UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended September 30, 2005
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-OR-
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
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Commission File Number: 0-51500
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AMERICAN BANCORP OF NEW JERSEY, INC.
------------------------------------
(Exact Name of Registrant as Specified in its Charter)
New Jersey 55-0897507
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
365 Broad Street, Bloomfield, New Jersey 07003
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (973) 748-3600
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Securities registered pursuant to Section 12(b) of the Exchange Act: None
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Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $0.10 per share
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(Title of Class)
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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act (Rule 12b-2). [ ] Yes [X] No
Indicate by check mark whether the registrant is a shell company (as
defined in Exchange Act Rule 12b-2). [ ] Yes [X] No
The aggregate market value of the voting and non-voting common equity held
by nonaffiliates of the registrant on March 31, 2005 was $0.
As of December 20, 2005, the Registrant had outstanding 14,169,469 shares
of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of the 2005 Annual Report to Stockholders. (Part II)
PART I
Forward-Looking Statements
American Bancorp of New Jersey, Inc. (the "Company" or "Registrant") may
from time to time make written or oral "forward looking statements," including
statements contained in the Company's filings with the Securities and Exchange
Commission (including this Annual Report on Form 10-K and the exhibits thereto),
in its reports to stockholders and in other communications by the Company, which
are made in good faith by the Company pursuant to the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations, estimates and
intentions that are subject to change based on various important factors (some
of which are beyond the Company's control). The following factors, among others,
could cause the Company's financial performance to differ materially from the
plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, monetary and fiscal policies and
laws, including interest rate policies of the Board of Governors of the Federal
Reserve System, inflation, interest rates, market and monetary fluctuations; the
timely development of and acceptance of new products and services of the Company
and the perceived overall value of these products and services by users,
including the features, pricing and quality as compared to competitors' products
and services; the impact of changes in financial services laws and regulations
(including laws concerning taxes, banking, securities and insurance);
technological changes; acquisitions; changes in consumer spending and saving
habits; and the success of the Company at managing the risks resulting from
these factors.
The Company cautions that the listed factors are not exclusive. The Company
does not undertake to update any forward-looking statement, whether written or
oral, that may be made from time to time by or on behalf of the Company.
Item 1. Business.
General
On October 5, 2005, American Savings, MHC (the "MHC") completed its
reorganization into stock form and the Company succeeded to the business of ASB
Holding Company, the MHC's former stock holding company subsidiary. Each
outstanding share of common stock of the former mid-tier stock holding company
(other than shares held by the MHC which were canceled) was converted into
2.55102 shares of common stock of the Company. As part of the second-step mutual
to stock conversion transaction, the Company sold a total of 9,918,750 shares to
eligible depositors of American Bank of New Jersey (the "Bank") in a
subscription offering at $10.00 per share, including 793,500 shares purchased by
the Bank's employee stock ownership plan with funds borrowed from the Company.
The Company is a New Jersey corporation that was incorporated in May 2005
for the purpose of being a holding company for the Bank, a federally-chartered
stock savings bank. The Company is a unitary savings and loan holding company
and conducts no significant business or operations of its own. References in
this Annual Report on Form 10-K to the Company generally refer to the
consolidated entity,
2
which includes the Bank, unless the context indicates otherwise. References to
"we," "us," or "our" refer to the Bank or Company, or both, as the context
indicates.
The Bank was originally founded in 1919 as the American-Polish Building &
Loan Association of Bloomfield, New Jersey. It became a state-chartered savings
and loan association in 1948 and converted to a federally chartered savings bank
in 1995. The Bank's deposits are federally insured by the Savings Association
Insurance Fund as administered by the Federal Deposit Insurance Corporation. The
Bank is regulated by the Office of Thrift Supervision and the Federal Deposit
Insurance Corporation.
Our core business is using retail deposits in order to fund a variety of
mortgage and consumer loan products. We operate as a traditional community bank,
offering retail banking services, one- to four-family residential mortgage
loans, home equity loans and lines of credit, multi-family and non-residential
mortgage loans, business and consumer loans. We also invest in mortgage-backed
securities, collateralized mortgage-backed obligations and other investment
securities. The principal source of funds for our lending and investing
activities is retail deposits, supplemented with Federal Home Loan Bank
borrowings. Our results of operations depend primarily on our net interest
income. Net interest income is the difference between the interest income we
earn on our interest-earning assets and the interest we pay on interest-bearing
liabilities. It is a function of the average balances of loans and investments
versus deposits and borrowed funds outstanding in any one period and the yields
earned on those loans and investments and the cost of those deposits and
borrowed funds. Our interest-earning assets consist primarily of residential
mortgage loans, multi-family and commercial real estate mortgage loans,
residential mortgage-related securities and U.S. Agency debentures.
Interest-bearing liabilities consist primarily of retail deposits and borrowings
from the Federal Home Loan Bank of New York.
Market Area
Our main office is located in Bloomfield, New Jersey, and our branch office
is located in Cedar Grove, New Jersey. Our lending is concentrated in northern
New Jersey, and our predominant sources of deposits are the communities in which
our two offices are located as well as the neighboring communities. Our business
of attracting deposits and making loans is primarily conducted within our market
area. A downturn in the local economy could reduce the amount of funds available
for deposit and the ability of borrowers to repay their loans. As a result, our
profitability could decrease.
Competition
We face substantial competition in our attraction of deposits, which are
our primary source of funds for lending, and in our origination of loans. Many
of our competitors are significantly larger institutions and have greater
financial and managerial resources. Our ability to compete successfully is a
significant factor affecting our profitability.
Our competition for deposits and loans historically has come from other
insured financial institutions such as local and regional commercial banks,
savings institutions, and credit unions located in our primary market area. We
also compete with mortgage banking companies for real estate loans, and
commercial banks and savings institutions for consumer loans; and we face
competition for funds from investment products such as mutual funds, short-term
money funds and corporate and government securities.
3
Lending Activities
General. We have traditionally focused on the origination of one- to
four-family loans, which comprise a significant majority of our total loan
portfolio. We also provide financing on multi-family dwellings, mixed-use
properties and other commercial real estate. Commercial business loans,
construction loans, home equity loans and consumer loans make up the rest of the
total loan portfolio.
Loan Portfolio Composition. The following table analyzes the composition of
our loan portfolio by loan category at the dates indicated.
At September 30
-----------------------------------------------------------------------------------------------
2005 2004 2003 2002 2001
----------------- ------------------ ----------------- ------------------ -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
Type of Loans:
Mortgage loans
One- to four-family
real estate(1)............. $267,052 78.09% $251,531 80.17% $215,984 81.59% $167,564 79.06% $131,513 76.18%
Multi-family and commercial
real estate................ 58,615 17.14 43,197 13.77 36,202 13.68 29,503 13.92 24,903 14.42
Construction................... 1,450 0.42 7,175 2.29 1,233 0.47 4,875 2.30 9,402 5.45
Consumer....................... 702 0.21 746 0.24 780 0.29 795 0.38 540 0.31
Home equity.................... 13,413 3.92 10,666 3.40 8,893 3.36 6,904 3.26 5,863 3.40
Commercial..................... 746 0.22 398 0.13 1,610 0.61 2,298 1.08 417 0.24
-------- ------- --------- ------- --------- ------- --------- ------- --------- ------
Total loans receivable.... 341,948 100.00% 313,713 100.00% 264,702 100.00% 211,939 100.00% 172,638 100.00%
====== ====== ====== ====== ======
Less:
Allowance for loan losses.... (1,658) (1,578) (1,371) (1,117) (1,009)
Net deferred origination costs 1,036 935 796 673 532
Loans in process............. (350) (4,100) (783) (3,121) (5,839)
-------- -------- -------- -------- --------
Total loans receivable, net $341,006 $308,970 $263,344 $208,374 $166,322
======== ======== ======== ======== ========
- --------------
(1) Includes loans held for sale of $280,250 and $500,000 at September 30, 2005
and September 30, 2003, respectively.
4
Loan Maturity Schedule. The following table sets forth the maturity of our
loan portfolio at September 30, 2005. Demand loans, loans having no stated
maturity, and overdrafts are shown as due in one year or less. This table shows
contractual maturities and does not reflect repricing or the effect of
prepayments. Actual maturities may differ.
At September 30, 2005
-----------------------------------------------------------------------------------------------------
Multi-family
One- to Four- and
Family Commercial
Real Estate Real Estate Construction Consumer Home Equity Commercial Total
----------- ------------ ------------ -------- ----------- ---------- -----
(In thousands)
Amounts Due:
Within 1 Year .......... $ 35 $ 939 $ 1,100 $ 685 $ -- $ 617 $ 3,376
-------- -------- -------- -------- -------- -------- --------
After 1 year:
1 to 5 years ......... 2,191 1,391 -- 17 71 70 3,740
5 to 10 years ........ 29,224 4,963 -- -- 2,189 59 36,435
10 to 15 years ....... 59,212 17,367 -- -- 6,398 -- 82,977
Over 15 years ........ 176,390 33,955 -- -- 4,755 -- 215,100
-------- -------- -------- -------- -------- -------- --------
Total due after one year 267,017 57,676 -- 17 13,413 129 338,252
-------- -------- -------- -------- -------- -------- --------
Total amount due ....... $267,052 $ 58,615 $ 1,100 $ 702 $ 13,413 $ 746 $341,628
======== ======== ======== ======== ======== ======== ========
5
The following table sets forth the dollar amount of all loans at September
30, 2005 due after September 30, 2006, which have fixed interest rates and which
have floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In thousands)
One- to four-family real estate ......... $146,145 $120,872 $267,017
Multi-family and commercial real estate.. 21,123 36,553 57,676
Construction ............................ -- -- --
Consumer ................................ 17 -- 17
Home equity ............................. -- 13,413 13,413
Commercial .............................. 53 76 129
-------- -------- --------
Total ................................. $167,338 $170,914 $338,252
======== ======== ========
One- to Four-Family Mortgage Loans. Our primary lending activity
historically has consisted of the origination of one- to four-family mortgage
loans, most of which are secured by property located in northern New Jersey.
While this type of loan will continue to be the most significant component of
our total loan portfolio, we intend to emphasize the origination of commercial
real estate loans, including construction loans, and commercial and industrial
loans.
We will generally originate a one- to four-family mortgage loan in an
amount up to 80% of the lesser of the appraised value or the purchase price of a
mortgaged property. For loans exceeding this guideline, private mortgage
insurance on the loan is typically required.
Our residential loans are generally originated with fixed or adjustable
rates and have terms of ten to thirty years. We also offer mortgage loans with
bi-weekly payments and recently began offering mortgage loans with terms up to
forty years as well as fully amortizing, adjustable rate loans with interest
only payments for the first three to five years. The majority of our adjustable
rate loan products provide for an interest rate that is tied to the one-year
Constant Maturity U.S. Treasury index and have terms of up to thirty years with
initial fixed rate periods of one, three, five, seven, or ten years according to
the terms of the loan. We also offer an adjustable rate loan with a rate that
adjusts every three years to the three-year Constant Maturity U.S. Treasury
index.
The fixed rate mortgage loans that we originate generally meet the
secondary mortgage market standards of the Federal National Mortgage
Association. For the purposes of interest rate risk management, we sell
qualifying one- to four-family residential mortgages in the secondary market to
the Federal National Mortgage Association and other investors without recourse
and with servicing retained, and we have entered into a master selling and
servicing agreement with the Federal National Mortgage Association under which
the Bank sold $2.4 million in the year ended September 30, 2005, $4.8 million in
the year ended September 30, 2004 and $9.4 million in the year ended September
30, 2003. Loan sales may increase or decrease in the future in connection with
interest rate risk management.
Substantially all of our residential mortgages include "due on sale"
clauses, which are provisions giving us the right to declare a loan immediately
payable if the borrower sells or otherwise transfers an interest in the property
to a third party. Property appraisals on real estate securing our one- to
four-family residential loans are made by state certified or licensed
independent appraisers approved by the Board of Directors. Appraisals are
performed in accordance with applicable regulations and policies. We require
title insurance policies on all first mortgage real estate loans originated.
Homeowners, liability, fire and, if required, flood insurance policies are also
required.
6
Multi-family and Commercial Mortgage Loans. We also originate loans on
multi-family and commercial real estate properties, including loans on apartment
buildings, retail/service properties, and other income-producing properties such
as mixed-use properties combining residential and commercial space. We generally
require no less than a 25% down payment or equity position for these mortgage
loans. Typically these loans are made with amortization terms of up to
twenty-five years. The majority of these loans are on properties located within
northern New Jersey and all are within the state.
The multi-family and commercial mortgage loan portfolio has grown in recent
years, however, the growth of one- to four-family loans has kept pace so
multi-family and commercial mortgage loans as a percentage of the total loan
portfolio has remained fairly constant. We are currently pursuing strategies to
grow this portfolio.
Multi-family and commercial mortgage loans generally are considered to
entail significantly greater risk than that which is involved with one- to
four-family real estate lending. The repayment of these loans typically is
dependent on the successful operations and income stream of the borrower and the
real estate securing the loan as collateral. These risks can be significantly
affected by economic conditions. In addition, commercial loans may carry larger
balances to single borrowers or related groups of borrowers than one- to
four-family loans. Furthermore, this type of real estate lending generally
requires substantially greater evaluation and oversight efforts compared to
one-to-four family mortgage lending.
Construction Lending. Essentially all of our construction lending is in
northern New Jersey. Our construction lending includes loans to individuals for
construction of a primary residence as well as loans to builders and developers
for single family, multi-unit and multi-house projects. We have no formal limits
as to the number of projects a builder may have under construction or
development, and make a case by case determination on loans to builders and
developers who have multiple projects under development. In some cases, we
convert a construction loan to the permanent end mortgage loan upon completion
of construction.
Construction lending is generally considered to involve a higher degree of
credit risk than long-term permanent financing of residential properties. If the
estimate of construction cost proves to be inaccurate, we may be compelled to
advance additional funds to complete the construction with repayment dependent,
in part, on the success of the ultimate project rather than the ability of a
borrower or guarantor to repay the loan. If we are forced to foreclose on a
project prior to completion, there is no assurance that we will be able to
recover all of the unpaid portion of the loan. In addition, we may be required
to fund additional amounts to complete a project and may have to hold the
property for an indeterminate period of time.
Fluctuations in the outstanding principal balance of our construction loan
portfolio over the last several years resulted primarily from our decision
during that time to reduce our origination of construction loans following the
retirement of the loan officer who had primarily overseen this portfolio.
However, with the Bank's increasing strategic emphasis in commercial real estate
lending, we expect that our construction lending will grow, particularly with
respect to construction loans to builders and developers for multi-unit or
multi-house projects.
Consumer Loans. Consumer loans consist of savings secured loans and
unsecured consumer loans. We will generally lend up to 90% of the account
balance on a savings secured loan. At September 30, 2005, we had $72,000 of
unsecured consumer loans.
7
Consumer loans generally have shorter terms and higher interest rates than
residential loans. The consumer loan market can be helpful in improving the
spread between the average loan yield and the cost of funds and at the same time
improve the matching of rate sensitive assets and liabilities.
Unsecured consumer loans, and consumer loans secured by collateral other
than savings accounts, entail greater risks than residential mortgage loans.
Consumer loan repayment is dependent on the borrower's continuing financial
stability and is more likely to be adversely affected by job loss, divorce,
illness or personal bankruptcy. Finally, the application of various federal
laws, including federal and state bankruptcy and insolvency laws, may limit the
amount which can be recovered on consumer loans in the event of a default.
Our underwriting standards for consumer loans include a determination of
the applicant's credit history and an assessment of the applicant's ability to
meet existing obligations and payments on the proposed loan. The stability of
the applicant's monthly income may be determined by verification of gross
monthly income from primary employment, and additionally from any verifiable
secondary income.
Home Equity Loans. Our home equity loan portfolio includes home equity
lines of credit and second mortgage term loans. Home equity lines of credit are
prime-based loans that are adjusted monthly. Home equity loans are primarily
originated in our market area and are generally made in amounts of up to 80% of
value on term loans and up to 80% of value on home equity lines of credit.
During 2001, we began offering home equity loans on investment properties in
addition to loans on primary residences. Loans on investment properties are made
in amounts of up to 65% of value on term loans and up to 60% of value of home
equity lines of credit.
Generally, our second mortgage loans have fixed rates for terms of up to
fifteen years. Second mortgages and home equity lines of credit do not require
title insurance but do require homeowner, liability, fire and, if required,
flood insurance policies.
Commercial Loans. We also originate commercial and industrial business
loans to a variety of professionals, sole proprietorships and small businesses,
primarily in our market area. We have recently hired a commercial lender and
intend to increase our commercial lending.
These loans are generally secured by real estate. We generally require the
personal guarantee of the business owner. Commercial lending products include
term loans and lines of credit. Our commercial term loans generally have terms
from one to five years and are mostly fixed rate loans. Our commercial lines of
credit have terms from one to three years and are mostly adjustable rate loans.
Unlike single-family residential mortgage loans, which generally are made
on the basis of the borrower's ability to make repayment from his or her
employment and other income and which are secured by real property whose value
tends to be more easily ascertainable, commercial business loans typically are
made on the basis of the borrower's ability to make repayment from the cash flow
of the borrower's business. As a result, the availability of funds for the
repayment of commercial business loans may be substantially dependent on the
success of the business itself and the general economic environment. Commercial
business loans, therefore, have greater credit risk than residential mortgage
loans. In addition, commercial loans may carry larger balances to single
borrowers or related groups of borrowers than one- to four-family loans. In
addition, commercial lending generally requires substantially greater evaluation
and oversight efforts compared to residential or non-residential real estate
lending.
8
Loans to One Borrower. Under federal law, savings institutions have,
subject to certain exemptions, lending limits to one borrower or a group of
related borrowers in an amount equal to the greater of $500,000 or 15% of the
institution's unimpaired capital and surplus. Accordingly, as of September 30,
2005, our loans to one borrower limit was approximately $5.7 million. Subsequent
to September 30, 2005, the limit increased to approximately $12.5 million as a
result of the additional capital from the second step conversion.
At September 30, 2005, our largest group of related borrowers had an
aggregate balance of approximately $4.8 million, representing 4 loans on
condominium units, 9 loans secured by multi-family properties and 2
single-family residential loans. At the same date, our second largest group of
related borrowers had an aggregate balance of approximately $3.0 million,
representing 4 loans secured by apartment buildings ranging from six units to 58
units. Our third largest group of related borrowers at that date had an
aggregate balance of approximately $2.4 million, representing 2 loans secured by
apartment buildings, 1 loan on a mixed use commercial and residential property1
loan on a multi-family property and 1 single-family residential loan. At
September 30, 2005, we had 4 additional lending relationships exceeding $2.0
million, with outstanding balances at that date ranging from $2.0 million to
$2.2 million. All of these lending relationships were current and performing in
accordance with the terms of their loan agreements as of September 30, 2005.
Loan Originations, Purchases, Sales, Solicitation and Processing. Our
customary sources of loan applications include repeat customers, referrals from
realtors and other professionals, and "walk-in" customers.
We primarily originate our own loans and retain them in our portfolio.
Gross loan originations totaled $96.5 million for the year ended September 30,
2005. Net of principal repayments, loan growth totaled approximately $34.6
million for the year ended September 30, 2005. During the year ended September
30, 2004, we purchased $3.3 million of adjustable rate mortgage loans. We did
not purchase any whole loans during the years ended September 30, 2005 or 2003.
During the years ended September 30, 2005, 2004 and 2003, we sold loans totaling
$2.4 million, $4.8 million and $9.6 million, respectively. Loan sales are part
of our interest rate risk management strategy and may increase or decrease in
the future. We generally sell loans on a non-recourse basis, with servicing
retained. At September 30, 2005, loans serviced for the benefit of others
totaled $15.9 million.
We occasionally purchase participations in loans originated through other
lending institutions. At September 30, 2005, we had participations totaling $4.8
million from a New Jersey thrift institution and $1.6 million from the Thrift
Institutions Community Investment Corporation of New Jersey ("TICIC"). Our
participations through these entities are secured by one-to-four family
properties as well as multi-family or other non-one- to-four family properties,
such as assisted living facilities. We may also sell participation interests in
multi-family, commercial and other real estate loans or construction loans.
Loan Commitments. We give written commitments to prospective borrowers on
all residential and non-residential mortgage loans. The total amount of
commitments to extend credit for mortgage and consumer loans as of September 30,
2005, was approximately $21.3 million, excluding commitments on unused lines of
credit of $16.0 million and undisbursed portions of construction loans totaling
$350,000.
Loan Approval Procedures and Authority. Our lending policies and loan
approval limits are recommended by senior management and approved by the Board
of Directors. Our loan origination underwriter has loan authority to approve
one-to four-family loans up to $359,600, the Federal National Mortgage
Association conforming loan limit. Our loan origination Manager has loan
authority to approve
9
one-to four-family loans up to $500,000 with Federal National Mortgage
Association automated underwriting approvals. Our Loan Committee consists of
Officers Kliminski, Kowal, Bzdek and Bringuier. Each of these officers has
authority to approve one-to four-family loans up to $750,000. One-to-four family
loans between $750,000 and $1,000,000 require two signatures from members of the
Loan Committee. One-to four-family loans greater than $1,000,000 require the
approval of the Board of Directors.
Loans other than one-to four-family loans up to $750,000 require two
signatures from members of Loan Committee. Approval of a separate loan
sub-committee of the Board is required for non one-to four- family loans over
$750,000, or when aggregate exposure exceeds $1.5 million.
Management expects that the Bank's lending policies and loan approval
limits will be modified in fiscal 2006 to reflect our growing strategic emphasis
in commercial and business lending. As with existing policies and limits, any
such changes recommended by management will be subject to Board of Director
approval.
Asset Quality
Loan Delinquencies and Collection Procedures. The borrower is notified by
both mail and telephone when a loan is sixteen days past due. If the delinquency
continues, subsequent efforts are made to contact the delinquent borrower and
additional collection notices and letters are sent. When a loan is ninety days
delinquent, it is referred to an attorney for repossession or foreclosure. All
reasonable attempts are made to collect from borrowers prior to referral to an
attorney for collection. In certain instances, we may modify the loan or grant a
limited moratorium on loan payments to enable the borrower to reorganize his
financial affairs, and we attempt to work with the borrower to establish a
repayment schedule to cure the delinquency.
As to mortgage loans, if a foreclosure action is taken and the loan is not
reinstated, paid in full or refinanced, the property is sold at judicial sale at
which we may be the buyer if there are no adequate offers to satisfy the debt.
Any property acquired as the result of foreclosure or by deed in lieu of
foreclosure is classified as real estate owned until it is sold or otherwise
disposed of. When real estate owned is acquired, it is recorded at the lower of
the unpaid principal balance of the related loan or its fair market value less
estimated selling costs. The initial writedown of the property is charged to the
allowance for loan losses. Adjustments to the carrying value of the properties
that result from subsequent declines in value are charged to operations in the
period in which the declines occur. At September 30, 2005, we held no real
estate owned.
Loans are reviewed on a regular basis and are placed on non-accrual status
when they are more than ninety days delinquent. Loans may be placed on a
non-accrual status at any time if, in the opinion of management, the collection
of additional interest is doubtful. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan. At September 30, 2005, we had approximately $1.2
million of loans that were held on a non-accrual basis.
10
Non-Performing Assets. The following table provides information regarding
our non-performing loans and other non-performing assets as of the dates
indicated.
At September 30,
--------------------------------------------------
2005 2004 2003 2002 2001
---- ---- ---- ---- ----
(Dollars in thousands)
Loans accounted for on a non-accrual basis:
One- to four-family ................................. $ 952 $ 445 $ 147 $ 147 $ 309
Multi-family, commercial and other .................. 101 74 369 423 287
Construction ........................................ -- -- -- -- --
Consumer ............................................ 62 -- 1 -- 21
Home equity ......................................... 48 -- -- -- 11
Commercial .......................................... -- -- -- -- --
------ ------ ------ ------ ------
Total ............................................ $1,163 $ 519 517 570 628
Accruing loans contractually past due 90 days or more.. -- -- -- -- --
------ ------ ------ ------ ------
Total non-performing loans ............................ 1,163 519 517 570 628
Real estate owned ..................................... -- -- -- -- --
Other non-performing assets ........................... -- -- -- -- --
------ ------ ------ ------ ------
Total non-performing assets ........................... $1,163 $ 519 $ 517 $ 570 $ 628
====== ====== ====== ====== ======
Allowance for loan losses to non-performing loans..... 142.62% 304.05% 265.18% 195.96% 160.67%
Total non-performing loans to total loans ............ 0.34% 0.17% 0.20% 0.27% 0.36%
Total non-performing loans to total assets ........... 0.21% 0.12% 0.12% 0.17% 0.24%
Total non-performing assets to total assets .......... 0.21% 0.12% 0.12% 0.17% 0.24%
During the year ended September 30, 2005, gross interest income of $51,000
would have been recorded on loans accounted for on a non-accrual basis if those
loans had been current, and $17,000 of interest on such loans was included in
income for the year ended September 30, 2005.
Classified Assets. Management, in compliance with Office of Thrift
Supervision ("OTS") guidelines, has instituted an internal loan review program,
whereby non-performing loans are classified as substandard, doubtful or loss. It
is our policy to review the loan portfolio, in accordance with regulatory
classification procedures, on at least a quarterly basis. When a loan is
classified as substandard or doubtful, management evaluates the loan for
impairment. When management classifies a portion of a loan as loss, a reserve
equal to 100% of the loss amount is allocated against the loan.
An asset is considered "substandard" if it is inadequately protected by the
paying capacity and net worth of the obligor or the collateral pledged, if any.
Substandard assets include those characterized by the distinct possibility that
the insured institution will sustain some loss if the deficiencies are not
corrected. Assets classified as "doubtful" have all of the weaknesses inherent
in those classified substandard, with the added characteristic that the
weaknesses present make collection or liquidation in full highly questionable
and improbable, on the basis of currently existing facts, conditions, and
values. Assets, or portions thereof, classified as "loss" are considered
uncollectible and of so little value that their continuance as assets without
the allocation of an impairment reserve is not warranted. Assets which do not
currently expose the insured institution to a sufficient degree of risk to
warrant classification in one of the
11
aforementioned categories but which have credit deficiencies or potential
weaknesses are required to be designated "special mention" by management.
Management's classification of assets is reviewed by the Board on a regular
basis and by the regulatory agencies as part of their examination process. The
following table discloses our classification of assets and designation of
certain loans as special mention as of September 30, 2005. At September 30,
2005, all of the classified assets and special mention designated assets were
loans.
At
September 30, 2005
------------------
(In thousands)
Special Mention..................... $ 1,295
Substandard......................... 1,110
Doubtful............................ 174
Loss................................ -
-------
Total............................. $ 2,579
=======
At September 30, 2005, approximately $1.1 million of loans classified as
"substandard" were accounted for as non-performing loans. At September 30, 2005,
no loans classified as "special mention" or "doubtful" were accounted for as
non-performing loans.
Allowance for Loan Losses. The allowance for loan losses is a valuation
account that reflects our estimation of the losses in our loan portfolio to the
extent they are both probable and reasonable to estimate. The allowance is
maintained through provisions for loan losses that are charged to income in the
period they are established. We charge losses on loans against the allowance for
loan losses when we believe the collection of loan principal is unlikely.
Recoveries on loans previously charged-off are added back to the allowance.
Our methodology for calculating the allowance for lease and loan losses is
based upon FAS 5 and FAS 114. Under FAS 114, we identify and analyze certain
loans for impairment. If an impairment is identified on a specific loan, a loss
allocation is recorded in the amount of that impairment. Loan types subject to
FAS 114 are construction loans, multi-family mortgage loans, non-residential
mortgage loans and commercial (non-mortgage) loans. We also conduct a separate
review of all loans on which the collectibility of principal may not be
reasonably assured. We evaluate all classified loans individually and base our
determination of a loss factor on the likelihood of collectibility of principal
including consideration of the value of the underlying collateral securing the
loan.
Under our implementation of FAS 5, we segregate loans by loan category and
evaluate homogeneous loans as a group. The loss characteristics of aggregated
homogeneous loans are examined using two sets of factors: (1) annual historical
loss experience factors that consider the net charge-off history of both the
Bank and that of its regional peer group and (2) environmental factors. Although
there may be other factors that also warrant consideration, we consider the
following environmental factors:
o levels and trends of delinquencies and impaired loans;
o levels and trends of charge-offs and recoveries;
o trends in volume and terms of loans;
o changes to lending policies, procedures and practices;
o experience, ability and depth of lending management and staff;
o national, regional and local economic trends and conditions;
12
o industry conditions; and
o changes in credit concentration.
In recent years, our charge-offs have been low and, consequently, our
estimation of the amount of losses in the loan portfolio both probable and
reasonable to estimate has been more reflective of other factors.
Our allowance estimation methodology utilizes historical loss experience
and environmental factors such as the local and national economy, loan growth
rate, trends in delinquencies and non-performing loans, experience of lending
personnel, and other similar factors. However, we have had significant growth in
recent years. As a result of the significant loan growth, a large portion of our
loan portfolio is considered "unseasoned," meaning that the loans were
originated less than three years ago. Generally, unseasoned loans demonstrate a
greater risk of credit losses than their seasoned counterparts. Moreover, in
many cases, these unseasoned loans are obligations of borrowers with whom the
Bank has had no prior payment experience. In the absence of adequate historical
loss experience upon which the Bank can base its allowance calculations, the
Bank includes peer group information in its evaluation of the allowance. The
peer group information utilized by the Bank is that of OTS regulated thrifts in
the northeast region. Management believes that the majority of thrifts in the
northeast region have similar loan portfolio composition.
This estimation is inherently subjective as it requires estimates and
assumptions that are susceptible to significant revisions as more information
becomes available or as future events change. Future additions to the allowance
for loan losses may be necessary if economic and other conditions in the future
differ substantially from the current operating environment. In addition, the
OTS as an integral part of its examination process, periodically reviews our
loan and foreclosed real estate portfolios and the related allowance for loan
losses and valuation allowance for foreclosed real estate. The OTS may require
the allowance for loan losses or the valuation allowance for foreclosed real
estate to be increased based on its review of information available at the time
of the examination, which would negatively affect our earnings.
Based on the allowance for loan loss methodology discussed above,
management expects provisions for loan losses to increase as a result of the net
growth in loans called for in the Company's business plan. Specifically, our
business strategy calls for increased strategic emphasis in commercial real
estate and business lending. The loss factors used in the Bank's loan loss
calculations are generally higher for such loans compared with those applied to
one-to-four family mortgage loans. Consequently, future net growth in commercial
real estate and business loans may result in required loss provisions that
exceed those recorded in prior years when comparatively greater strategic
emphasis had been placed growing the 1-4 family mortgage loan portfolio
13
The following table sets forth information with respect to our allowance
for loan losses for the periods indicated:
Year Ended September 30,
----------------------------------------------------------
2005 2004 2003 2002 2001
--------- --------- --------- --------- ---------
(Dollars in thousands)
Allowance balance at beginning of period........ $ 1,578 $ 1,371 $ 1,117 $ 1,009 $ 1,003
Provision for loan losses ...................... 81 207 254 105 2
Charge-offs:
One- to four-family real estate .............. -- -- -- -- --
Consumer ..................................... -- -- -- (1) --
--------- --------- --------- --------- ---------
Total charge-offs ......................... -- -- -- (1) --
--------- --------- --------- --------- ---------
Recoveries:
Consumer ..................................... -- -- -- 4 4
--------- --------- --------- --------- ---------
Total recoveries .......................... -- -- -- 4 4
--------- --------- --------- --------- ---------
Net (charge-offs) recoveries ................... -- -- -- 3 4
--------- --------- --------- --------- ---------
Allowance balance at end of period ............. $ 1,658 $ 1,578 $ 1,371 $ 1,117 $ 1,009
========= ========= ========= ========= =========
Total loans outstanding at end of period........ $ 341,978 $ 313,713 $ 264,702 $ 211,939 $ 172,638
========= ========= ========= ========= =========
Average loans outstanding during period........ $ 327,948 $ 278,632 $ 238,474 $ 186,974 $ 150,938
========= ========= ========= ========= =========
Allowance as a % of total loans................ 0.48% 0.50% 0.52% 0.53% 0.58%
Net loans charge-offs as a % of average loans.. 0.00% 0.00% 0.00% 0.00% 0.00%
14
Allocation of Allowance for Loan Losses. The following table sets forth the
allocation of our allowance for loan losses by loan category and the percent of
loans in each category to total loans receivable, net, at the dates indicated.
The portion of the loan loss allowance allocated to each loan category does not
represent the total available for future losses which may occur within the loan
category since the total loan loss allowance is a valuation allocation
applicable to the entire loan portfolio.
At September 30
--------------------------------------------------------------------------------------------------
2005 2004 2003 2002 2001
------------------- ------------------ ----------------- ------------------ ------------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
At end of period allocated to:
One- to four-family real
estate .................. $ 782 78.09% $ 777 80.17% $ 685 81.59% $ 531 79.06% $ 366 76.18%
Multi-family and commercial
real estate .............. 737 17.14 680 13.77 566 13.68 452 13.92 463 14.42
Construction ............... 12 0.42 21 2.29 3 0.47 13 2.30 55 5.45
Consumer ................... 4 0.21 4 0.24 3 0.29 3 0.38 2 0.31
Home equity ................ 63 3.92 43 3.40 37 3.36 29 3.26 36 3.40
Commercial ................. 16 0.22 9 0.13 34 0.61 46 1.08 11 0.24
Unallocated ................ 44 -- 44 -- 43 -- 43 -- 76 --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance ......... $1,658 100.00% $1,578 100.00% $1,371 100.00% $1,117 100.00% $1,009 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
15
Securities Portfolio
General. Federally chartered savings banks have the authority to invest in
various types of liquid assets. The investments authorized by the Bank's board
approved investment policy include U.S. government and government agency
obligations, mortgage-related securities of various U.S. government agencies or
government-sponsored entities and private corporate issuers (including
securities collateralized by mortgages), certificates of deposits of insured
banks and savings institutions and municipal securities. Our policy does not
permit corporate non-residential mortgage related securities. Our investment
securities portfolio at September 30, 2005 did not contain securities of any
issuer with an aggregate book value in excess of 10% of our equity, excluding
those issued by the United States Government or its agencies, other than an
investment in an adjustable rate mortgage mutual fund with a carrying value of
approximately $9.7 million at September 30, 2005.
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," requires that securities be
categorized as "held-to-maturity," "trading securities" or "available-for-sale,"
based on management's intent as to the ultimate disposition of each security.
Statement No. 115 allows debt securities to be classified as "held-to-maturity"
and reported in financial statements at amortized cost only if the reporting
entity has the positive intent and ability to hold these securities to maturity.
Securities that might be sold in response to changes in market interest rates,
changes in the security's prepayment risk, increases in loan demand, or other
similar factors cannot be classified as "held-to-maturity."
We do not currently use or maintain a trading account. Securities not
classified as "held-to-maturity" are classified as "available-for-sale." These
securities are reported at fair value, and unrealized gains and losses on the
securities are excluded from earnings and reported, net of deferred taxes, as a
separate component of equity.
All of our securities carry market risk insofar as changes in market rates
of interest may cause a decrease in their market value. Investments in
securities are made based on certain considerations, which include the interest
rate, tax considerations, yield, settlement date and maturity of the security,
our liquidity position, and anticipated cash needs and sources. The effect that
the proposed security would have on our credit and interest rate risk and
risk-based capital is also considered. We purchase securities to provide
necessary liquidity for day-to-day operations, to aid in the management of
interest rate risk and when investable funds exceed loan demand.
Our investment policy, which is approved by the Board of Directors, is
designed to foster earnings and liquidity within prudent interest rate risk
guidelines, while complementing our lending activities. Generally, our
investment policy is to invest funds in various categories of securities and
maturities based upon our liquidity needs, asset/liability management policies,
investment quality, marketability and performance objectives. The
Asset/Liability Management Committee, comprised of Joseph Kliminski, the Bank's
Chief Executive Officer, Fred Kowal, the Bank's President and Chief Operating
Officer, Richard Bzdek, the Bank's Executive Vice President and Corporate
Secretary, Eric Heyer, the Bank's Senior Vice President and Chief Financial
Officer, Catherine Bringuier, the Bank's Senior Vice President and Chief Lending
Officer, Josephine Castaldo, the Bank's Vice President of Branch Administration,
and John Scognamiglio, the Bank's Vice President and Controller, is responsible
for the administration of the securities portfolio. This committee conducts
regular, informal meetings, generally on a weekly basis, and meets quarterly to
formally review the Bank's securities portfolio. The results of the committee's
quarterly review are reported to the full Board, which makes adjustment to the
investment policy and strategies as it considers necessary and appropriate.
16
We do not currently participate in hedging programs, interest rate caps,
floors or swaps, or other activities involving the use of off-balance sheet
derivative financial instruments, but we may do so in the future as part of our
interest rate risk management. Further, we do not invest in securities which are
not rated investment grade.
Actual maturities of the securities held by us may differ from contractual
maturities because issuers may have the right to call or prepay obligations with
and without prepayment penalties.
Mortgage-related Securities. Mortgage-related securities represent a
participation interest in a pool of one- to four-family or multi-family
mortgages, although we focus primarily on mortgage-related securities secured by
one- to four-family mortgages. Our mortgage-related securities portfolio
includes mortgage-backed securities and collateralized mortgage obligations
issued by U.S. government agencies or government-sponsored entities, such as
Federal Home Loan Mortgage Corporation, the Government National Mortgage
Association, and the Federal National Mortgage Association, as well as by
private corporate issuers. The portfolio also includes an investment in an
adjustable rate mortgage mutual fund, with a carrying value of approximately
$9.7 million at September 30, 2005.
The mortgage originators use intermediaries (generally government agencies
and government-sponsored enterprises, but also a variety of private corporate
issuers) to pool and repackage the participation interests in the form of
securities, with investors such as us receiving the principal and interest
payments on the mortgages. Securities issued or sponsored by U.S. government
agencies and government-sponsored entities are guaranteed as to the payment of
principal and interest to investors. Privately issued securities typically offer
rates above those paid on government agency issued or sponsored securities, but
lack the guaranty of those agencies and are generally less liquid investments.
In the absence of an agency guarantee, our policy requires that we purchase only
privately-issued mortgage-related securities that have been assigned the highest
credit rating (AAA) by the applicable securities rating agencies. Limiting our
purchases of privately-issued mortgage-related securities to those with a AAA
rating reduces our added credit risk in purchasing non-agency guaranteed
securities. Moreover, because there is a robust secondary market for AAA-rated
privately-issued mortgage-related securities, much of the liquidity risk
otherwise associated with our investment in non-agency securities is mitigated.
Mortgage-backed securities are pass-through securities typically issued
with stated principal amounts, and the securities are backed by pools of
mortgages that have loans with interest rates that are within a specific range
and have varying maturities. The life of a mortgage-backed security thus
approximates the life of the underlying mortgages. Mortgage-backed securities
generally yield less than the mortgage loans underlying the securities. The
characteristics of the underlying pool of mortgages, i.e., fixed-rate or
adjustable-rate, as well as prepayment risk, are passed on to the certificate
holder. Mortgage-backed securities are generally referred to as mortgage
participation certificates or pass-through certificates.
17
Collateralized mortgage obligations are mortgage-derivative products that
aggregate pools of mortgages and mortgage-backed securities and create different
classes of securities with varying maturities and amortization schedules as well
as a residual interest with each class having different risk characteristics.
The cash flows from the underlying collateral are usually divided into
"tranches" or classes whereby tranches have descending priorities with respect
to the distribution of principal and interest repayment of the underlying
mortgages and mortgage-backed securities as opposed to pass through
mortgage-backed securities where cash flows are distributed pro rata to all
security holders. Unlike mortgage-backed securities from which cash flow is
received and prepayment risk is shared pro rata by all securities holders, cash
flows from the mortgages and mortgage-backed securities underlying
collateralized mortgage obligations are paid in accordance with a predetermined
priority to investors holding various tranches of the securities or obligations.
A particular tranche or class may carry prepayment risk which may be different
from that of the underlying collateral and other tranches. Investing in
collateralized mortgage obligations allows us to better manage the prepayment
and extension risk associated with conventional mortgage-related securities.
Management believes collateralized mortgage obligations represent attractive
alternatives relative to other investments due to the wide variety of maturity,
repayment and interest rate options available. At September 30, 2005,
collateralized mortgage obligations comprised $28.3 million of our securities
portfolio.
Other Securities. In addition, at September 30, 2005 we held an approximate
investment of $3.1 million in Federal Home Loan Bank of New York common stock
(this amount is not shown in the securities portfolio). As a member of the
Federal Home Loan Bank of New York, ownership of Federal Home Loan Bank of New
York common shares is required.
The following table sets forth the carrying value of our securities
portfolio at the dates indicated. Securities that are held-to-maturity are shown
at our amortized cost, and securities that are available-for-sale are shown at
the current market value.
At September 30,
--------------------------------------------------
2005 2004 2003
---- ---- ----
(In thousands)
Securities Held-to-Maturity:
- ----------------------------
U.S. government and federal agency obligation........ $ 2,000 $ -- $ --
Collateralized mortgage non-agency obligations....... 2,503 -- --
Collateralized mortgage agency obligations........... 76 107 193
Government National Mortgage Association............. 244 327 476
Federal Home Loan Mortgage Corporation............... 385 490 657
Federal National Mortgage Association................ 2,616 1,870 1,513
--------- --------- ----------
Total securities held-to-maturity.................. 7,824 2,794 2,839
--------- --------- ----------
Securities Available-for-Sale:
- ------------------------------
U.S. government and federal agency obligation........ 9,805 13,840 13,484
Collateralized mortgage non-agency obligations....... -- 1,234 4,962
Collateralized mortgage agency obligations........... 25,763 42,870 61,685
Government National Mortgage Association............. 148 202 320
Federal Home Loan Mortgage Corporation............... 4,090 5,219 346
Federal National Mortgage Association................ 12,782 16,261 16,664
Mutual fund.......................................... 9,749 9,869 9,930
--------- --------- ----------
Total securities available-for-sale................ 62,337 89,495 107,391
--------- --------- ----------
Total.............................................. $ 70,161 $ 92,289 $ 110,230
========= ========= ==========
18
The following table sets forth certain information regarding the carrying
values, weighted average yields and maturities of our investment and
mortgage-backed securities portfolio at September 30, 2005. This table shows
contractual maturities and does not reflect repricing or the effect of
prepayments. Actual maturities may differ.
At September 30, 2005
-----------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Securities
---------------- ----------------- ----------------- ------------------- ----------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
-------- ------- -------- ------- -------- ------- -------- ------- -------- ------- ------
(Dollars in thousands)
U.S. Government and Federal
Agency .................... $ 4,947 2.08% $ 6,858 2.61% $ -- -- % $ -- --% $11,805 2.39% $11,767
Mortgage-backed non-agency
obligations ............... -- -- 2,503 3.85 -- -- -- -- 2,503 3.85 2,434
Government National Mortgage
Association ............... -- -- 4 6.90 -- -- 738 2.73 742 2.75 744
Federal Home Loan Mortgage
Association ............... -- -- 1,246 3.24 6,570 2.95 14,422 3.28 22,238 3.18 22,239
Federal National Mortgage
Association ............... -- -- -- -- 12,339 3.40 10,785 3.67 23,124 3.52 23,099
------- ------- ------- ------- ------- -------
Total .................... $ 4,947 2.08% $10,611 2.98% $18,909 3.24% $25,945 3.40% $60,412 3.18% $60,283
======= ======= ======= ======= ======= =======
19
Sources of Funds
General. Deposits are our major source of funds for lending and other
investment purposes. In addition, we derive funds from loan and mortgage-backed
securities principal repayments, and proceeds from the maturity, call and sale
of mortgage-backed securities and investment securities. Loan and securities
payments are a relatively stable source of funds, while deposit inflows are
significantly influenced by general interest rates and money market conditions.
Borrowings (principally from the Federal Home Loan Bank) are also used to
supplement the amount of funds for lending and investment.
Deposits. Our current deposit products include checking, savings, money
market, club accounts, certificates of deposit accounts ranging in terms from
thirty days to ten years, and individual retirement accounts. Deposit account
terms vary, primarily as to the required minimum balance amount, the amount of
time that the funds must remain on deposit and the applicable interest rate.
Deposits are obtained primarily from within New Jersey. Traditional methods
of advertising are used to attract new customers and deposits, including print
media, cable television, direct mail and inserts included with customer
statements. We have not in the past utilized the services of deposit brokers,
however, our current growth strategy includes a modest brokered CD program.
Although we did offer special savings programs in connection with the opening of
our Cedar Grove branch office, premiums or incentives for opening accounts are
generally not offered. We periodically select particular certificate of deposit
maturities for promotion.
The determination of interest rates is based upon a number of factors,
including: (1) our need for funds based on loan demand, current maturities of
deposits and other cash flow needs; (2) a current survey of general market rates
and rates of a selected group of competitors' rates for similar products; (3)
our current cost of funds and yield on assets; and (4) the alternate cost of
funds on a wholesale basis, in particular the cost of advances from the Federal
Home Loan Bank. Interest rates are reviewed by senior management on a weekly
basis.
At September 30, 2005, $152.8 million or 44.8% of our deposits were in
certificates of deposit. Our liquidity could be reduced if a significant amount
of certificates of deposit, maturing within a short period of time, were not
renewed. Historically, a significant portion of the certificates of deposit
remain with us after they mature and we believe that this will continue.
However, the need to retain these time deposits could result in an increase in
our cost of funds.
At September 30, 2005, we had approximately $24.2 million of municipal
deposits at the Bank. Of these deposits, approximately $14.0 million represent
funds held by municipalities associated with capital improvement projects. The
Bank expects a significant portion of these funds to be withdrawn during
calendar year 2006 as disbursements are made by the municipalities to fund the
completion of such projects.
20
The following table sets forth the distribution of deposits at the Bank at
the dates indicated and the weighted average nominal interest rates for each
period on each category of deposits presented.
At September 30
-----------------------------------------------------------------------------------------------------
2005 2004 2003
------------------------------ -------------------------------- ---------------------------------
Weighted Weighted Weighted
Percent Average Percent Average Percent Average
of Total Nominal of Total Nominal of Total Nominal
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
------ -------- ---- ------ -------- ---- ------ -------- ----
Non-interest-bearing
demand deposits........ $ 25,583 7.50% --% $ 22,599 7.00% --% $ 21,676 7.40% --%
Interest-bearing
demand deposits........ 39,264 11.52 1.87 38,696 11.99 1.06 21,721 7.42 0.98
Savings deposits.......... 123,270 36.16 1.68 143,401 44.44 1.60 127,720 43.62 1.60
Time deposits............. 152,808 44.82 3.45 118,020 36.57 2.65 121,709 41.56 2.55
--------- ------ ---- --------- ------ ---- --------- ------ ----
Total deposits....... $ 340,925 100.00% 2.37% $ 322,716 100.00% 1.81% $ 292,826 100.00% 1.79%
========= ====== ==== ========= ====== ==== ========= ====== ====
21
The following table shows the amount of our certificates of deposit of
$100,000 or more by time remaining until maturity as of September 30, 2005.
Certificates
Remaining Time Until Maturity of Deposits
----------------------------- -----------
(In thousands)
Within three months.................... $ 7,845
Three through six months............... 11,968
Six through twelve months.............. 11,813
21,030
Over twelve months..................... --------
Total $ 52,656
========
Borrowings. To supplement our deposits as a source of funds for lending or
investment, we borrow funds in the form of advances from the Federal Home Loan
Bank. We regularly make use of Federal Home Loan Bank advances as part of our
interest rate risk management, primarily to extend the duration of funding to
match the longer term fixed rate loans held in the loan portfolio as part of our
growth strategy. During fiscal 2004 we recognized a $125,000 penalty to prepay
$3.0 million of fixed rate FHLB advances with a weighted average cost of 6.28%.
In the future, we may evaluate the costs and benefits of further prepayments,
which may result in additional one time charges to earnings in the form of FHLB
prepayment penalties to further improve the Bank's net interest spread and
margin and enhance future earnings.
Advances from the Federal Home Loan Bank are typically secured by the
Federal Home Loan Bank stock we own and a portion of our residential mortgage
loans and may be secured by other assets, mainly securities which are
obligations of or guaranteed by the U.S. government. At September 30, 2005, our
borrowing limit with the Federal Home Loan Bank was approximately $139 million.
Additional information regarding our Federal Home Loan Bank advances is included
under Note 8 of the Notes to the Financial Statements.
The following table sets forth certain information regarding our borrowed
funds.
At or For the
Year Ended September 30,
-----------------------------
2005 2004 2003
------- ------- -------
Federal Home Loan Bank Advances:
Average balance outstanding ............. $62,056 $60,125 $54,923
Maximum amount outstanding
at any month-end during the period.... $72,853 $65,500 $61,800
Balance outstanding at end of period.... $53,734 $57,491 $55,000
Weighted average interest rate during
The period ........................... 4.58% 4.76% 5.16%
Weighted average interest rate at end
Of period ............................ 4.84% 4.72% 5.13%
22
Subsidiary Activity
In addition to American Bank of New Jersey, the Company has one other
subsidiary, ASB Investment Corp., a New Jersey corporation, which was organized
in June 2003 for the purpose of selling insurance and investment products,
including annuities, to customers of the Bank and the general public through a
third party networking arrangement. There has been very little activity at this
subsidiary and sales are currently limited to the sale of fixed rate annuities.
American Bank of New Jersey has one subsidiary, American Savings Investment
Corp., which was formed in August 2004 under New Jersey law as an investment
company subsidiary. The purpose of this subsidiary is to invest in stocks,
bonds, notes and all types of equity, mortgages, debentures and other investment
securities. Holding investment securities in this subsidiary reduces our New
Jersey state income tax rate.
Personnel
As of September 30, 2005, we had 59 full-time employees and 15 part-time
employees. The employees are not represented by a collective bargaining unit. We
believe our relationship with our employees is satisfactory.
Regulation
Set forth below is a brief description of certain laws that relate to the
regulation of the Bank and the Company. The description does not purport to be
complete and is qualified in its entirety by reference to applicable laws and
regulations. The Bank and the Company operate in a highly regulated industry.
This regulation and supervision establishes a comprehensive framework of
activities in which a federal savings bank may engage and is intended primarily
for the protection of the deposit insurance fund and depositors.
Any change in applicable statutory and regulatory requirements, whether by
the OTS, the Federal Deposit Insurance Corporation ("FDIC") or the United States
Congress, could have a material adverse impact on the Company and the Bank, and
their operations. The adoption of regulations or the enactment of laws that
restrict the operations of the Bank and/or the Company or impose burdensome
requirements upon one or both of them could reduce their profitability and could
impair the value of the Bank's franchise which could hurt the trading price of
the Company's common stock.
Regulation of the Bank
General. As a federally chartered, SAIF-insured savings bank, the Bank is
subject to extensive regulation by the OTS and the FDIC. This regulatory
structure gives the regulatory authorities extensive discretion in connection
with their supervisory and enforcement activities and examination policies,
including policies regarding the classification of assets and the level of the
allowance for loan losses. The activities of federal savings banks are subject
to extensive regulation including restrictions or requirements with respect to
loans to one borrower, the percentage of non-mortgage loans or investments to
total assets, capital distributions, permissible investments and lending
activities, liquidity management, transactions with affiliates and community
reinvestment. Federal savings banks are also subject to reserve requirements of
the Federal Reserve System. A federal savings bank's relationship with its
depositors and borrowers is regulated by both state and federal law, especially
in such matters as the ownership of savings accounts and the form and content of
the bank's mortgage documents.
23
The Bank must file regular reports with the OTS and the FDIC concerning its
activities and financial condition, and must obtain regulatory approvals prior
to entering into certain transactions such as mergers with or acquisitions of
other financial institutions. The OTS regularly examines the Bank and prepares
reports to the Bank's Board of Directors on deficiencies, if any, found in its
operations.
Insurance of Deposit Accounts. The FDIC administers two separate deposit
insurance funds. Generally, the Bank Insurance Fund ("BIF") insures the deposits
of commercial banks and the Savings Association Insurance Fund ("SAIF") insures
the deposits of savings institutions. The FDIC is authorized to increase deposit
insurance premiums if it determines such increases are appropriate to maintain
the reserves of either the BIF or SAIF or to fund the administration of the
FDIC. In addition, the FDIC is authorized to levy emergency special assessments
on BIF and SAIF members.
In addition, all FDIC-insured institutions are required to pay assessments
to the FDIC to fund interest payments on bonds issued by the Financing
Corporation ("FICO"), an agency of the Federal government established to
recapitalize the predecessor to the SAIF. These assessments will continue until
the FICO bonds mature in 2017.
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of total adjusted assets, (2) "Tier 1" or "core" capital equal to at least 4%
(3% if the institution has received the highest possible rating on its most
recent examination) of total adjusted assets, and (3) risk-based capital equal
to 8% of total risk-weighted assets. At September 30, 2005 the Bank exceeded all
regulatory capital requirements and was classified as "well capitalized."
In addition, the OTS may require that a savings institution that has a
risk-based capital ratio of less than 8%, a ratio of Tier 1 capital to
risk-weighted assets of less than 4% or a ratio of Tier 1 capital to total
adjusted assets of less than 4% (3% if the institution has received the highest
rating on its most recent examination) take certain action to increase its
capital ratios. If the savings institution's capital is significantly below the
minimum required levels of capital or if it is unsuccessful in increasing its
capital ratios, the OTS may restrict its activities.
For purposes of the OTS capital regulations, tangible capital is defined as
core capital less all intangible assets except for certain mortgage servicing
rights. Tier 1 or core capital is defined as common stockholders' equity,
non-cumulative perpetual preferred stock and related surplus, minority interests
in the equity accounts of consolidated subsidiaries, and certain
non-withdrawable accounts and pledged deposits of mutual savings banks. The Bank
does not have any non-withdrawable accounts or pledged deposits. Tier 1 and core
capital are reduced by an institution's intangible assets, with limited
exceptions for certain mortgage and non-mortgage servicing rights and purchased
credit card relationships. Both core and tangible capital are further reduced by
an amount equal to the savings institution's debt and equity investments in
"non-includable" subsidiaries engaged in activities not permissible to national
banks other than subsidiaries engaged in activities undertaken as agent for
customers or in mortgage banking activities and subsidiary depository
institutions or their holding companies.
The risk-based capital standard for savings institutions requires the
maintenance of total capital of 8% of risk-weighted assets. Total capital equals
the sum of core and supplementary capital. The components of supplementary
capital include, among other items, cumulative perpetual preferred stock,
perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock, the portion of the allowance for loan losses
not designated for specific loan losses and up to 45% of unrealized gains on
equity securities. The portion of the allowance for loan and lease losses
includable in supplementary capital is limited to a maximum of 1.25% of
risk-weighted assets. Overall, supplementary
24
capital is limited to 100% of core capital. For purposes of determining total
capital, a savings institution's assets are reduced by the amount of capital
instruments held by other depository institutions pursuant to reciprocal
arrangements and by the amount of the institution's equity investments (other
than those deducted from core and tangible capital) and its high loan-to-value
ratio land loans and non-residential construction loans.
A savings institution's risk-based capital requirement is measured against
risk-weighted assets, which equal the sum of each on-balance-sheet asset and the
credit-equivalent amount of each off-balance-sheet item after being multiplied
by an assigned risk weight. These risk weights range from 0% for cash to 100%
for delinquent loans, property acquired through foreclosure, commercial loans,
and other assets.
OTS rules require a deduction from capital for savings institutions with
certain levels of interest rate risk. The OTS calculates the sensitivity of an
institution's net portfolio value based on data submitted by the institution in
a schedule to its quarterly Thrift Financial Report and using the interest rate
risk measurement model adopted by the OTS. The amount of the interest rate risk
component, if any, deducted from an institution's total capital is based on the
institution's Thrift Financial Report filed two quarters earlier. The OTS has
indefinitely postponed implementation of the interest rate risk component, and
the Bank has not been required to determine whether it will be required to
deduct an interest rate risk component from capital.
Prompt Corrective Regulatory Action. Under the OTS Prompt Corrective Action
regulations, the OTS is required to take supervisory actions against
undercapitalized institutions, the severity of which depends upon the
institution's level of capital. Generally, a savings institution that has total
risk-based capital of less than 8.0%, or a leverage ratio or a Tier 1 core
capital ratio that is less than 4.0%, is considered to be undercapitalized. A
savings institution that has total risk-based capital less than 6.0%, a Tier 1
core risk-based capital ratio of less than 3.0% or a leverage ratio that is less
than 3.0% is considered to be "significantly undercapitalized." A savings
institution that has a tangible capital to assets ratio equal to or less than
2.0% is deemed to be "critically undercapitalized." Generally, the banking
regulator is required to appoint a receiver or conservator for an institution
that is "critically undercapitalized." The regulation also provides that a
capital restoration plan must be filed with the OTS within forty-five days of
the date an institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." In addition,
numerous mandatory supervisory actions become immediately applicable to the
institution, including, but not limited to, restrictions on growth, investment
activities, capital distributions, and affiliate transactions. The OTS may also
take any one of a number of discretionary supervisory actions against
undercapitalized institutions, including the issuance of a capital directive and
the replacement of senior executive officers and directors.
Dividend and Other Capital Distribution Limitations. The OTS imposes
various restrictions or requirements on the ability of savings institutions to
make capital distributions, including cash dividends.
A savings institution that is a subsidiary of a savings and loan holding
company, such as the Bank, must file an application or a notice with the OTS at
least thirty days before making a capital distribution. A savings institution
must file an application for prior approval of a capital distribution if: (i) it
is not eligible for expedited treatment under the applications processing rules
of the OTS; (ii) the total amount of all capital distributions, including the
proposed capital distribution, for the applicable calendar year would exceed an
amount equal to the savings bank's net income for that year to date plus the
institution's retained net income for the preceding two years; (iii) it would
not adequately be capitalized after the capital distribution; or (iv) the
distribution would violate an agreement with the OTS or applicable regulations.
25
The Bank is required to file a capital distribution notice or application
with the OTS before paying any dividend to the Company. However, capital
distributions by the Company, as a savings and loan holding company, are not
subject to the OTS capital distribution rules.
The OTS may disapprove a notice or deny an application for a capital
distribution if: (i) the savings institution would be undercapitalized following
the capital distribution; (ii) the proposed capital distribution raises safety
and soundness concerns; or (iii) the capital distribution would violate a
prohibition contained in any statute, regulation or agreement. In addition, a
federal savings institution cannot distribute regulatory capital that is
required for its liquidation account.
Qualified Thrift Lender Test. Federal savings institutions must meet a
qualified thrift lender ("QTL") test or they become subject to the business
activity restrictions and branching rules applicable to national banks. To
qualify as a QTL, a savings institution must either (i) be deemed a "domestic
building and loan association" under the Internal Revenue Code by maintaining at
least 60% of its total assets in specified types of assets, including cash,
certain government securities, loans secured by and other assets related to
residential real property, educational loans and investments in premises of the
institution or (ii) satisfy the statutory QTL test set forth in the Home Owners'
Loan Act by maintaining at least 65% of its "portfolio assets" in certain
"Qualified Thrift Investments" (defined to include residential mortgages and
related equity investments, certain mortgage-related securities, small business
loans, student loans and credit card loans, and 50% of certain community
development loans). For purposes of the statutory QTL test, portfolio assets are
defined as total assets minus intangible assets, property used by the
institution in conducting its business, and liquid assets equal to 20% of total
assets. A savings institution must maintain its status as a QTL on a monthly
basis in at least nine out of every twelve months. The Bank met the QTL test as
of September 30, 2005 and in each of the last twelve months and, therefore,
qualifies as a QTL.
Transactions with Affiliates. Generally, federal banking law requires that
transactions between a savings institution or its subsidiaries and its
affiliates must be on terms as favorable to the savings institution as
comparable transactions with non-affiliates. In addition, certain types of these
transactions are restricted to an aggregate percentage of the savings
institution's capital. Collateral in specified amounts must usually be provided
by affiliates in order to receive loans from the savings institution. In
addition, a savings institution may not extend credit to any affiliate engaged
in activities not permissible for a bank holding company or acquire the
securities of any affiliate that is not a subsidiary. The OTS has the discretion
to treat subsidiaries of savings institutions as affiliates on a case-by-case
basis.
Community Reinvestment Act. Under the Community Reinvestment Act ("CRA"),
every insured depository institution, including the Bank, has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low- and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community. The CRA requires the OTS to assess the
depository institution's record of meeting the credit needs of its community and
to take such record into account in its evaluation of certain applications by
such institution, such as a merger or the establishment of a branch office by
the Bank. An unsatisfactory CRA examination rating may be used as the basis for
the denial of an application by the OTS. The Office of Thrift Supervision
assigned the Bank an overall rating of "Satisfactory" in its most recent CRA
evaluation.
Federal Home Loan Bank ("FHLB") System. The Bank is a member of the FHLB of
New York, which is one of twelve regional FHLBs. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from funds deposited by financial institutions and
26
proceeds derived from the sale of consolidated obligations of the FHLB System.
It makes loans to members pursuant to policies and procedures established by the
board of directors of the FHLB.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of New York in an amount equal to the greater of 1% of our aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year or 5% of FHLB advances. We are in compliance with
this requirement. The FHLB imposes various limitations on advances such as
limiting the amount of certain types of real estate related collateral to 30% of
a member's capital and limiting total advances to a member.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future.
Federal Reserve System. The Federal Reserve System requires all depository
institutions to maintain non-interest-bearing reserves at specified levels
against their checking accounts and non-personal certificate accounts. The
balances maintained to meet the reserve requirements imposed by the Federal
Reserve System may be used to satisfy the OTS liquidity requirements.
Savings institutions have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings institutions to exhaust all other sources before borrowing from the
Federal Reserve System.
Regulation of the Company
General. The Company is a savings and loan holding company, subject to
regulation and supervision by the OTS. In addition, the OTS has enforcement
authority over the Company and any non-savings institution subsidiaries. This
permits the OTS to restrict or prohibit activities that it determines to be a
serious risk to the Company. This regulation is intended primarily for the
protection of the depositors and not for the benefit of stockholders of the
Company.
Activities Restrictions. As a savings and loan holding company formed after
May 4, 1999, the Company is not a grandfathered unitary savings and loan holding
company under the Gramm-Leach-Bliley Act (the "GLB Act"). As a result, the
Company and its non-savings institution subsidiaries are subject to statutory
and regulatory restrictions on their business activities. Under the Home Owners'
Loan Act, as amended by the GLB Act, the non-banking activities of the Company
are restricted to certain activities specified by OTS regulation, which include
performing services and holding properties used by a savings institution
subsidiary, activities authorized for savings and loan holding companies as of
March 5, 1987, and non-banking activities permissible for bank holding companies
pursuant to the Bank Holding Company Act of 1956 (the "BHC Act") or authorized
for financial holding companies pursuant to the GLB Act. Furthermore, no company
may acquire control of American Bank of New Jersey unless the acquiring company
was a unitary savings and loan holding company on May 4, 1999 (or became a
unitary savings and loan holding company pursuant to an application pending as
of that date) or the company is only engaged in activities that are permitted
for multiple savings and loan holding companies or for financial holding
companies under the BHC Act as amended by the GLB Act.
Mergers and Acquisitions. The Company must obtain approval from the OTS
before acquiring more than 5% of the voting stock of another savings institution
or savings and loan holding company or
27
acquiring such a savings institution or savings and loan holding company by
merger, consolidation or purchase of its assets. In evaluating an application
for the Company to acquire control of a savings institution, the OTS would
consider the financial and managerial resources and future prospects of the
Company and the target institution, the effect of the acquisition on the risk to
the insurance funds, the convenience and the needs of the community and
competitive factors.
Sarbanes-Oxley Act of 2002. On July 30, 2002, President Bush signed into
law the Sarbanes-Oxley Act of 2002 (the "Act"). The Securities and Exchange
Commission ("SEC") has promulgated new regulations pursuant to the Act and may
continue to propose additional implementing or clarifying regulations as
necessary in furtherance of the Act. The passage of the Act, and the regulations
implemented by the SEC subject publicly-traded companies to additional and more
cumbersome reporting regulations and disclosure requirements. Compliance with
the Act and corresponding regulations may increase the Company's expenses.
Item 2. Properties.
At September 30, 2005, our net investment in property and equipment totaled
$4.1 million. We use an outside service company for data processing. The
following table sets forth the location of our main office, separate drive-up
facility and branch office, the year opened for each and the net book value of
each. Additionally, at September 30, 2005, we had purchase deposits and other
professional fees totaling $584,000 in connection with de novo branch site
acquisitions.
Year
Facility Leased or Net Book Value at
Office Location Opened Owned September 30, 2005
- --------------- ------ ----- ------------------
(In thousands)
Main Office
365 Broad Street
Bloomfield, New Jersey 07003 1965 Owned $ 1,316
Main Office Drive Up Facility
16 Pitt Street
Bloomfield, New Jersey 07003 1998 Owned $ 339
Full Service Branch
310 Pompton Avenue
Cedar Grove, New Jersey 07009 2001 Owned $ 1,892
Item 3. Legal Proceedings.
From time to time the Company and its subsidiaries are parties to routine
litigation, which arises in the normal course of business, such as claims to
enforce liens, condemnation proceedings on properties in which the Bank holds
security interests, claims involving the making and servicing of real property
loans, and other issues incident to the business of the Bank. In the opinion of
management, there were no lawsuits pending or known to be contemplated at
September 30, 2005 that would have a material effect on operations or income.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
28
PART II
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
(a) Market for Common Equity. The common stock of American Bancorp of New
Jersey, Inc. is traded on the Nasdaq National Market under the symbol "ABNJ."
Trading commenced on October 6, 2005 upon completion of the second step
conversion. As of December 10, 2005, there were 935 registered holders of
record, including brokerage firms, banks and registered clearing agents acting
as nominees for an beneficial "street name" holders.
(b) Use of Proceeds. The Company commenced its stock offering in connection
with the second-step conversion of American Savings, MHC from the mutual holding
company form of organization to a full stock corporation on August 22, 2005 and
completed the offering and conversion on October 5, 2005. Keefe, Bruyette &
Woods, Inc. assisted the Company in its selling efforts on a best efforts basis.
The Company sold 9,918,750 shares of its common stock, par value $0.10 per
share, at $10.00 per share, representing the super-maximum of the offering
range. In addition, each share of common stock held by the public stockholders
of ASB Holding Company, the former middle-tier stock holding company, was
converted into 2.55102 shares of common stock of the Company, resulting in an
aggregate of 4,250,719 exchange shares. Accordingly, upon completion of the
Conversion, the Company had 14,169,469 total shares outstanding. Shares of the
Company began trading on October 6, 2005 on the Nasdaq National Market under the
symbol "ABNJ."
The Company paid an underwriting commission to Keefe, Bruyette & Woods,
Inc. of 1% of the aggregate amount of common stock sold, not counting exchange
shares issued to holders of ASB Holding Company common stock and excluding
(i)305,861 shares purchased in the offering by directors, officers and employees
of the Company and its subsidiaries and (ii) 793,500 shares purchased in the
offering by the Bank's employee stock ownership plan. Offering expenses,
excluding underwriting commissions of $882,000, totaled $781,000 and net
proceeds of the offering were $97.5 million. The Company used $7.9 million of
the net proceeds to make a loan to the Bank's employee stock ownership plan for
the plan's purchase of 793,500 shares in the offering.
(c) Issuer Purchases of Equity Securities.
(c) Total Number (d) Maximum Number
of Shares (or Units) (or Approximate Dollar
(b) Purchased as Part Value) of Shares (or
(a) Total Number Average of Publicly Units) that May Yet Be
of Shares (or Paid per Share Announced Plans Purchased Under
Period Units) Purchased (or Unit) or Programs Plans or Programs
- ------ ---------------- --------- -------------------- -----------------------
Quarter ended -- N/A -- 208,293 (1)
September 30, 2005
- -------------------------
(1) As of September 30, 2005, the Company had not commenced its repurchase of
shares to fund stock awards previously made under the American Bank of New
Jersey 2005 Restricted Stock Plan. Purchases to fund the restricted stock plan
will be made from time to time in the open market, based on stock availability,
price and the Company's financial performance.
29
Item 6. Selected Financial Data.
The information contained in the table captioned "Selected Consolidated
Financial and Other Data" in the portions of the Annual Report filed as Exhibit
13 to this Form 10-K is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information contained in the section captioned "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Annual
Report filed as Exhibit 13 to this Form 10-K is incorporated herein by
reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information contained in the section captioned "Management of Interest
Rate Risk and Market Risk" in the Annual Report filed as Exhibit 13 to this Form
10-K is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
The Company's financial statements listed under Item 15 of this Form 10-K
and included in Exhibit 13 to this Form 10-K are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures. Based on their
evaluation of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")),
the Company's principal executive officer and principal financial officer have
concluded that as of the end of the period covered by this Annual Report on Form
10-K such disclosure controls and procedures are effective.
(b) Changes in internal controls. During the last quarter of the year under
report, there was no change in the Company's internal control over financial
reporting that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
Item 9B. Other Information.
Not applicable.
30
PART III
Item 10. Directors and Executive Officers of the Registrant.
Section 16(A) Beneficial Ownership Reporting Compliance
The Common Stock of the Company is registered pursuant to Section 12(g) of
the Securities and Exchange Act of 1934, as amended. The officers and directors
of the Company and beneficial owners of greater than 10% of the Company's Common
Stock ("10% beneficial owners") are required by Section 16(a) of such act to
file reports of ownership and changes in beneficial ownership of the Common
Stock with the SEC and NASDAQ and to provide copies of those reports to the
Company. The Company is not aware of any beneficial owner, as defined under
Section 16(a), of more than 10% of its Common Stock. To the Company's knowledge,
all Section 16(a) filing requirements applicable to its officers and directors
were complied with during the 2005 fiscal year.
Directors and Executive Officers
The Company's certificate of incorporation requires that the Board of
Directors be divided into four classes, as nearly equal in number as possible,
each class to serve for a four-year period, with approximately one-fourth of the
directors elected each year. The Board of Directors currently consists of eight
members. The following table sets forth the ages of the directors and executive
officers of the Company and the terms and length of service of the directors.
Age at Year First Elected or Current
Name September 30, 2005 Appointed(1) Term Expires
- ---- ------------------- ------------ ------------
Robert A. Gaccione 64 2003 2007
Joseph Kliminski 62 1986 2009
Fred G. Kowal 52 2005 2008
H. Joseph North 73 1991 2006
Stanley Obal 83 1981 2009
W. George Parker 80 1967 2006
Vincent S. Rospond 73 1981 2008
James H. Ward, III 56 1991 2007
Richard M. Bzdek 52 N/A N/A
Eric B. Heyer 43 N/A N/A
Catherine M. Bringuier 42 N/A N/A
- ----------------------
(1) Indicates the year the individual first became a director of American Bank
of New Jersey or ASB Holding Company, the former mid-tier stock holding
company that was replaced by American Bancorp of New Jersey, Inc. Each
director of ASB Holding Company became a director of American Bancorp of
New Jersey, Inc. upon its formation in 2005.
The business experience of each of our directors and executive officers is
set forth below. Each has held his or her present position for at least the past
five years, except as otherwise indicated.
31
Robert A. Gaccione has been a member of the Board since 2003. He has been a
senior partner of the law firm of Gaccione, Pomaco & Malanga, P.C. in
Belleville, New Jersey for thirty years. He is a former Federal Bureau of
Investigation agent. Mr. Gaccione also serves as an Essex County Tax Board
Commissioner. He served as a director of Franklin Community Bank, a commercial
bank located in Nutley, New Jersey for three years. Mr. Gaccione is a member and
the past president of the Belleville Rotary Club, is the president of the Clara
Maass Foundation and is a member of the Belleville Foundation.
Joseph Kliminski serves as Chief Executive Officer and has been a member of
the Board since 1986. He has been employed by the Bank since 1967 and became
President and Chief Executive Officer in 1987. In 2005, Mr. Fred Kowal replaced
Mr. Kliminski as President. Mr. Kliminski is a member and past president of the
Bloomfield Lions Club, is president of the Advisory Board to the Bloomfield Town
Council, chairman of the Bloomfield Education Foundation, and former chairman of
the Deborah Hospital Children of the World Golf Tournament. Mr. Kliminski also
serves on the Executive Committee of the Bloomfield Center Alliance, and is a
member and former president of the Board of Trustees of the Bloomfield Public
Library. He is also a former member of the Board of Governors of the New Jersey
League of Community Bankers and past president of the Essex County Savings
League.
Fred G. Kowal serves as President and Chief Operating Officer and has been
a member of the Board since 2005. He joined the Bank in March 2005. Mr. Kowal
was previously Chairman and Chief Executive Officer of Warwick Community
Bancorp, Inc. until its merger into Provident Bancorp, Inc. in October 2004. He
joined Warwick Community Bancorp, Inc. in 1999 and also served as Chairman of
the Board of Directors of The Warwick Savings Bank and as Chairman of the Board,
President and Chief Executive Officer of The Towne Center Bank, a de novo
commercial bank formed by Warwick Community Bancorp, Inc. in 1999. Prior to
joining Warwick, he served as Senior Vice President of First Union National
Bank, where he worked for 16 years, and as Senior Vice President of PNC Bank.
H. Joseph North has been a member of the Board since 1991. Mr. North
retired in 1987 as Town Administrator of Bloomfield, New Jersey after 20 years
of service as the municipality's Chief Administrative Officer. Mr. North began
his service to the Town of Bloomfield in 1958 as Town Clerk where his duties
included that of Corporation Secretary to the Municipality and Executive
Secretary to the Planning Board and Zoning Board of Adjustment. Mr. North is a
past president and a lifetime member of the New Jersey Municipal Management
Association and is a former member of the International City Management
Association. Mr. North is also a former president of the Bloomfield Lions Club,
Bloomfield Fifth Quarter Club and Bloomfield Tennis Federation and a former
member of the Board of Trustees of Bloomfield College.
Stanley Obal has been a member of the Board since 1981. Mr. Obal retired in
1982 and was the owner of Obal's Inn, a tavern and restaurant in Bloomfield, New
Jersey.
W. George Parker has been a member of the Board since 1967 and Chairman
since 1990. Mr. Parker is the owner, president and chief executive officer of
Adco Chemical Company, located in Newark, New Jersey.
Vincent S. Rospond has been a member of the Board since 1981. He is an
attorney and the majority stockholder of the law firm of Rospond, Rospond &
Conte, P.A. in Bloomfield, New Jersey. Rospond, Rospond & Conte serves as
general counsel to the Bank. Mr. Rospond is the president and a trustee of
United Way of Bloomfield, is a member and the former legal counsel of Bloomfield
Chamber of Commerce, and is a member and the treasurer of North Jersey
Manufacturer's & Businessmen
32
Association. He is also a member of the Cornell Club of New Jersey, the Essex
County Bar Association, the Newark Art Museum, the Bloomfield Music Federation
and the New Jersey Bar Association.
James H. Ward, III has been a member of the Board since 1991 and Vice
Chairman since 2003. From 1998 to 2000, he was the majority stockholder and
Chief Operating Officer of Rylyn Group, which operated a restaurant in
Indianapolis, Indiana. Prior to that, he was the majority stockholder and Chief
Operating Officer of Ward and Company, an insurance agency in Springfield, New
Jersey, where he was employed from 1968 to 1998. He is now a retired investor.
Richard M. Bzdek serves as Executive Vice President and Secretary and has
been employed by the Bank in various capacities since 1975. Mr. Bzdek is the
former president and a current director of the Bloomfield Chamber of Commerce.
He is a member of the Financial Managers Society and serves as Vice Chairman on
the Operations and Technology Committee of the New Jersey League of Community
Bankers. He is also the treasurer and a trustee of United Way of Bloomfield and
is a director and co-founder of the Bloomfield Center Alliance.
Eric B. Heyer serves as Senior Vice President, Treasurer and Chief
Financial Officer and has been employed by the Bank in various capacities since
1993. He was previously the chief financial officer of Monarch Savings Bank in
Kearny, New Jersey, where he was employed from 1986 to 1993. Mr. Heyer is a
member of the Financial Managers Society. He has previously served as a trustee
of Kingston United Methodist Church and currently serves as vice chairman of the
stewardship and finance committee of Princeton United Methodist Church. Mr.
Heyer also serves as a board member of the Mental Health Clinic of Passaic in
Clifton, New Jersey.
Catherine M. Bringuier serves as Senior Vice President and Chief Lending
Officer and has been employed by the Bank in various capacities since 1990. Ms.
Bringuier currently serves as a member of the Commercial Lending Committee, Loan
Servicing Committee, and the Residential Lending & Affordable Housing Committee
of the New Jersey League of Community Bankers. Ms. Bringuier was also appointed
to the Mortgage Steering Committee of the New Jersey League. Ms. Bringuier is a
member of the Commercial Loan Committee and the Residential Lending Committee of
the Mortgage Bankers Association of New Jersey. She is a member and prior Vice
President of Sunny Acres Civic & Improvement Association in Cranford, New Jersey
and is an Assistant Den Leader for Cub Scout Pack 103, in Cranford, New Jersey.
Audit Committee
The Audit Committee consists of Directors Parker, North and Ward, each of
whom is independent under the rules of the Nasdaq Stock Market. Each member of
the Audit Committee is qualified under the rules of the Nasdaq Stock Market to
serve as a member of the Audit Committee, however, none qualifies as an audit
committee financial expert within the meaning of the regulations of the
Securities and Exchange Commission. This committee meets quarterly and as needed
with the internal auditor and the external auditors. This committee's main
responsibilities include oversight of the internal auditor and the external
auditors and monitoring of management and staff compliance with the Board's
audit policies, and applicable laws and regulations.
Code of Ethics
The Company has adopted a Code of Ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer or
controller or persons performing similar functions. The
33
Company's Code of Ethics will be provided without charge upon request to the
Corporate Secretary, American Bancorp of New Jersey, Inc., 365 Broad Street,
Bloomfield, New Jersey 07003.
Item 11. Executive Compensation.
Director Compensation
Board Fees. Directors are currently paid a fee of $500 per meeting for each
regular and special meeting attended. Directors also receive an annual retainer
of $2,500. No fees are paid for committee meetings other than audit committee
meetings, for which directors receive a fee of $750 per meeting.
Each director is also a director of American Bank of New Jersey and is paid
$1,000 per meeting for each regular and special meeting of the Bank's Board
attended. Bank directors also receive an annual retainer of $8,000.
Directors who also serve as employees do not receive compensation as
directors.
Directors Consultation and Retirement Plan. The Directors Consultation and
Retirement Plan provides retirement benefits to directors on their retirement
date. "Retirement date" means the date of termination of service as a director
following a participant's completion of not less than twelve years of service as
a director, or not less than six years of service following a change in control;
provided however, the retirement date with regard to directors serving as of
August 27, 1996 who have completed not less than five years of service as of
August 27, 1996 shall be the date of termination of service as a director
without regard to whether the twelve years of service requirement has been
fulfilled. Upon death or disability, a director shall be deemed to have
terminated service as of that date.
If a director agrees to become a consulting director to our board upon
retirement, he will receive a monthly payment for life but in no event for less
than 144 months, equal to 0.0833 times the highest aggregate annual fees paid
(including retainer fees and regular board meeting fees) during the most
recently completed three calendar year periods ending on or before the
retirement date. In the event of a change in control, all directors will be
presumed to have reached the retirement date and each director will receive a
lump sum payment equal to the present value of future benefits payable.
Restricted Stock Awards. During the year ended September 30, 2005, each
non-employee director was awarded 12,498 shares of restricted stock under the
American Bank of New Jersey 2005 Restricted Stock Plan. Restricted stock awards
are earned at the rate of 20% one year after the date of grant and 20% annually
thereafter during periods of service as an employee, director or director
emeritus. All awards become immediately 100% vested upon death or disability or
termination of service following a change in control. The number of restricted
shares awarded has been adjusted for the exchange ratio in connection with the
second-step conversion completed in October 2005.
Stock Option Awards. During the year ended September 30, 2005, each
non-employee director was awarded 39,923 options to purchase shares of common
stock under the 2005 Stock Option Plan, at an exercise price equal to the fair
market value of the common stock on the date of grant. These options are first
exercisable at a rate of 20% one year after the date of grant and 20% annually
thereafter during continued service as an employee, director or director
emeritus. Upon disability, death, or a change in control, these awards become
100% exercisable. The number of options and the exercise price have been
adjusted in accordance with the exchange ratio in connection with the
second-step conversion completed in October 2005.
34
Executive Compensation
Summary Compensation Table. The following table sets forth the compensation
awarded to or earned by the chief executive officer and certain other executive
officers for the three fiscal years ended September 30, 2005. Mr. Kowal started
his employment in March 2005.
Annual Compensation(1) Long Term Compensation Awards
---------------------- -----------------------------
Restricted Securities All
Fiscal Stock Underlying Other
Name and Principal Position Year Salary Bonus Award(s)($)(2) Options/SARs(#) Compensation
- --------------------------- ------------ ------ ----- --------------- --------------- ------------
Joseph Kliminski 2005 $256,730 $70,038 $338,031 164,899 $231,973(3)
Chief Executive Officer 2004 250,000 0 0 0 188,101
2003 242,255 73,228 0 0 212,140
Fred G. Kowal (4) 2005 $125,481 $ 0 $ 0 0 $ 0
President and Chief
Operating Officer
Richard M. Bzdek 2005 $168,566 $38,080 $169,016 81,582 $63,194(5)
Executive Vice President 2004 164,147 0 0 0 44,290
and Secretary 2003 162,244 30,492 0 0 46,498
Eric B. Heyer 2005 $148,904 $32,318 $154,940 74,639 $ 46,747(6)
Senior Vice President, 2004 145,000 0 0 0 32,617
Treasurer and Chief 2003 139,615 50,322 0 0 31,019
Financial Officer
Catherine M. Bringuier 2005 $138,840 $28,716 $154,940 74,639 $ 45,143(7)
Senior Vice President and 2004 133,800 25,000 0 0 30,329
Chief Lending Officer 2003 123,269 45,478 0 0 20,910
- ------------
(1) All compensation set forth in the table, other than awards under the 2005
Stock Option Plan, was paid by the Bank.
(2) Under the 2005 Restricted Stock Plan, shares of restricted stock were
awarded during 2005 as follows: 49,990 shares to Mr. Kliminski, 24,995
shares to Mr. Bzdek, 22,912 shares to Mr. Heyer and 22,912 shares to Ms.
Bringuier. As of September 30, 2005, no shares had vested and the value of
the restricted shares held by each officer was as follows: Mr. Kliminski
$548,100, Mr. Bzdek $274,050, Mr. Heyer $251,227 and Ms. Bringuier
$251,227.
(3) For 2005, consists of (i) an accrual of $187,878 under Mr. Kliminski's
executive salary continuation agreement, (ii) an employer matching
contribution to the 401(k) Plan for Mr. Kliminski of $6,259, (iii) an
employer contribution to the Profit Sharing Plan for Mr. Kliminski of
$15,933, and (iv) the award of shares under the ESOP valued at $21,903
based on the closing price on the date of award.
(4) Mr. Kowal's employment commenced in March 2005, thus information presented
for him does not reflect a full year.
(5) For 2005, consists of (i) an accrual of $24,523 under Mr. Bzdek's executive
salary continuation agreement, (ii) an employer matching contribution to
the 401(k) Plan for Mr. Bzdek of $5,140, (iii) an employer contribution to
the Profit Sharing Plan for Mr. Bzdek of $15,993, and (iv) the award of
shares under the ESOP valued at $17,538 based on the closing price on the
date of award.
(6) For 2005, consists of (i) an accrual of $12,273 under Mr. Heyer's executive
salary continuation agreement, (ii) an employer matching contribution to
the 401(k) Plan for Mr. Heyer of $4,609, (iii) an employer contribution to
the Profit Sharing Plan for Mr. Heyer of $14,373, and (iv) the award of
shares under the ESOP valued at $15,492 based on the closing price on the
date of award.
(7) For 2005, consists of (i) an accrual of $10,937 under Ms. Bringuier's
executive salary continuation agreement, (ii) an employer matching
contribution to the 401(k) Plan for Ms. Bringuier of $4,324, (iii) an
employer contribution to the Profit Sharing Plan for Ms. Bringuier of
$15,437 and (iv) the award of shares under the ESOP valued at $14,445 based
on the closing price on the date of award.
35
The following table sets forth information concerning options granted under
the 2005 Stock Option Plan during the year ended September 30, 2005.
Option Grants in 2005 Fiscal Year
Individual Grants
---------------------------------------------------------
Percent of
Total Options
Number of Granted to Exercise
Options Employees in Price Expiration Grant Date
Name Granted Fiscal Year ($/Share) Date Present Value(1)
- ---- ------- ----------- --------- ---- ----------------
Joseph Kliminski 164,899 36% 6.80 1/20/15 $307,045
Richard M. Bzdek 81,582 18% 6.80 1/20/15 $151,905
Eric B. Heyer 74,639 16% 6.80 1/20/15 $138,976
Catherine M. Bringuier 74,639 16% 6.80 1/20/15 $138,976
- ------------
(1) The dollar values listed in this column are based on the Black-Scholes
option pricing model, using the following assumptions as of the grant date:
(i) dividend yield of 0.00%; (ii) expected life of 5 years; (iii) expected
stock price volatility of 22%; and (iv) risk-free interest rate of 3.67%.
The following table sets forth information concerning options held as of
September 30, 2005.
Aggregated Option Exercises in 2005 Fiscal Year and Fiscal Year End Option Values
---------------------------------------------------------------------------------
Value of
Shares Number of Options In-the-money Options
Acquired on Value at Fiscal Year-End (#) at Fiscal Year-End ($)
Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ ------------ ------------------------- -------------------------
Joseph Kliminski 0 N/A 0/164,899 0/$686,487
Richard M. Bzdek 0 N/A 0/81,582 0/$339,628
Eric B. Heyer 0 N/A 0/74,639 0/$310,720
Catherine M. Bringuier 0 N/A 0/74,639 0/$310,720
Employment Agreements. The Bank has entered into employment agreements with
Mr. Kliminski, Mr. Kowal, Mr. Bzdek, Mr. Heyer and Ms. Bringuier. Mr.
Kliminski's, Mr. Kowal's, Mr. Bzdek's. Mr. Heyer's and Ms. Bringuier's current
base salaries are $258,750, $225,000, $169,892, $150,075, and $139,932,
respectively. Mr. Kliminski's and Mr. Kowal's employment agreements have a term
of three years while Mr. Bzdek's, Mr. Heyer's and Ms. Bringuier's agreements
have a term of two years. Each of the agreements provides for an annual one-year
extension of the term of the agreement upon determination of the Board of
Directors that the executive's performance has met the requirements and
standards of the Board, so that the remaining term of the agreement continues to
be three years, in the case of Mr. Kliminski and Mr. Kowal, and two years, in
the case of Mr. Bzdek, Mr. Heyer and Ms. Bringuier. If the Bank terminates Mr.
Kliminski or Mr. Kowal without "just cause" as defined in the agreement, they
will be entitled to a continuation of their salary from the date of termination
through the remaining term of their agreement, but in no event for a period of
less than two years. If the Bank terminates Mr. Bzdek, Mr. Heyer or Ms.
Bringuier without "just cause" as defined in the agreement, they will be
entitled to a continuation of their salary from the date of termination through
the remaining term of their agreement. Mr. Kliminski's and Mr. Kowal's
employment agreements provide that if their employment is terminated without
just cause within twenty-four months of a change in control, they will be paid
an amount equal to 2.999 times their five-year average annual taxable cash
compensation in either a lump sum or, at their option, in periodic payments over
a three-year period or the remaining term of the agreement, whichever is less.
Mr. Bzdek's, Mr. Heyer's and Ms. Bringuier's employment agreements provide that
if their employment is
36
terminated without just cause within twelve months of a change in control, they
will be paid an amount equal to 2.0 times their five-year average annual taxable
cash compensation in either a lump sum or, at their option, in periodic payments
over a two-year period or the remaining term of the agreement, whichever is
less. If change in control payments had been made under the agreements as of
September 30, 2005, the payments would have equaled approximately $792,311,
$674,775, $347,630, $285,919 and $260,667 to Mr. Kliminski, Mr. Kowal, Mr.
Bzdek, Mr. Heyer and Ms. Bringuier, respectively.
Executive Salary Continuation Agreements. The Bank has implemented
executive salary continuation agreements for the benefit of Officers Kliminski,
Bzdek, Heyer and Bringuier. The executive salary continuation agreements will
provide benefits at age 65 that would be comparable to approximately 50% of Mr.
Kliminski's average base salary based upon the average of the three highest out
of the last five years of employment, and 30% of average salary for Officers
Bzdek, Heyer and Bringuier. The benefits will be paid in equal monthly
installments until the death of the participant. If a participant terminates
employment prior to age 65, then the retirement benefit equals the then accrued
balance of the participant's liability reserve account, and the benefit is paid
in equal monthly installments until the death of the participant. Upon
disability, the participant will receive the then accrued balance of the
participant's liability reserve account, and the benefit is payable either in a
lump sum or in 180 monthly installments. Upon a change in control of the Bank,
and the participant's termination, the participant will be deemed to reach age
65 and will receive full retirement benefits. As long as the agreement remains
in effect, upon the death of a participant, the participant's beneficiary will
be paid a death benefit under the terms of the Endorsement Method Split Dollar
Life Insurance Agreement between the participant and the Bank.
For fiscal 2005, we accrued $187,878 under Mr. Kliminski's executive salary
continuation agreement, $24,253 under Mr. Bzdek's executive salary continuation
agreement, $12,273 under Mr. Heyer's executive salary continuation agreement and
$10,937 under Ms. Bringuier's executive salary continuation agreement. These
accruals reflect the scheduled accruals under the plan in order for the
retirement benefit provided by the plan to be fully accrued at the expected
retirement date. The accrual for Mr. Kliminski is higher than that for the other
officers due to the fewer number of months left to accrue the full retirement
benefit that will be payable to Mr. Kliminski at his expected retirement date
and also reflects a higher average base salary for Mr. Kliminski and a higher
percentage of the base provided under the plan, 50% versus 30% for the other
officers. When the plans were established for each officer, there were 78 months
until the expected retirement date for Mr. Kliminski, compared to 196 months,
300 months and 298 months for Officers Bzdek, Heyer and Bringuier. The amounts
required to accrue the present value of the retirement benefit provided for each
individual are based upon assumptions for discount rate, salary projections and
life expectancy. These assumptions are reviewed at least annually and provide
the basis upon which monthly benefit accruals are recorded. These accruals are
generally recorded in equal amounts from month to month with changes made to
these amounts as required by assumption changes.
Compensation Committee Report On Executive Compensation
The Compensation Committee (the "Committee") has furnished the following
report on executive compensation:
The Compensation Committee of the Company (the "Compensation Committee")
consists only of independent directors. The members of the Compensation
Committee also serve on the Compensation Committee of the Bank. The Compensation
Committee, at the direction of the Board of Directors, has prepared the
following report.
37
The Compensation Committee is responsible for conducting periodic reviews
of the executive compensation of senior executives, including the Chief
Executive Officer ("CEO"). The Compensation Committee determines salary levels
for senior executives and other officers and amounts of cash bonuses to be
distributed to those individuals, if and as appropriate. The Compensation
Committee also determines awards under the Company's stock option plan and a
restricted stock program.
This report is submitted by the Compensation Committee to the Board of
Directors of the Company to summarize the Compensation Committee's involvement
in the compensation decisions and policies adopted by the Bank and the Company
for executive officers generally, and for the Chief Executive Officer, Joseph
Kliminski, in particular, during the fiscal year ended September 30, 2005.
General Policy. The executive compensation practices of the Company and the
Bank are designed to reward and to provide an incentive for executives, based on
the achievement of corporate and individual goals. Compensation levels for
executives are established after considering measures that include, but are not
limited to, financial performance of the Company and competitive labor market
conditions. Furthermore, qualitative factors such as overall job performance,
leadership, teamwork, and community involvement are considered in compensation
deliberations. The Compensation Committee utilizes publicly available
information to gather information related to compensation practices for
executive officers of financial services companies with assets of between $300
million and $800 million located in New Jersey and in the surrounding states of
New York and Pennsylvania within approximately 100 miles of Bloomfield, New
Jersey. The Compensation Committee has complete access to all necessary Company
personnel records, financial reports, and other data.
Components of Compensation. In evaluating executive compensation, the
Compensation Committee concentrates on three fundamental components: salary,
incentive bonus compensation and retirement income opportunity.
Salary levels for senior executives and other officers are reviewed by the
Compensation Committee on an annual basis. Salary levels reflect an individual's
job responsibilities, experience and performance and the Compensation
Committee's analysis of competitive marketplace conditions.
In the past, incentive bonuses based upon the Bank's Management Incentive
Plan ("MIP") have been used to provide cash distributions to executives. MIP
compensation considers a variety of factors relating to Company and individual
performance in calculating incentive compensation. The specific criteria upon
which each MIP participant's awards are based is determined by the Committee.
For the fiscal year ended September 30, 2005, the MIP provided bonuses to
selected officers of the Bank based upon the Company's return on equity ("ROE")
and other performance targets including net loan growth and net deposit growth.
Another component of the executive compensation strategy of the Company and
the Bank is the retirement income opportunity. Presently, such retirement income
opportunity involves the Bank's 401K plan and the Bank's Employee Stock
Ownership Plan (the "ESOP"). In addition, senior officers of the Bank
participate in a Salary Continuation Plan that provides additional retirement
income to senior executives of the Bank who retire after attainment of age 65.
Such benefit is comprised of a life annuity calculated as a percentage of the
average base salary paid during the last three years of employment.
In addition, during 2005 the Company added stock-based incentive programs
as a further enhancement to our retirement income opportunity and long-term
compensation strategy. Through the use of such stock-based incentive programs,
executives may receive stock options and restricted stock awards that will offer
them the possibility of future compensation opportunity depending on the
executive's continued
38
employment with the Company and the Bank and the long-term price appreciation of
the Company's Common Stock.
Committee Review of Executive Compensation. In making its recommendations
regarding executive compensation during the quarter ending December 31, 2004,
the Compensation Committee was influenced by several positive factors. Primary
among these were the financial performance of the Company and steps taken by the
Company in executing its five year business plan and the significant role of the
Company's executive officers in bringing it about. Additional accomplishments,
less measurable in quantitative form but of equal importance to the Company and
the Bank, included advances in strategic direction, strengthened internal
controls, and regulatory compliance.
Based upon these performance factors, the Company's executive officers were
awarded salary increases to be effective as of January 1, 2005.
Compensation of the Chief Executive Officer. In assessing appropriate types
and amounts of compensation for the CEO, the Board evaluates both corporate and
individual performance. Corporate factors included in such evaluation are:
return on average assets, the level of the efficiency ratio, and the market
performance of the Common Stock. Individual factors include the CEO's initiative
and implementation of successful business strategies; maintenance of an
effective management team; and various personal qualities, including leadership,
commitment, and professional and community standing.
After reviewing the Company's 2004 results, as well as his individual
contributions, the Compensation Committee concluded that the CEO, Joseph
Kliminski, performed with exceptional skill and diligence in 2004. The Company
generated earnings and business growth in accordance with the Company's budget
and operating plans, and Mr. Kliminski deserves a large measure of the credit
for this leadership role in the Company's accomplishments. The Compensation
Committee believes that Mr. Kliminski has made significant contributions to the
ongoing success of the Company and the Bank, and continues to set the stage for
their continued success. Accordingly, Mr. Kliminski's salary was increased by
$8,750 or 3.5% from $250,000 to $258,750 effective January 1, 2005.
For the fiscal year ended September 30, 2004, Mr. Kliminski was awarded an
MIP bonus of $70,038 paid in the quarter ended December 31, 2004. The
performance criteria for awards under the MIP for Joseph Kliminski included the
Company's ROE, net loan growth and net deposit growth. The percentage of Mr.
Kliminski's fiscal 2004 MIP attributable to each of these factors were 11% for
ROE, 26% for net loan growth and 63% for net deposit growth.
For the fiscal year ended September 30, 2005, Mr. Kliminski was awarded an
MIP bonus of $30,284 paid in the quarter ending December 31, 2005. The
performance criteria for awards under the MIP for Joseph Kliminski included the
Company's ROE, net loan growth and net deposit growth. The percentage of Mr.
Kliminski's fiscal 2005 MIP attributable to each of these factors were 25% for
ROE, 31% for net loan growth and 44% for net deposit growth.
Report delivered by the Compensation Committee: Robert A. Gaccione, H.
Joseph North, Stanley Obal, W. George Parker, Vincent S. Rospond and James H.
Ward, III
39
Stock Performance Graph
No performance graph is presented for the Company's common stock
because it did not commence trading until October 6, 2005 upon completion of the
second step conversion.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Bank during the year ended September 30,
2005 consisted of Directors Gaccione, North, Obal, Parker, Rospond and Ward.
During the year ended September 30, 2005, the Company had no "interlocking"
relationships in which (i) an executive officer of the Company served as a
member of the compensation committee of another entity, one of whose executive
officers served on the compensation committee of the Company; (ii) an executive
officer of the Company served as a director of another entity, one of whose
executive officers served on the compensation committee of the Company; and
(iii) an executive officer of the Company served as a member of the compensation
committee of another entity, one of whose executive officers served as a
director of the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) and (b) Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of November 30, 2005, the ownership of
American Bank of New Jersey's employee stock ownership plan and the ownership of
our executive officers and directors, individually and as a group. Other than as
set forth in the table, management knows of no person or group that owns more
than 5% of the outstanding shares of common stock as of November 30, 2005. The
business address of each owner shown below is 365 Broad Street, Bloomfield, New
Jersey 07003.
Percent of
Shares of
Name and Address Number of Common Stock
of Beneficial Owner Shares(1) Outstanding
- ------------------- --------- -----------
American Bank of New Jersey Bank Employee Stock
Ownership Plan Trust (the "ESOP") 1,133,571 8.00%
Robert A. Gaccione 59,791 0.42%
Joseph Kliminski 198,923 1.40%
Fred G. Kowal 0 0.00%
H. Joseph North 15,128 0.11%
Stanley Obal 37,036 0.26%
W. George Parker 209,021 1.47%
Vincent S. Rospond 155,607 1.10%
James H. Ward, III 209,616 1.48%
Richard M. Bzdek 137,465 0.97%
Eric B. Heyer 58,171 0.41%
Catherine M. Bringuier 48,414 0.34%
All directors and executive officers
as a group (11 persons) (2) 1,129,172 7.90%
--------------------------
* Less than 1%.
(1) Includes shares of common stock held directly as well as by spouses or
minor children, in trust and other indirect ownership.
(2) Includes an aggregate of 120,808 shares underlying options and 36,657
shares of restricted stock that become exercisable or vested within 60 days
of November 30, 2005. As of September 30, 2005, each non-employee director
had 6,943
40
options becoming exercisable on January 20, 2006 and 2,083 shares of
restricted stock vesting on January 20, 2006. As of September 30, 2005,
Officers Kliminski, Bzdek, Heyer and Bringuier had 32,980, 16,316, 14,927
and 14,927 options and 9,997, 4,998, 4,582, and 4,582 shares of restricted
stock, respectively, becoming exercisable or vested on January 20, 2006.
(3) These shares are held in a suspense account and are allocated among
participants annually on the basis of compensation as the ESOP debt is
repaid. As of November 30, 2005, 43,147 shares have been allocated to ESOP
participants. The Board of Directors appointed all non-employee directors
to serve as ESOP Trustees and as members of the ESOP Plan Committee. The
ESOP Plan Committee directs the vote of all unallocated shares and shares
allocated to participants for which timely voting directions are not
received.
(c) Changes in Control. Management of the Registrant knows of no
arrangements, including any pledge by any person of securities of the
Registrant, the operation of which may at a subsequent date result in a change
in control of the Registrant.
(d) Securities Authorized for Issuance under Equity Compensation Plans. Set
forth below is information as of September 30, 2005 with respect to compensation
plans under which equity securities of the Registrant are authorized for
issuance.
EQUITY COMPENSATION PLAN INFORMATION
(a) (b) (c)
Number of securities
Number of securities Weighted-average remaining available for
to be issued exercise price of future issuance under equity
upon exercise of outstanding compensation plans
outstanding options, options, warrants (excluding securities
warrants and rights and rights reflected in column (a))
-------------------- ----------------- ----------------------------
Equity compensation plans
approved by security holders:
2005 Stock Option Plan 694,313 $6.80 0
2005 Restricted Stock Plan 208,293 0 0
Equity compensation plans
not approved by security
holders:
None
N/A N/A N/A
------- ----- ---
TOTAL 902,606 $5.23 0
======= ===== =
Item 13. Certain Relationships and Related Transactions.
Other than as disclosed below, no directors, officers or their immediate
family members were engaged in transactions with American Bancorp of New Jersey,
Inc., ASB Holding Company, American Bank of New Jersey or any subsidiary
involving more than $60,000 (other than through a loan with the Bank) during
either of the two years ended September 30, 2005.
Director Vincent S. Rospond is the majority stockholder of the law firm of
Rospond, Rospond & Conte, P.A., which serves as general counsel to American Bank
of New Jersey and to which the Bank paid approximately $35,000 and $40,000 in
legal fees during the years ended September 30, 2005 and 2004. In addition, the
Bank engages this law firm in connection with residential loan closings, and
fees paid by
41
borrowers in loan closings handled by this law firm totaled
approximately $30,000 and $48,000 during fiscal 2005 and 2004.
Director Robert A. Gaccione is a senior partner of the law firm of
Gaccione, Pomaco & Malanga, P.C. to which the Bank paid approximately $49,000
and $11,000 in legal fees during the years ended September 30, 2005 and 2004,
respectively. In addition, the Bank engages this law firm in connection with
commercial loan closings, and fees paid by borrowers in loan closings handled by
this law firm totaled approximately $20,000 and $38,000 during fiscal 2005 and
2004, respectively.
Management believes that the transactions described above were on terms at
least as favorable to the Bank as it would have received in transactions with an
unrelated party.
The Bank makes loans to its officers, directors and employees in the
ordinary course of business. The application fee is waived for mortgages to
officers and employees on single-family owner-occupied homes or second homes.
The Bank also reduces its application fee for mortgages on two-to-four family
owner-occupied homes by the amount of the application fee for single family home
mortgages and reduces its modification fee for one-to-four family owner-occupied
home mortgages or second home mortgages by the amount of the application fee for
single family home mortgages. Other than these application fee waivers and
reductions to officers and employees, these loans are on substantially the same
terms and conditions as those of comparable transactions prevailing at the time
with other persons. These loans also do not include more than the normal risk of
collectibility or present other unfavorable features.
Item 14. Principal Accounting Fees and Services.
Effective July 30, 2002, the Securities and Exchange Act of 1934 was
amended by the Sarbanes-Oxley Act of 2002 to require all auditing services and
non-audit services provided by an issuer's independent auditor to be approved by
the issuer's audit committee prior to such services being rendered or to be
approved pursuant to pre-approval policies and procedures established by the
issuer's audit committee. The Company's Audit Committee has not established
pre-approval procedures and instead specifically approves each service prior to
the engagement of the auditor for all audit and non-audit services.
All of the services listed below for 2005 and 2004 were approved by the
Audit Committee prior to the service being rendered. There were no services that
were not recognized to be non-audit services at the time of engagement that were
approved after the fact.
Audit Fees. The aggregate fees billed by Crowe Chizek for professional
services rendered for the audit of the Company's annual consolidated financial
statements and review of the quarterly consolidated financial statements for the
fiscal years ended September 30, 2005 and 2004 were $71,500 and $64,000,
respectively.
Audit Related Fees. The aggregate fees billed by Crowe Chizek for assurance
and related services related to the Company's Annual Report on Form 10-K for the
years ended September 30, 2005 and 2004 were $8,000 and $7,500, respectively.
Tax Fees. The aggregate fees billed by Crowe Chizek for professional
services rendered for tax preparation services for the years ended September 30,
2005 and 2004 were $10,250 and $9,000, respectively. Additional tax-related
services billed by Crowe Chizek for the years ended September 30, 2005 and 2004
were $2,175 and $0 respectively. Such additional tax-related services consisted
of billings for tax
42
consultation services relating to the Company's change in tax year and related
communications to tax authorities.
All Other Fees. The aggregate fees billed by Crowe Chizek for professional
services rendered for services or products other than those listed under the
captions "Audit Fees," "Audit-Related Fees," and "Tax Fees" totaled $102,195 for
the year ended September 30, 2005 and consisted of expenses related to the
second-step conversion and stock offering completed in October 2005 and $13,625
for the year ended September 30, 2004, and consisted of expenses related to the
minority stock offering completed in October 2003.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) Listed below are all financial statements and exhibits filed as part of
this Form 10-K.
1. The consolidated statements of financial condition as of September 30,
2005 and 2004 and the related consolidated statements of income,
changes in stockholders' equity, and cash flows for the three years
ended September 30, 2005, together with the related notes and the
report of independent certified public accountants.
2. The following exhibits are either included with this Form 10-K or
incorporated herein by reference: (a) List of Exhibits:
3(i) Certificate of Incorporation of American Bancorp of New Jersey,
Inc.(1)
3(ii) Bylaws of American Bancorp of New Jersey, Inc. (1)
4 Specimen Stock Certificate of ASB Holding Company(1)
10.1 Employment Agreement between American Bank of New Jersey and
Joseph Kliminski(2)+
10.2 Employment Agreement between American Savings Bank of NJ and
Richard M. Bzdek(2)+
10.3 Employment Agreement between American Savings Bank of NJ and
Eric B. Heyer(2)+
10.4 Form of Executive Salary Continuation Agreement(2)+
10.5 Employment Agreement between ASB Holding Company and Joseph
Kliminski(3) +
10.6 Employment Agreement between American Bank of New Jersey and
Fred G. Kowal(4) +
10.7 Employment Agreement between American Bank of New Jersey and
Catherine M. Bringuier(1) +
10.8 2005 Stock Option Plan(5)+
10.9 2005 Restricted Stock Plan(5)+
13 Portions of the 2005 Annual Report to Stockholders
21 Subsidiaries
31 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
---------------
(1) Incorporated by reference to the Company's Registration Statement
on Form S-1 (File No. 333-125957) filed with the SEC on June 20,
2005.
43
(2) Incorporated by reference to the Registration Statement on Form
SB-2 (File No. 333-105472) of ASB Holding Company filed with the
SEC on May 22, 2003.
(3) Incorporated by reference to the Form 10-KSB (File No. 000-31789)
of ASB Holding Company filed with the SEC on December 24, 2003.
(4) Incorporated by reference to the Form 8-K (File No. 000-31789) of
ASB Holding Company filed with the SEC on April 18, 2005.
(5) Incorporated by reference to the definitive proxy statement (File
No. 000-31789) of ASB Holding Company filed with the SEC on
December 28, 2004.
+ Management or compensatory plan required to be filed as an
exhibit.
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 as of
December 27, 2005.
AMERICAN BANCORP OF NEW JERSEY, INC.
By: /s/ Fred G. Kowal
--------------------------------------
Fred G. Kowal
President and Chief Operating Officer
(Duly Authorized Representative)
Pursuant to the requirement of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated as of December 27, 2005.
/s/ W. George Parker /s/ Joseph Kliminski
- ------------------------------------ -------------------------------------
W. George Parker Joseph Kliminski
Chairman Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Fred G. Kowal /s/ Eric B. Heyer
- ------------------------------------ -------------------------------------
Fred G. Kowal Eric B. Heyer
President, Chief Operating Officer Senior Vice President, Treasurer and
and Director Chief Financial Officer
(Principal Financial and Accounting
Officer)
/s/ H. Joseph North /s/ James H. Ward, III
- ------------------------------------ -------------------------------------
H. Joseph North James H. Ward, III
Director Vice Chairman
/s/ Stanley Obal /s/ Robert Gaccione
- ------------------------------------ -------------------------------------
Stanley Obal Robert Gaccione
Director Director
/s/ Vincent S. Rospond
- ------------------------------------
Vincent S. Rospond
Director