 9.40
======================================================================
SARS exercisable at period end 68,299 $ 9.40
Weighted average fair value of
SARS granted $ 3.94
Unvested SARS at period end 68,300
Weighted average fair value of
unvested SARS $ 269,102
======================================================================
8
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 1,410,349 shares of the Company's common stock,
subject to adjustment for certain dilutive events such as stock distributions.
During the six months ended June 30, 2008, 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 841,814 shares of Allaire Community Bank common stock were converted
into options to purchase 841,814 shares of Central Jersey Bancorp common stock,
all of which are fully vested. The Company does not anticipate granting any
additional stock options under the Plan.
A summary of the status of the Company's stock options as of and for the six
months ended June 30, 2008 is presented below:
As of and for the six
months ended June 30, 2008
---------------------------------------------------------------------
Weighted
average
exercise
Shares price
---------------------------------------------------------------------
Outstanding at beginning of year 1,410,349 $ 4.77
Granted -- --
Forfeited (16,962) $ 9.88
Exercised (29,699) $ 4.41
=====================================================================
Outstanding at period end 1,363,688 $ 4.72
=====================================================================
Options exercisable at period end 1,363,688 $ 4.72
Weighted average fair value of
options granted n/a
=====================================================================
Stock Based Compensation
Effective January 1, 2006, the Company began recording compensation expense
associated with stock options in accordance with SFAS No. 123(R), Share-Based
Payment. Prior to January 1, 2006, the Company accounted for stock-based
compensation related to stock options under the recognition and measurement
principles of Accounting Principle Board Opinion No. 25; therefore, the Company
measured compensation expense for its stock option plans using the intrinsic
value method, that is, the excess, if any, of the fair market value of the
Company's stock at the grant date over the amount required to be paid to acquire
the stock, and provided the disclosures required by SFAS No. 123(R) and SFAS No.
148, Accounting for Stock-Based Compensation. The Company has adopted the
modified prospective transition method provided by SFAS No. 123(R), and, as a
result, has not retroactively adjusted results from prior periods.
9
Central Jersey Bancorp and Subsidiary
As a result of the adoption of SFAS No. 123(R), the Company has incurred no
compensation expense related to the Company's stock compensation plans for the
six months ended June 30, 2008 or years ended December 31, 2007 and 2006, as no
stock options were granted during 2008, 2007 or 2006 and all stock options were
fully vested prior to January 1, 2006.
Note 3. Loans Receivable, Net and Loans Held-for-Sale
- -----------------------------------------------------
Loans receivable, net and loans held-for-sale at June 30, 2008 and December 31,
2007, consisted of the following (in thousands):
June 30, December 31,
Loan Type 2008 2007
- --------- --------- ------------
Real estate loans - commercial $ 250,554 $ 240,256
Home equity and second mortgages 44,586 37,832
Commercial and industrial loans 28,806 29,371
1-4 family real estate loans 3,579 3,822
Consumer loans 1,883 3,654
--------- ---------
Total loans $ 329,408 $ 314,935
Deferred origination costs, net 250 238
Allowance for loan losses (3,560) (3,408)
--------- ---------
Loans receivable, net $ 326,098 $ 311,765
========= =========
Loans held-for-sale $ -- $ 658
========= =========
Non-Performing Loans
Loans are considered to be non-performing if they (a) are on a non-accrual
basis, (b) are past due ninety 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 June 30, 2008, as compared to $214,000 at December 31, 2007. Non-performing
loans at June 30, 2008 included three commercial loans; one loan with a balance
of $88,000, which was placed on non-accrual status as of June 30, 2006 with a
risk rating of "substandard," one loan with a balance of $126,000, which was
placed on non-accrual as of December 31, 2007 with a risk rating of "doubtful"
and one loan with a balance of $1.8 million, which was placed on non-accrual
status as of April 30, 2008 with a risk rating of "substandard." These loans
were considered impaired and were evaluated in accordance with SFAS No. 114,
Accounting by Creditors for Impairment of a Loan. After evaluation, a specific
reserve of approximately $50,000 was required for one of the impaired loans.
The allowance for loan losses, which began the year at $3.41 million, or 1.08%
of total loans, was $3.56 million at June 30, 2008, or 1.09% of total loans.
There were no loan charge-offs during the three and six months ended June 30,
2008 and 2007. Loan loss recoveries totaled $3,000 and $6,000, respectively,
during the three and six months ended June 30, 2008, as compared to $93,000 and
$96,000, respectively, for the same periods in 2007.
10
Central Jersey Bancorp and Subsidiary
Note 4. Deposits
- ----------------
The major types of deposits at June 30, 2008 and December 31, 2007 were as
follows (in thousands):
June 30, December 31,
Deposit Type 2008 2007
- ------------ --------- ------------
Demand deposits, non-interest bearing $ 81,705 $ 73,955
Savings, N.O.W. and money market accounts 175,346 187,354
Certificates of deposit of less than $100 78,413 80,587
Certificates of deposit of $100 or more 70,699 61,394
--------- ---------
Total $ 406,163 $ 403,290
========= =========
Note 5. Borrowings
- ------------------
Borrowed funds at June 30, 2008 and December 31, 2007 are summarized as follows
(in thousands):
June 30, December 31,
2008 2007
-----------------------
Borrowings $ 53,096 $ 24,564
-------------------------------------------------------
Total $ 53,096 $ 24,564
=======================================================
Borrowings were $53.1 million at June 30, 2008, as compared to $24.6 million at
December 31, 2007. During the six months ended June 30, 2008, the Company
borrowed $21.2 million in Federal Home Loan Bank (the "FHLB") advances which
were used to fund interest-earning assets. Borrowings typically include
wholesale borrowing arrangements as well as arrangements with deposit customers
of Central Jersey Bank, N.A. to sweep funds into short-term borrowings. Central
Jersey Bank, N.A. uses investment securities to pledge as collateral for
repurchase agreements. At June 30, 2008 and December 31, 2007, Central Jersey
Bank, N.A. had unused lines of credit with the FHLB of $47.2 million and $8.9
million, respectively.
At June 30, 2008, the Central Jersey Bank, N.A. had outstanding Federal Home
Loan Bank callable advances as follows (in thousands):
Date Amount Rate Term Call Feature
-------------------------------------------------------
1/24/2008 $ 10,000 2.710% 10 n/c 2 One Time
2/1/2008 5,000 2.380% 5 n/c 1 One Time
2/1/2008 5,000 2.903% 7 n/c 3 One Time
------------------
$ 20,000 2.676%
==================
11
Central Jersey Bancorp and Subsidiary
At June 30, 2008, the Central Jersey Bank, N.A. had the following outstanding
Federal Home Loan Bank fixed rate advance (in thousands):
Date Amount Rate Term Maturity
---------------------------------------------------
5/28/2008 $ 1,240 4.940% 13 years 5/28/2021
Note 6. 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.
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 June 30, 2008, $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 help ensure that Central Jersey Bank, N.A. maintains the 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 June 30, 2008, 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 7. Income Taxes
- --------------------
The Company recorded an income tax expense of $350,000 on income before taxes of
$1.1 million for the three months ended June 30, 2008, resulting in an effective
tax rate of 32.99%, as compared
12
Central Jersey Bancorp and Subsidiary
to an income tax expense of $431,000 on income before taxes of $1.2 million for
the three months ended June 30, 2007, resulting in an effective tax rate of
36.96%.
The Company recorded an income tax expense of $653,000 on income before taxes of
$1.9 million for the six months ended June 30, 2008, resulting in an effective
tax rate of 33.57%, as compared to an income tax expense of $376,000 on a loss
before taxes of $151,000 for the six months ended June 30, 2007.
The reason the Company recorded an income tax expense for the six months ended
June 30, 2007, even though the Company reported a net loss for the period,
resulted from the fact that the majority of the investment securities for which
the $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 did not, at the 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. Fair Value Measurements
- -------------------------------
Effective January 1, 2008, the Company adopted the provisions of SFAS No. 157,
Fair Value Measurements, for financial assets and financial liabilities. In
accordance with the Financial Accounting Standards Board (the "FASB") Staff
Position No. 157-2, Effective Date of FASB Statement No. 157, the Company will
delay application of SFAS No. 157 for non-financial assets and non-financial
liabilities until January 1, 2009. SFAS No. 157 defines fair value, establishes
a framework for measuring fair value in GAAP and expands disclosures about fair
value measurements. The adoption of SFAS No. 157 for financial assets and
financial liabilities did not have a significant impact on the Company's
financial condition or results of operations. The adoption of SFAS No. 157 for
non-financial assets and non-financial liabilities is not expected to have a
significant impact on the Company's financial condition or results of
operations.
Beginning January 1, 2008, financial assets and financial liabilities recorded
at fair value in the consolidated statement of financial condition are
categorized based upon the level of judgment associated with the inputs used to
measure their fair value. SFAS No. 157 establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities and the lowest priority to
unobservable inputs. A financial instrument's level within the fair value
hierarchy is based on the lowest level of input that is significant to the fair
value measurement. The three levels of the fair value hierarchy under SFAS No.
157 are described below:
Basis of Fair Value Measurement
- -------------------------------
Level I Unadjusted quoted prices in active markets that are accessible at
the measurement date for identical, unrestricted assets or
liabilities;
13
Central Jersey Bancorp and Subsidiary
Level II Quoted prices in markets that are not active, or inputs that are
observable either directly or indirectly, for substantially the full
term of the asset or liability;
Level III Prices or valuation techniques that require inputs that are both
significant to the fair value measurement and unobservable (i.e.,
supported by little or no market activity).
A description of the valuation methodologies used for instruments measured at
fair value, as well as the general classification of such instruments pursuant
to the valuation hierarchy, is set forth below. These valuation methodologies
were applied to all of the Company's financial assets and financial liabilities
carried at fair value, effective January 1, 2008.
In general, fair value is based upon quoted market prices, where available. If
such quoted market prices are not available, fair value is based upon internally
developed models that primarily use, as inputs, observable market-based
parameters. Valuation adjustments may be made to ensure that financial
instruments are recorded at fair value. These adjustments may include amounts to
reflect counterparty credit quality, the Company's creditworthiness, among other
things, as well as unobservable parameters. Any such valuation adjustments are
applied consistently over time.
Investment securities available-for-sale - Investment securities classified as
available-for-sale are reported at fair value utilizing Level II inputs. For
these investment securities, the Company obtains fair value measurements from an
independent pricing service. The fair value measurements consider observable
data that may include dealer quotes, market spreads, cash flows, the U.S.
Treasury yield curve, live trading levels, trade execution data, market
consensus prepayment speeds, credit information and the bond's terms and
conditions, among other things.
Loans held-for-sale - The fair value of loans held-for-sale is determined, when
possible, using quoted secondary-market prices. If no such quoted price exists,
the fair value of a loan is determined using quoted prices for a similar asset
or assets, adjusted for the specific attributes of that loan.
Impaired loans - Certain impaired loans are reported at the fair value of the
underlying collateral if repayment is expected solely from the collateral.
Collateral values are estimated using Level III inputs based on customized net
present value discounting criteria.
Servicing rights - The fair value of mortgage servicing rights is based on a
valuation model that calculates the present value of estimated net servicing
income. The valuation model incorporates assumptions that market participants
would use in estimating future net servicing income. The Company is able to
compare the valuation model inputs and results to widely available published
industry data for reasonableness.
The following table summarizes financial assets measured fair value on a
recurring basis as of June 30, 2008, segregated by the level of valuation inputs
within the fair value hierarchy utilized to measure fair value (in thousands):
14
Central Jersey Bancorp and Subsidiary
Total
Level I Level II Level III fair value
---------------------------------------------
Investment securities available-for-sale $ -- $ 127,305 $ -- $ 127,305
Impaired loans -- -- 2,102 2,102
---------------------------------------------
Total assets $ -- $ 127,305 $ 2,102 $ 129,407
Certain financial assets and financial liabilities are measured at fair value on
a nonrecurring basis; that is, the instruments are not measured at fair value on
an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of impairment). Financial
assets and financial liabilities measured at fair value on a non-recurring basis
were not significant at June 30, 2008.
Certain non-financial assets and non-financial liabilities measured at fair
value on a recurring basis include reporting units measured at fair value in the
first step of a goodwill impairment test. Certain non-financial assets measured
at fair value on a non-recurring basis include non-financial assets and
non-financial liabilities measured at fair value in the second step of a
goodwill impairment test, as well as intangible assets and other non-financial,
long-lived assets measured at fair value for impairment assessment. As stated
above, SFAS 157 will be applicable to these fair value measurements beginning
January 1, 2009.
Note 9. Post Retirement Benefits
- --------------------------------
In September 2006, the 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. 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.
During the six months ended June 30, 2008, Central Jersey Bancorp recognized and
recorded a deferred compensation liability of $228,000 for future benefits
related to an endorsement split-dollar life insurance arrangement subject to
EITF Issue No. 06-4.
Note 10. Recent Accounting Pronouncements
- -----------------------------------------
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
15
Central Jersey Bancorp and Subsidiary
measurements. This Statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007, and interim periods within those
years.
In September 2006, the 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. 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.
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 not met.
SFAS No. 159 is effective for years beginning after November 15, 2007. Central
Jersey Bancorp adopted SFAS No. 159 effective January 1, 2008, however, decided
not to elect the fair value option permitted by SFAS No. 159.
In December 2007, FASB Statement No. 141(R), Business Combinations, was issued.
This Statement establishes principles and requirements for how the acquirer of a
business recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree. The Statement also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. The guidance will become
effective as of the beginning of a company's fiscal year beginning after
December 15, 2008. This new pronouncement will impact the Company's accounting
for business combinations completed beginning January 1, 2009.
In December 2007, FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51, was issued. This
Statement establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. The
guidance will become effective as of the beginning of a company's fiscal year
beginning after December 15, 2008. The Company is currently evaluating the
potential impact this new pronouncement will have on its consolidated financial
statements.
16
Central Jersey Bancorp and Subsidiary
In February 2008, the FASB issued a FASB Staff Position ("FSP") FAS 140-3,
Accounting for Transfers of Financial Assets and Repurchase Financing
Transactions. This FSP addresses the issue of whether or not these transactions
should be viewed as two separate transactions or as one "linked" transaction.
The FSP includes a "rebuttable presumption" that presumes linkage of the two
transactions unless the presumption can be overcome by meeting certain criteria.
The FSP will be effective for fiscal years beginning after November 15, 2008 and
will apply only to original transfers made after that date; early adoption will
not be allowed. The Company is currently evaluating the potential impact this
new pronouncement will have on its consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities--an amendment of FASB Statement No. 133,
(Statement 161). SFAS No. 161 requires entities that utilize derivative
instruments to provide qualitative disclosures about their objectives and
strategies for using such instruments, as well as any details of
credit-risk-related contingent features contained within derivatives. SFAS No.
161 also requires entities to disclose additional information about the amounts
and location of derivatives located within the financial statements, how the
provisions of SFAS No. 133 has been applied, and the impact that hedges have on
an entity's financial position, financial performance, and cash flows. SFAS No.
161 is effective for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. The Company is currently evaluating
the potential impact this new pronouncement will have on its consolidated
financial statements.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP. The hierarchy of authoritative accounting
guidance is not expected to change current practice but is expected to
facilitate the FASB's plan to designate as authoritative its forthcoming
codification of accounting standards. This Statement is effective 60 days
following the SEC's approval of the Public Company Accounting Oversight Board's
("PCAOB") related amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles, to remove the GAAP
hierarchy from its auditing standards. The hierarchical guidance provided by
SFAS No. 162 is not expected to have a significant impact on the Company's
consolidated financial statements.
In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement). FSP APB 14-1 requires issuers of convertible debt that may be
settled wholly or partly in cash to account for the debt and equity components
separately. The FSP is effective for financial statements issued for fiscal
years beginning after December 15, 2008 and interim periods within those years,
and must be applied retrospectively to all periods presented. Early adoption is
prohibited. The Company is currently evaluating the potential impact this new
pronouncement will have on its consolidated financial statements.
In June 2008, the EITF of the FASB discussed public comments received on EITF
Issue No. 08- 3, Accounting by Lessees for Nonrefundable Maintenance Deposits.
The Task Force reached a consensus that lessees should account for nonrefundable
maintenance deposits as deposit assets if it is probable that maintenance
activities will occur and the deposit is therefore realizable. Amounts on
deposit that are not probable of being used to fund future maintenance
activities
17
Central Jersey Bancorp and Subsidiary
should be charged to expense. The consensus is effective for fiscal years
beginning after December 15, 2008, and should be initially applied by recording
a cumulative-effect adjustment to opening retained earnings in the period of
adoption. Early application is not permitted. The Company is currently
evaluating the potential impact this new pronouncement will have on its
consolidated financial statements.
18
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 June 30, 2008 and results of operations
for the three and six months ended June 30, 2008 and 2007. The following
information should be read in conjunction with the Company's unaudited
consolidated financial statements for the three and six months ended June 30,
2008 and 2007, 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 unaudited 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, 2007, included with Central
Jersey Bancorp's annual report on Form 10-K for the year ended December 31,
2007, contains a summary of the Company's significant accounting policies.
Management believes the Company's policy 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. This critical policy and its application are periodically reviewed
with Central Jersey Bancorp's Audit Committee and its Board of Directors.
Additional critical accounting policies relate to judgments about other asset
impairments, including goodwill, investment securities, servicing rights and
deferred tax assets. Central Jersey Bancorp performs an annual analysis to test
the aggregate balance of goodwill for impairment in accordance with SFAS No.
142, Goodwill and Other Intangible Assets. For purposes of the goodwill
impairment evaluation, Central Jersey Bancorp is identified as the reporting
unit. The fair value of goodwill is determined using standard valuation
methodologies similar to those used to determine the fair value of goodwill in a
business combination, including a review of comparable transactions. If the
carrying amount of goodwill pursuant to this analysis were to exceed the implied
fair value of goodwill, an impairment loss would be recognized. No impairment
loss was required to be recognized for the years ended December 31, 2007, 2006
and 2005.
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
Central Jersey Bank, N.A. has the positive intent and ability to hold to
maturity. Such securities are stated at cost,
19
adjusted for amortization of premiums and accretion of discounts over the
estimated remaining lives of the investment securities utilizing the level-yield
method. Investment 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. Investment securities available-for-sale include
investment 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. Investment securities
available-for-sale are carried at estimated fair value. Unrealized holding gains
and losses on such investment securities available-for-sale are excluded from
earnings and reported as a separate component of shareholders' equity. Gains and
losses on sales of investment securities are based on the specific
identification method and are accounted for on a trade date basis.
On a quarterly basis, Central Jersey Bank, N.A. 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 shall be
recognized in earnings. 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 Central Jersey Bank, N.A. 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 ninety 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 for doubtful
collection no longer exist.
A loan is considered past due when a payment has not been received in accordance
with the
20
contractual terms. Generally, commercial loans are placed on non-accrual status
when they are ninety 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 one hundred twenty
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 the Interagency Policy Statement on
the Allowance for Loan and Lease Losses ("ALLL") issued jointly by the federal
banking agencies on December 13, 2006 (OCC Bulletin 2006-47) and 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 Central Jersey
Bank, N.A.'s allowance for loan losses. Such agencies may require Central Jersey
Bank, N.A. to make additional provisions for loan losses based upon information
available to them at the time of their examination. Furthermore, the majority of
Central Jersey Bank, N.A.'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 Central Jersey Bank, N.A.'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 Central Jersey Bank,
N.A.'s control. Management believes that the allowance for loan losses is
adequate as of June 30, 2008.
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
21
Statements of Changes in Shareholders' Equity.
Central Jersey Bank, N.A.'s operations are solely in the financial services
industry and include traditional banking and other financial services. Central
Jersey Bank, N.A. operates primarily in the geographical region of Central New
Jersey. Management makes operating decisions and assesses performance based on
an ongoing review of Central Jersey Bank, N.A.'s consolidated financial results.
Therefore, Central Jersey Bancorp has a single operating segment for financial
reporting purposes.
Intangible assets consist of goodwill, core deposit premiums and servicing
rights. 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.
The Company originates SBA loans and typically sells up to 75% of the
outstanding loan balance to investors, with servicing retained. Servicing rights
fees, which are usually based on a percentage of the outstanding principal
balance of the loan, are recorded for servicing functions. The Company accounts
for its transfers and servicing of financial assets in accordance with SFAS No.
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. The Company records servicing rights based on
the fair values at the date of sale.
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 premiums 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.
On January 7, 2008, the Company announced a common stock repurchase program. As
authorized by Central Jersey Bancorp's Board of Directors, Central Jersey
Bancorp may repurchase up to 5.7%, or 525,000 shares, of the 9,183,290 shares of
common stock outstanding at the time the repurchase program was announced.
Repurchases may be made from time to time, in the open market, in unsolicited
negotiated transactions or in such other manner deemed appropriate by
management, at prices not exceeding prevailing market prices, subject to
availability of the shares, over twenty-four months ending December 31, 2009, or
such shorter or longer period of time as Central Jersey Bancorp may determine.
The acquired shares are to be held in treasury to be used for general corporate
purposes. The Company's repurchase activities take into account SEC safe harbor
rules and guidance for issuer repurchases. During the six months ended June 30,
2008, the Company repurchased 102,653 shares of its common stock at
22
an average price of $7.39 per share.
Overview
Central Jersey Bancorp reported net income of $711,000 for the three months
ended June 30, 2008, as compared to net income of $735,000 for the same period
in 2007. Basic and diluted earnings per share for the three months ended June
30, 2008 were $0.08 and $0.07, respectively, as compared to basic and diluted
earnings per share of $0.08 for the same period in 2007. Per share earnings have
been adjusted in all periods to reflect the 5% stock dividends paid on July 1,
2008 and July 2, 2007.
Central Jersey Bancorp reported net income of $1.3 million for the six months
ended June 30, 2008, as compared to a net loss of $527,000 for the same period
in 2007. Basic and diluted earnings per share for the six months ended June 30,
2008 were $0.14, as compared to basic and diluted loss per share of ($0.06) for
the same period in 2007. The net loss reported for the six months ended June 30,
2007 was 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
unaudited consolidated financial statements.
Total assets of $533.7 million at June 30, 2008 were comprised primarily of
$326.1 million in net loans, $140.7 million in investment securities and $12.7
million in cash and cash equivalents, as compared to total assets of $503.5
million at December 31, 2007, which primarily consisted of $311.8 million in net
loans, $132.3 million in investment securities, $658,000 in residential loans
held-for-sale and $14.9 million in cash and cash equivalents. Total assets at
June 30, 2008 were funded primarily through deposits totaling $406.2 million and
other borrowings totaling $53.1 million, as compared to $403.3 million and $24.6
million, respectively, at December 31, 2007.
At June 30, 2008 non-accrual loans totaled $2.1 million, as compared to $214,000
at December 31, 2007. There were no loan charge-offs during the three and six
months ended June 30, 2008 and 2007. Recoveries, which are payments received on
loans previously charged-off, totaled $3,000 and $6,000, respectively, during
the three and six months ended June 30, 2008, as compared to $93,000 and
$96,000, respectively, for the same periods in 2007.
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 and borrowed funds.
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. 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.
During 2007, Central Jersey Bancorp executed a balance sheet restructuring
strategy involving
23
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 Central Jersey Bancorp 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 year ended December 31, 2007.
For the Three Months Ended June 30, 2008 and 2007
Net Interest Income
Net interest income was $4.5 million for the three months ended June 30, 2008,
as compared to $4.1 million for the same period in 2007. Net interest income for
the three months ended June 30, 2008 was comprised of $5.1 million of interest
and fees on loans, $1.9 million of interest on securities, and $79,000 of
interest on federal funds sold and due from banks, less interest expense on
deposits of $2.2 million, interest expense on other borrowed funds of $311,000
and interest expense on subordinated debentures of $66,000. The net interest
margin for the three months ended June 30, 2008 was 3.79%, as compared to 3.48%
for the same period in 2007.
Interest and dividend income was $7.0 million for the three months ended June
30, 2008, as compared to $7.7 million for the same period in 2007. This
represents a decrease of $706,000, or 9.1%. The average yield on
interest-earning assets decreased to 5.87% for the three months ended June 30,
2008, as compared to 6.43% for the same period in 2007. The decrease in interest
and dividend income and the average yield on interest-earning assets was
primarily due to the over 300 basis point reduction in the general level of
short term interest rates and the 325 basis point reduction in the Prime Rate of
interest which occurred between September 2007 and April 2008. Average
interest-earning assets, which were 90.6% of average total assets, totaled
$475.7 million for the three months ended June 30, 2008, and were comprised of
$324.1 million in loans, $142.4 million in investment securities, $5.1 million
in federal funds sold and $4.1 million in other interest bearing deposits.
Interest expense was $2.5 million for the three months ended June 30, 2008, as
compared to $3.6 million for the same period in 2007. This represents a decrease
of $1.1 million, or 30.6%. The decrease was due primarily to average cost of
deposits and interest bearing liabilities which decreased to an average cost of
2.25% for the three months ended June 30, 2008 from an average cost of 3.17% for
the same period in 2007, as a result of the previously-mentioned lower interest
rate environment. Average interest-bearing deposits totaled $319.7 million for
the three months ended June 30, 2008, as compared to $347.1 million for the same
period in 2007, a decrease of $27.4 million, or 7.9%, and were comprised of
$105.9 million in interest-bearing checking and money market deposits, $69.0
million in savings deposits and $144.8 million in time deposits. Interest
expense associated with borrowings and subordinated debentures totaled $311,000
and
24
$66,000, respectively, for the three months ended June 30, 2008, as compared to
$184,000 and $110,000, respectively, for the same period in 2007. Borrowings for
the three months ended June 30, 2008 averaged $53.2 million, as compared to
$21.4 million for the same period in 2007. The increase was due to growth in the
bank subsidiary's sweep account product for business customers and $21.2 million
in Federal Home Loan Bank advances. The Federal Home Loan Bank advances were
used to fund loan growth and the purchase of mortgage-backed securities during
the period.
Provision for Loan Losses
For the three months ended June 30, 2008, the provision for loan losses was
$81,000, as compared to $40,000 for the same period in 2007. The provision for
loan losses recorded for each period is representative of the loan growth that
occurred during the period and the risk profile of the loan portfolio. Included
in the provision for loan losses for the three months ended June 30, 2008 was a
$50,000 specific reserve for an impaired loan. This loan was evaluated in
accordance with SFAS No. 114. There were no loan charge-offs during the three
months ended June 30, 2008 and 2007. Recoveries totaled $3,000 during the three
months ended June 30, 2008, as compared to $93,000 for the same period in 2007.
Non-Interest Income
Non-interest income, which consists of service charges on deposit accounts, gain
on the sale of loans held-for-sale, gain on the sale of investment securities
available-for-sale, income from bank owned life insurance and the impairment on
available-for-sale investment securities, was $539,000 for the three months
ended June 30, 2008, as compared to $509,000 for the same period in 2007. Gains
on the sale of loans held-for-sale were $66,000 for the three months ended June
30, 2008, as compared to $26,000 for the three months ended June 30, 2007. The
increase in gains on the sale of loans held-for-sale was due to fees realized
from the sale and servicing of SBA loans. The gain on sale of loans
held-for-sale was $4,000 for the three months ended June 30, 2008, as compared
to $26,000 for the three months ended June 30, 2007. The gain on sale of SBA
loans was $34,000 for the three months ended June 30, 2008, as compared to no
gain for the three months ended June 30, 2007. The servicing rights fees
recorded in conjunction with SBA loans sold were $28,000 for the three months
ended June 30, 2008, as compared to no servicing rights fees for the three
months ended June 30, 2007. The origination of SBA loans, which are generally
sold with servicing retained, commenced in the fourth quarter of 2007, with the
initial SBA loan sales occurring during the first quarter of 2008.
Non-Interest Expense
Non-interest expense was $3.9 million for the three months ended June 30, 2008,
as compared to $3.4 million for the same period in 2007. Non-interest expense
generally includes costs associated with employee salaries and benefits,
occupancy expenses, data processing fees, core deposit intangible amortization,
and other operating expenses.
25
The table below presents non-interest expense, by major category, for the three
months ended June 30, 2008 and 2007 (in thousands):
Three months ended
June 30,
Non-Interest Expense 2008 2007
-------------------- -------- --------
Salaries and employee benefits $ 1,900 $ 1,676
Net occupancy expenses 512 459
Outside service fees 220 214
Data processing fees 212 215
Core deposit intangible amortization 121 138
Audit and tax fees 85 150
Advertising and marketing expenses 72 38
Legal expenses 65 69
Printing, stationery and supplies 53 54
Other operating expenses 636 432
-------- --------
Total $ 3,876 $ 3,445
======== ========
Income Tax Expense
The Company recorded an income tax expense of $350,000 on income before taxes of
$1.1 million for the three months ended June 30, 2008, resulting in an effective
tax rate of 32.99%, as compared to an income tax expense of $431,000 on income
before taxes of $1.2 million for the three months ended June 30, 2007, resulting
in an effective tax rate of 36.96%.
For the Six Months Ended June 30, 2008 and 2007
Net Interest Income
Net interest income was $8.6 million for the six months ended June 30, 2008, as
compared to $8.2 million for the same period in 2007. Net interest income for
the six months ended June 30, 2008 was comprised of $10.4 million of interest
and fees on loans, $3.6 million of interest on securities, and $271,000 of
interest on federal funds sold and due from banks, less interest expense on
deposits of $4.9 million, interest expense on other borrowed funds of $560,000
and interest expense on subordinated debentures of $173,000. The net interest
margin for the six months ended June 30, 2008 was 3.66%, as compared to 3.51%
for the same period in 2007.
Interest and dividend income was $14.3 million for the six months ended June 30,
2008, as compared to $15.1 million for the same period in 2007. This represents
a decrease of $851,000, or 5.6%. The average yield on interest-earning assets
decreased to 5.98% for the six months ended June 30, 2008, as compared to 6.42%
for the same period in 2007. The decrease in interest and dividend income and
the average yield on interest-earning assets was primarily due to the over 300
basis point reduction in the general level of short term interest rates and the
325 basis point reduction in the Prime Rate of interest which occurred between
September 2007 and April 2008. Average interest-earning assets, which were 90.7%
of average total assets, totaled $474.4 million for the six months ended June
30, 2008, and were comprised of $321.3 million in loans, $136.3 million in
investment securities, $12.6 million in federal funds sold and $4.2 million in
other interest bearing deposits.
26
Interest expense was $5.6 million for the six months ended June 30, 2008, as
compared to $7.0 million for the same period in 2007. This represents a decrease
of $1.4 million, or 20.0%. The decrease was due primarily to average cost of
deposits and interest bearing liabilities which decreased to an average cost of
2.51% for the six months ended June 30, 2008 from an average cost of 3.13% for
the same period in 2007, as a result of the previously-mentioned lower interest
rate environment. Average interest-bearing deposits totaled $326.6 million for
the six months ended June 30, 2008, as compared to $342.4 million for the same
period in 2007, a decrease of $15.8 million, or 4.6%, and were comprised of
$112.7 million in interest-bearing checking and money market deposits, $69.3
million in savings deposits and $144.6 million in time deposits. Interest
expense associated with borrowings and subordinated debentures totaled $560,000
and $173,000, respectively, for the six months ended June 30, 2008, as compared
to $343,000 and $218,000, respectively, for the same period in 2007. Borrowings
for the six months ended June 30, 2008 averaged $46.5 million, as compared to
$19.4 million for the same period in 2007. The increase was due to growth in the
bank subsidiary's sweep account product for business customers and $21.2 million
in Federal Home Loan Bank advances. The Federal Home Loan Bank advances were
used to fund loan growth and the purchase of mortgage-backed securities during
the period.
Provision for Loan Losses
For the six months ended June 30, 2008, the provision for loan losses was
$146,000 as compared to $165,000 for the same period in 2007. The provision for
loan losses recorded for the six months ended June 30, 2008 was representative
of the loan growth that occurred during the period and the changes in the risk
profile of the loan portfolio for such period. The provision for loan losses
recorded for the six months ended June 30, 2007 was representative of the change
in the risk profile of the loan portfolio for the period. Included in the
provision for loan losses for the six months ended June 30, 2008 was a $50,000
specific reserve for an impaired loan. This loan was evaluated in accordance
with SFAS No. 114. There were no loan charge-offs during the six months ended
June 30, 2008 and 2007. Recoveries totaled $6,000 during the six months ended
June 30, 2008, as compared to $96,000 for the same period in 2007.
Non-Interest Income (Loss)
Non-interest income (loss), which consists of service charges on deposit
accounts, gain on the sale of loans held-for-sale, gain on the sale of
investment securities available-for-sale, income from bank owned life insurance
and the impairment on available-for-sale investment securities was $1.2 million
for the six months ended June 30, 2008, as compared to ($1.1 million) for the
same period in 2007. Gains on the sale of loans held-for-sale were $267,000 for
the six months ended June 30, 2008, as compared to $33,000 for the six months
ended June 30, 2007. The significant increase in gains on the sale of loans
held-for-sale was due to fees realized from the sale and servicing of SBA loans.
The gain on sale of loans held-for-sale was $11,000 for the six months ended
June 30, 2008, as compared to $45,000 for the six months ended June 30, 2007.
The gain on sale of SBA loans was $139,000 for the six months ended June 30,
2008, as compared to no gain for the six months ended June 30, 2007. The
servicing rights fees recorded in conjunction with SBA loans sold were $107,000
for the six months ended June 30, 2008, as compared to no servicing rights fees
for the six months ended June 30, 2007. The origination of SBA loans, which are
generally sold with servicing retained, commenced in the fourth quarter of 2007,
with the initial SBA loan sales occurring during the first quarter of 2008. The
loss recorded in non-interest income for the six months ended June 30, 2007 was
directly related to the one-time balance sheet restructuring charge
27
of $1.96 million, pre-tax.
Non-Interest Expense
Non-interest expense was $7.7 million for the six months ended June 30, 2008, as
compared to $7.1 million for the same period in 2007. Non-interest expense
generally includes costs associated with employee salaries and benefits,
occupancy expenses, data processing fees, core deposit intangible amortization,
and other operating expenses.
The table below presents non-interest expense, by major category, for the six
months ended June 30, 2008 and 2007 (in thousands):
Six months ended
June 30,
Non-Interest Expense 2008 2007
-------------------- -------- --------
Salaries and employee benefits $ 3,866 $ 3,494
Net occupancy expenses 1,009 932
Outside service fees 426 416
Data processing fees 436 444
Core deposit intangible amortization 241 276
Audit and tax fees 160 265
Advertising and marketing expenses 139 74
Legal expenses 110 182
Printing, stationery and supplies 104 116
Other operating expenses 1,209 896
-------- --------
Total $ 7,700 $ 7,095
======== ========
Income Tax Expense
The Company recorded an income tax expense of $653,000 on income before taxes of
$1.9 million for the six months ended June 30, 2008, resulting in an effective
tax rate of 33.57%, as compared to an income tax expense of $376,000 on a loss
before taxes of $151,000 for the six months ended June 30, 2007.
The reason the Company recorded an income tax expense for the six months ended
June 30, 2007, even though the Company reported a net loss for the period,
resulted from the fact that the majority of the investment securities for which
the $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 did not, at the 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.
28
Financial Condition
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash on hand, due from banks and
federal funds sold. At June 30, 2008, cash and cash equivalents were $12.7
million, a decrease of $2.2 million, or 14.8%, from the December 31, 2007 total
of $14.9 million. This decrease was due primarily to the timing of cash flows
related to the Company's business activities.
Investment Portfolio
Investment securities totaled $140.7 million at June 30, 2008, an increase of
$8.4 million, or 6.4%, over the December 31, 2007 total of $132.3 million. The
increase was attributable to the purchase of $44.6 million of mortgage-backed
securities, less principal pay downs and maturities, as described below, and
$600,000 of bond anticipation notes during the period. For the six months ended
June 30, 2008, principal pay downs of mortgage-backed securities totaled $16.9
million, $6.4 million of government-sponsored agency securities and $2.9 million
in bond anticipation notes matured, and $8.4 million in mortgage-backed
securities were sold. In addition, at June 30, 2008, the unrealized loss on
available-for-sale securities totaled $2.2 million. The unrealized losses on
investment securities were the result of general interest rate increases. Fannie
Mae and Freddie Mac guarantee the contractual cash flows of these investment
securities. Since the decrease in market value is attributable to changes in
interest rates and not credit quality, and because the Company has the ability
and intent to hold these investment securities until a market price recovery or
maturity, these investment securities are not considered other-than-temporarily
impaired.
Loan Portfolio
Loans, net of the allowance for loan losses, closed the six months ended June
30, 2008 at $326.1 million, an increase of $14.3 million, or 4.6%, over the
$311.8 million balance at December 31, 2007. The increase in loans was due
primarily to the origination of commercial real estate loans, consumer home
equity loans and lines of credit during the period.
Loan portfolio composition remained consistent at June 30, 2008, as compared to
December 31, 2007, with commercial loans comprising 84.8% of total loans
outstanding at June 30, 2008, as compared to 85.6% at December 31, 2007. In
addition, Central Jersey Bancorp had non-accrual loans totaling $2.1 million at
June 30, 2008, as compared to $214,000 at December 31, 2007. Net loans totaled
$326.1 million at June 30, 2008, as compared to $311.8 million at December 31,
2007, an increase of $14.3 million, or 4.6%. The allowance for loan losses
increased to $3.56 million, or 1.09% of total gross loans, at June 30, 2008, as
compared to $3.41 million, or 1.08% of total gross loans, at December 31, 2007.
There were no loans held-for-sale at June 30, 2008, as compared to $658,000 at
December 31, 2007. The decrease in loans held-for-sale is due primarily to the
timing of loan closings and sales.
Allowance for Loan Losses and Related Provision
The allowance for loan losses, which began the year at $3.41 million, or 1.08%
of total loans, was $3.56 million at June 30, 2008, or 1.09% of total loans.
There were no loan charge-offs during the
29
three and six months ended June 30, 2008 and 2007. Loan loss recoveries totaled
$3,000 and $6,000, respectively, during the three and six months ended June 30,
2008, as compared to $93,000 and $96,000, respectively, for the same periods in
2007.
For the three and six months ended June 30, 2008, the provision for loan losses
was $81,000 and $146,000, respectively, as compared to $40,000 and $165,000,
respectively, for the same periods in 2007. The provision for loan losses
recorded for each period is representative of the loan growth that occurred
during the period and the risk profile of the loan portfolio.
Non-performing Loans
A loan is considered to be non-performing if it (1) is on a non-accrual basis,
(2) is past due ninety 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. Central Jersey Bancorp, at June 30, 2008, had non-performing
loans totaling $2.1 million, as compared to $214,000 at December 31, 2007.
Non-performing loans at June 30, 2008 included three commercial loans; one loan
with a balance of $88,000, which was placed on non-accrual status as of June 30,
2006 with a risk rating of "substandard", one loan with a balance of $126,000,
which was placed on non-accrual as of December 31, 2007 with a risk rating of
"doubtful" and one loan with a balance of $1.8 million, which was placed on
non-accrual status as of April 30, 2008 with a risk rating of "substandard".
These loans are considered impaired and are evaluated in accordance with SFAS
No. 114.
Impaired Loans
When necessary, Central Jersey Bancorp performs individual loan reviews in
accordance with SFAS No. 114 to determine whether any individually reviewed
loans are impaired and, if impaired, measures a SFAS No. 114 allowance
allocation in accordance with the standard. A loan is recognized as impaired
when it is probable that principal and/or interest are not collectible in
accordance with the loan's contractual terms. The Company considers loans on
non-accrual status or risk rated 8 or higher as impaired and automatically
subject to SFAS No. 114 review. In addition, any other loan that management
considers possibly impaired due to deteriorating conditions or for any other
reasons, is, at management's discretion, subject to SFAS No. 114 review.
At June 30, 2008, Central Jersey Bancorp had impaired loans totaling $2.1
million, as compared to no impaired loans at December 31, 2007. Impaired loans
included one loan, in particular, with a balance of $1.8 million at June 30,
2008, which required a $50,000 specific reserve. This specific reserve was
included in the Company's overall allowance for loan losses balance at June 30,
2008.
Potential Problem Loans
In addition to non-performing loans, Central Jersey Bancorp 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
30
identified "structural weakness" which potentially could cause such loans to
become non-performing in future periods.
As of June 30, 2008, loans on the watch list totaled $12.6 million, as compared
to $6.0 million at December 31, 2007. This increase was representative of the
changes in the risk profile of the loan portfolio. Loans which were risk rated
"special mention" increased by $4.6 million, to $10.0 million, at June 30, 2008
from $5.4 million at December 31, 2007. Loans which were risk rated
"substandard" increased by $1.9 million, to $2.5 million, at June 30, 2008 from
$581,000 at December 31, 2007. Loans which were risk rated "doubtful" increased
to $176,000 at June 30, 2008 from no loans risk rated "doubtful" at December 31,
2007.
Commitments and Conditional Obligations
In the ordinary course of business to meet the financial needs of the Company's
customers, the Company is party to financial instruments with off-balance sheet
risk. These financial instruments include unused lines of credit and involve, to
varying degrees, elements of credit risk in excess of the amount recognized in
the consolidated financial statements. The contract or notional amounts of these
instruments express the extent of involvement the Company has in each category
of financial instruments.
The Company's exposure to credit loss from nonperformance by the other party to
the above-mentioned financial instruments is represented by the contractual
amount of those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments. The contract or notional amount of financial instruments which
represent credit risk at June 30, 2008 and December 31, 2007 is as follows (in
thousands):
June 30, December 31,
2008 2007
----------------------------------------------------------------------
Standby letters of credit $ 1,448 $ 1,361
Outstanding loan and credit line commitments $ 72,274 $ 77,689
----------------------------------------------------------------------
Standby letters of credit are conditional commitments issued by the Company
which guarantee performance by a customer to a third party. The credit risk and
underwriting procedures involved in issuing letters of credit are essentially
the same as that involved in extending loan facilities to customers. All of
Central Jersey Bank, N.A.'s outstanding standby letters of credit are
performance standby letters within the scope of the FASB Interpretation No. 45.
These are irrevocable undertakings by Central Jersey Bank, N.A., as guarantor,
to make payments in the event a specified third party fails to perform under a
non-financial contractual obligation. Most of Central Jersey Bank, N.A.'s
performance standby letters of credit arise in connection with lending
relationships and have terms of one year or less. The maximum potential future
payments Central Jersey Bank, N.A. could be required to make equals the face
amount of the letters of credit. Central Jersey Bank, N.A.'s liability for
performance standby letters of credit was immaterial at June 30, 2008 and
December 31, 2007.
Outstanding loan commitments represent the unused portion of loan commitments
available to individuals and companies as long as there is no violation of any
condition established in the contract. Outstanding loan commitments generally
have a fixed expiration date of one year or less, except for home equity loan
commitments which generally have an expiration date of up to
31
fifteen years. The Company evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if any, upon extension of
credit is based upon management's credit evaluation of the customer. Various
types of collateral may be held, including property and marketable securities.
The credit risk involved in these financial instruments is essentially the same
as that involved in extending loan facilities to customers.
Deposits
One of Central Jersey Bancorp'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 June
30, 2008, totaled $406.2 million, an increase of $2.9 million, or 0.72%, from
the December 31, 2007 total of $403.3 million. The modest increase in deposit
balances was reflective of the competitive deposit pricing environment and
general economic slowdown. Core deposits as a percentage of total deposits were
82.6% and 84.8%, respectively, at June 30, 2008 and December 31, 2007.
Borrowings
Borrowings were $53.1 million at June 30, 2008, as compared to $24.6 million at
December 31, 2007, representing an increase of $28.5 million, or 115.9%. The
increase was due to growth in the bank subsidiary's sweep account product for
business customers and $21.2 million in Federal Home Loan Bank advances. The
Federal Home Loan Bank advances were used to fund loan growth and the purchase
of mortgage-backed securities during the period.
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 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 six months ended
June 30, 2008, Central Jersey Bank, N.A. continued to maintain a large secondary
source of liquidity known as investment securities available-for-sale. The fair
value of that portfolio was $127.3 million and $114.8 million, at June 30, 2008
and December 31, 2007, respectively.
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.
32
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 FHLB 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.
Available liquidity and borrowing capacity is reviewed by management on a
monthly basis. As of June 30, 2008, the Company's liquidity surplus was $116.8
million.
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
June 30, 2008, Central Jersey Bancorp and Central Jersey Bank, N.A. met all
capital adequacy requirements to which they were subject.
The following is a summary of Central Jersey Bank, N.A.'s and Central Jersey
Bancorp's actual capital ratios as of June 30, 2008 and December 31, 2007,
compared to the minimum capital adequacy requirements and the requirements for
classification as a "well-capitalized" institution:
33
Tier I Tier I
Capital to Capital to Total Capital to
Average Assets Ratio Risk Weighted Risk Weighted
(Leverage Ratio) Asset Ratio Asset Ratio
June 30, December 31, June 30, December 31, June 30, December 31,
Actual Ratios 2008 2007 2008 2007 2008 2007
- ------------- -------- ------------ -------- ------------ -------- ------------
Central Jersey Bancorp 8.81% 9.08% 11.91% 12.74% 12.89% 13.73%
Central Jersey Bank, N.A. 8.99% 9.34% 12.06% 12.94% 13.03% 13.93%
Required Regulatory Ratios
- --------------------------
"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
Not applicable.
Item 4. Controls and Procedures
As required by Rule 13a-15 under 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 SEC'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.
34
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
------------
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
-----------------------------------------------------------
Information regarding Central Jersey Bancorp's common stock repurchases
for the three months ended June 30, 2008, is as follows:
Issuer Purchases of Equity Securities
Maximum
Total Number of Number of
Shares Shares that May
Purchased as Yet Be
Total Number Average Price Part of Publicly Purchased
of Shares Paid Announced Under the
Period Purchased(1) Per Share(2) Program Program
- -----------------------------------------------------------------------------------------------------------
April 1, 2008 through April 30, 2008 13,547 $ 7.41 61,322 463,678
- -----------------------------------------------------------------------------------------------------------
May 1, 2008 through May 31, 2008 15,513 $ 7.47 76,835 448,165
- -----------------------------------------------------------------------------------------------------------
June 1, 2008 through June 30, 2008 25,818 $ 8.05 102,653 422,347
===========================================================================================================
Total 54,878 $ 7.73 102,653 422,347
===========================================================================================================
(1) On January 7, 2008, Central Jersey Bancorp announced its intention to
repurchase up to 5.7%, or 525,000 shares, of the 9,183,290 shares of common
stock then outstanding. Repurchases may be made from time to time, in the open
market, in unsolicited negotiated transactions or in such other manner deemed
appropriate by management, at prices not exceeding prevailing market prices,
subject to availability of the shares, over twenty-four months ending December
31, 2009, or such shorter or longer period of time as Central Jersey Bancorp may
determine.
35
(2) Excludes the broker commission of $0.04 per share, or $2,126, that was
paid by the Company with respect to the shares purchased through the common
stock repurchase plan for the three months ended June 30, 2008.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Annual Meeting of Shareholders of Central Jersey Bancorp held on May 28,
2008, the shareholders elected each of James G. Aaron, Esq., Mark R. Aikins,
Esq., John A. Brockriede, George S. Callas, Paul A. Larson, Jr., John F. McCann,
Carmen M. Penta, C.P.A., Mark G. Solow, James S. Vaccaro and Robert S. Vuono to
serve as a director of the Company. Each nominee for director was elected for a
one year term. The balloting for election was as follows:
- ---------------------------------------------------------------------------------------------
Votes
Name of Director Votes For Percentage Withheld Percentage
- ---------------------------------------------------------------------------------------------
James G. Aaron, Esq. 7,034,296 96.0 290,780 4.0
- ---------------------------------------------------------------------------------------------
Mark R. Aikins, Esq. 7,106,911 97.0 218,165 3.0
- ---------------------------------------------------------------------------------------------
John A. Brockriede 7,138,451 97.4 186,625 2.6
- ---------------------------------------------------------------------------------------------
George S. Callas 7,026,664 95.9 298,412 4.1
- ---------------------------------------------------------------------------------------------
Paul A. Larson, Jr. 7,141,033 97.5 184,043 2.5
- ---------------------------------------------------------------------------------------------
John F. McCann 7,014,354 95.7 310,722 4.3
- ---------------------------------------------------------------------------------------------
Carmen M. Penta, C.P.A. 7,141,531 97.5 183,545 2.5
- ---------------------------------------------------------------------------------------------
Mark G. Solow 7,029,951 96.0 295,125 4.0
- ---------------------------------------------------------------------------------------------
James S. Vaccaro 7,112,698 97.1 212,378 2.9
- ---------------------------------------------------------------------------------------------
Robert S. Vuono 7,131,375 97.3 193,701 2.7
- ---------------------------------------------------------------------------------------------
Item 5. Other Information
-----------------
Not Applicable.
Item 6. Exhibits
--------
See Index of Exhibits commencing on page E-1.
36
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: August 8, 2008 /s/ James S. Vaccaro
--------------------------------------------
James S. Vaccaro
President and
Chief Executive Officer
(Principal Executive Officer)
Date: August 8, 2008 /s/ Anthony Giordano, III
--------------------------------------------
Anthony Giordano, III
Executive Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary
(Principal Financial and Accounting Officer)
37
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
E-1
(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 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).
E-2
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 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).
E-3
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).
10.13 Lease Agreement by and between FPN Prime, L.L.C., as Landlord, and
Central Jersey Bank, N.A., as Tenant, dated October 4, 2007, for
executive office space located at 1903 Highway 35, Oakhurst, New
Jersey.
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-4