UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
|
T
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended March 31, 2010.
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from
to ______.
Commission
file number 0-49925
|
Central
Jersey Bancorp
|
|
|
(Exact
name of registrant as specified in its charter)
|
|
|
New Jersey
|
|
22-3757709
|
|
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer Identification No.)
|
|
|
incorporation
or organization)
|
|
|
|
1903 Highway 35, Oakhurst,
New Jersey 07755
(Address
of principal executive offices, including zip code)
|
(732) 663-4000
|
|
|
(Registrant’s
telephone number, including area code)
|
|
|
|
|
|
(Former
name, former address and formal fiscal year, if changed since last
report)
|
|
Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes
T
No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the proceeding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
T
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
|
Large
accelerated filer
|
o
|
Accelerated
filer
|
o
|
|
Non-accelerated
filer
|
o
|
Smaller
reporting company
|
T
|
(Do
not check if smaller reporting company)
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
o
No
T
.
As of
April 30, 2010, there were 9,256,975 shares of the registrant’s common stock,
par value $.01 per share, outstanding.
INDEX TO FORM
10-Q
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PAGE
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PART I
.
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FINANCIAL INFORMATION
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Item
1.
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Financial
Statements
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1
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2
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3
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4
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5
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Item
2.
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24
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Item
3.
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36
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Item
4.
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36
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PART II
.
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OTHER INFORMATION
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Item
1.
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38
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Item
1A.
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38
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Item
2.
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38
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Item
3.
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38
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Item
4.
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38
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Item
5.
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38
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Item
6.
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38
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39
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E-1
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Forward-Looking
Statements
Certain
information included in this quarterly report on Form 10-Q and other filings of
the Registrant under the Securities Act of 1933, as amended (the “Securities
Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
as well as information communicated orally or in writing between the dates of
such filings, contains or may contain “forward-looking statements” within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Such statements are subject to certain risks, trends and
uncertainties that could cause actual results to differ materially from expected
results. Among these risks, trends and uncertainties are the effect
of governmental regulation on Central Jersey Bank, N.A., a nationally chartered
commercial bank and wholly-owned subsidiary of the Registrant, interest rate
fluctuations, regional economic and other conditions, the availability of
working capital, the cost of personnel and technology and the competitive
markets in which Central Jersey Bank, N.A. operates.
In some
cases, forward-looking statements can be identified by terminology such as
“may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,”
“estimates,” “predicts,” “potential” or “continue” or the negative of such terms
or other comparable terminology. Although the Registrant believes
that the expectations reflected in the forward-looking statements contained
herein are reasonable, the Registrant cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither the
Registrant, nor any other person, assumes responsibility for the accuracy and
completeness of such statements. The Registrant is under no duty to
update any of the forward-looking statements contained herein after the date of
this quarterly report on Form 10-Q.
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
(unaudited)
(dollars
in thousands, except share amounts)
|
|
March 31,
2010
|
|
|
December 31,
2009
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
7,958
|
|
|
$
|
9,789
|
|
Federal
funds sold
|
|
|
49,038
|
|
|
|
68,526
|
|
Cash
and cash equivalents
|
|
|
56,996
|
|
|
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78,315
|
|
|
|
|
|
|
|
|
|
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Investment
securities available-for-sale, at fair value
|
|
|
91,364
|
|
|
|
96,947
|
|
Investment
securities held-to-maturity (fair value at March 31, 2010 and
December
|
|
|
|
|
|
|
|
|
31,
2009 of $37,653 and $7,462, respectively)
|
|
|
37,356
|
|
|
|
7,217
|
|
Federal
Reserve Bank stock
|
|
|
1,849
|
|
|
|
1,848
|
|
Federal
Home Loan Bank stock
|
|
|
1,369
|
|
|
|
1,820
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
370,530
|
|
|
|
379,087
|
|
Less:
Allowance for loan losses
|
|
|
9,300
|
|
|
|
9,613
|
|
Loans,
net
|
|
|
361,230
|
|
|
|
369,474
|
|
|
|
|
|
|
|
|
|
|
Accrued
interest receivable
|
|
|
2,072
|
|
|
|
2,285
|
|
Other
real estate owned
|
|
|
1,055
|
|
|
|
1,055
|
|
Premises
and equipment
|
|
|
5,806
|
|
|
|
5,946
|
|
Bank
owned life insurance
|
|
|
3,848
|
|
|
|
3,817
|
|
Core
deposit intangible
|
|
|
945
|
|
|
|
1,031
|
|
FDIC
deposit insurance premiums
|
|
|
2,496
|
|
|
|
2,684
|
|
Other
assets
|
|
|
4,909
|
|
|
|
5,219
|
|
Total
assets
|
|
$
|
571,295
|
|
|
$
|
577,658
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
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Deposits:
|
|
|
|
|
|
|
|
|
Non-interest
bearing
|
|
$
|
79,656
|
|
|
$
|
80,500
|
|
Interest
bearing
|
|
|
376,465
|
|
|
|
387,378
|
|
|
|
|
456,121
|
|
|
|
467,878
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
45,608
|
|
|
|
47,575
|
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Subordinated
debentures
|
|
|
5,155
|
|
|
|
5,155
|
|
Accrued
expenses and other liabilities
|
|
|
1,703
|
|
|
|
1,531
|
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Investment
securities purchased not settled
|
|
|
5,904
|
|
|
|
--
|
|
Total
liabilities
|
|
|
514,491
|
|
|
|
522,139
|
|
|
|
|
|
|
|
|
|
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Shareholders’
equity:
|
|
|
|
|
|
|
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Common
stock, par value $0.01 per share. Authorized 100,000,000
shares,
|
|
|
|
|
|
|
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9,503,423
shares issued and 9,256,975 shares outstanding
|
|
|
|
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at
March 31, 2010 and December 31, 2009
|
|
|
92
|
|
|
|
92
|
|
Preferred
stock, liquidation value $1,000 per share. Authorized 10,000,000
shares
|
|
|
|
|
|
|
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|
and
issued and outstanding 11,300 shares at March 31, 2010 and
|
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|
|
|
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December
31, 2009
|
|
|
11,300
|
|
|
|
11,300
|
|
Additional
paid-in capital
|
|
|
65,453
|
|
|
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64,981
|
|
Accumulated
other comprehensive income, net of tax expense
|
|
|
1,281
|
|
|
|
1,022
|
|
Treasury
stock – at cost, 246,448 shares at March 31, 2010 and December 31,
2009
|
|
|
(1,806
|
)
|
|
|
(1,806
|
)
|
Accumulated
deficit
|
|
|
(19,516
|
)
|
|
|
(20,070
|
)
|
Total
shareholders’ equity
|
|
|
56,804
|
|
|
|
55,519
|
|
Total
liabilities and shareholders’ equity
|
|
$
|
571,295
|
|
|
$
|
577,658
|
|
See
accompanying notes to unaudited consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF INCOME
(unaudited)
(dollars
in thousands, except per share amounts)
|
|
Three
months ended
|
|
|
|
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
Interest
income:
|
|
|
|
|
|
|
Interest
and fees on loans
|
|
$
|
5,207
|
|
|
$
|
5,031
|
|
Interest
on securities available for sale:
|
|
|
|
|
|
|
|
|
Taxable
interest income
|
|
|
447
|
|
|
|
1,648
|
|
Non-taxable
interest income
|
|
|
244
|
|
|
|
79
|
|
Interest
on securities held to maturity
|
|
|
104
|
|
|
|
218
|
|
Interest
on federal funds sold and due from banks
|
|
|
56
|
|
|
|
33
|
|
Total
interest income
|
|
|
6,058
|
|
|
|
7,009
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
Interest
expense on deposits
|
|
|
1,189
|
|
|
|
1,982
|
|
Interest
expense on other borrowings
|
|
|
153
|
|
|
|
247
|
|
Interest
expense on subordinated debentures
|
|
|
39
|
|
|
|
57
|
|
Total
interest expense
|
|
|
1,381
|
|
|
|
2,286
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
4,677
|
|
|
|
4,723
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
--
|
|
|
|
3,135
|
|
Net
interest income after provision for loan losses
|
|
|
4,677
|
|
|
|
1,588
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts
|
|
|
340
|
|
|
|
336
|
|
Income
on bank owned life insurance
|
|
|
31
|
|
|
|
29
|
|
Gain
on the sale of investment securities available-for-sale
|
|
|
--
|
|
|
|
1,789
|
|
Other
income
|
|
|
22
|
|
|
|
12
|
|
Total
non-interest income
|
|
|
393
|
|
|
|
2,166
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expense:
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
1,973
|
|
|
|
1,937
|
|
Net
occupancy expenses
|
|
|
538
|
|
|
|
525
|
|
Outside
service fees
|
|
|
260
|
|
|
|
203
|
|
Data
processing fees
|
|
|
259
|
|
|
|
233
|
|
FDIC
deposit insurance premiums
|
|
|
202
|
|
|
|
70
|
|
Premises
and equipment depreciation
|
|
|
192
|
|
|
|
183
|
|
Core
deposit intangible amortization
|
|
|
86
|
|
|
|
104
|
|
Audit
and accounting services
|
|
|
75
|
|
|
|
128
|
|
Other
operating expenses
|
|
|
447
|
|
|
|
662
|
|
Total
non-interest expense
|
|
|
4,032
|
|
|
|
4,045
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before provision for income taxes
|
|
|
1,038
|
|
|
|
(291
|
)
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit)
|
|
|
298
|
|
|
|
(601
|
)
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
740
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividend
|
|
|
141
|
|
|
|
141
|
|
Preferred
stock discount amortization
|
|
|
45
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
$
|
554
|
|
|
$
|
125
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings per common share
|
|
$
|
0.06
|
|
|
$
|
0.01
|
|
See
accompanying notes to unaudited consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(dollars
in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
other
|
|
|
|
|
|
earnings/
|
|
|
|
|
|
|
Common
|
|
|
Preferred
|
|
|
paid-in
|
|
|
comprehensive
|
|
|
Treasury
|
|
|
(accumulated
|
|
|
|
|
|
|
stock
|
|
|
stock
|
|
|
capital
|
|
|
income
|
|
|
stock
|
|
|
deficit)
|
|
|
Total
|
|
Balance at December 31,
2008
|
|
$
|
90
|
|
|
$
|
11,300
|
|
|
$
|
64,502
|
|
|
$
|
1,925
|
|
|
$
|
(1,806
|
)
|
|
$
|
6,441
|
|
|
$
|
82,452
|
|
Comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
310
|
|
|
|
310
|
|
Unrealized
loss on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale,
net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reclassification
adjustment of $1,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
tax effect of ($529)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(872
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
(872
|
)
|
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(562
|
)
|
Exercise
of stock options – 26,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares,
including tax benefit of $23
|
|
|
--
|
|
|
|
--
|
|
|
|
123
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
123
|
|
Discount
– preferred stock
|
|
|
--
|
|
|
|
--
|
|
|
|
44
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(44
|
)
|
|
|
--
|
|
Cash
dividends accrued on preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(141
|
)
|
|
|
(141
|
)
|
Balance at March 31, 2009
|
|
$
|
90
|
|
|
$
|
11,300
|
|
|
$
|
64,669
|
|
|
$
|
1,053
|
|
|
$
|
(1,806
|
)
|
|
$
|
6,566
|
|
|
$
|
81,872
|
|
Balance at December 31,
2009
|
|
$
|
92
|
|
|
$
|
11,300
|
|
|
$
|
64,981
|
|
|
$
|
1,022
|
|
|
$
|
(1,806
|
)
|
|
$
|
(20,070
|
)
|
|
$
|
55,519
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
740
|
|
|
|
740
|
|
Unrealized
gain on securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available-for-sale,
net of tax effect of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($161)
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
259
|
|
|
|
--
|
|
|
|
--
|
|
|
|
259
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
999
|
|
Intercompany
reclassification related to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
option exercises
|
|
|
--
|
|
|
|
--
|
|
|
|
427
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
427
|
|
Discount
– preferred stock
|
|
|
--
|
|
|
|
--
|
|
|
|
45
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(45
|
)
|
|
|
--
|
|
Cash
dividends accrued on preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
(141
|
)
|
|
|
(141
|
)
|
Balance at March 31, 2010
|
|
$
|
92
|
|
|
$
|
11,300
|
|
|
$
|
65,453
|
|
|
$
|
1,281
|
|
|
$
|
(1,806
|
)
|
|
$
|
(19,516
|
)
|
|
$
|
56,804
|
|
See
accompanying notes to unaudited consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
(dollars
in thousands)
|
|
Three
months ended
|
|
|
|
March
31,
|
|
|
|
2010
|
|
|
2009
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$
|
740
|
|
|
$
|
310
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Earnings
on cash surrender value of life insurance
|
|
|
(31
|
)
|
|
|
(29
|
)
|
Deferred
tax expense
|
|
|
8
|
|
|
|
49
|
|
Provision
for loan losses
|
|
|
--
|
|
|
|
3,135
|
|
Depreciation
and amortization
|
|
|
192
|
|
|
|
183
|
|
Net
premium amortization (discount accretion) on held-to-maturity
securities
|
|
|
247
|
|
|
|
(2
|
)
|
Net
premium amortization on available-for-sale securities
|
|
|
75
|
|
|
|
139
|
|
Core
deposit intangible amortization
|
|
|
86
|
|
|
|
104
|
|
Gain
on sale of securities available-for-sale
|
|
|
--
|
|
|
|
(1,789
|
)
|
Gain
on the sale of loans held-for-sale
|
|
|
(2
|
)
|
|
|
(12
|
)
|
Originations
of loans held-for-sale
|
|
|
(400
|
)
|
|
|
(2,057
|
)
|
Proceeds
from the sale of loans held-for-sale
|
|
|
402
|
|
|
|
2,046
|
|
Decrease
in accrued interest receivable
|
|
|
213
|
|
|
|
139
|
|
Decrease
(increase) in other assets
|
|
|
1,367
|
|
|
|
(1,549
|
)
|
Increase
in accrued expenses and other liabilities
|
|
|
(117
|
)
|
|
|
(84
|
)
|
Net
cash provided by operating activities
|
|
|
2,780
|
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Maturities
and paydowns on investment securities held-to-maturity
|
|
|
1,018
|
|
|
|
2,670
|
|
Maturities
and paydowns on investment securities available-for-sale
|
|
|
21,271
|
|
|
|
8,829
|
|
Proceeds
from sale of investment securities available-for-sale
|
|
|
--
|
|
|
|
99,073
|
|
Purchase
of investment securities available-for-sale
|
|
|
(15,356
|
)
|
|
|
(102,089
|
)
|
Purchase
of investment securities held-to-maturity
|
|
|
(31,404
|
)
|
|
|
--
|
|
Investment
securities purchased not settled
|
|
|
5,904
|
|
|
|
--
|
|
Net
decrease (increase) in loans
|
|
|
8,244
|
|
|
|
(1,121
|
)
|
Purchases
of premises and equipment
|
|
|
(52
|
)
|
|
|
(93
|
)
|
Net
cash (used in) provided by investment activities
|
|
|
(10,375
|
)
|
|
|
7,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from stock options exercised
|
|
|
--
|
|
|
|
123
|
|
Net
decrease in non-interest bearing deposits
|
|
|
(844
|
)
|
|
|
(5,369
|
)
|
Net
(decrease) increase in interest bearing deposits
|
|
|
(10,913
|
)
|
|
|
17,109
|
|
Net
increase (decrease) in other borrowings
|
|
|
8,051
|
|
|
|
(14,729
|
)
|
Net
decrease in Federal Home Loan Bank advances
|
|
|
(10,000
|
)
|
|
|
--
|
|
Repayment
of Federal Home Loan Bank advances
|
|
|
(18
|
)
|
|
|
(18
|
)
|
Cash
dividend paid on preferred stock
|
|
|
--
|
|
|
|
(82
|
)
|
Net
cash used in financing activities
|
|
|
(13,724
|
)
|
|
|
(2,966
|
)
|
|
|
|
|
|
|
|
|
|
(Decrease)
increase in cash and cash equivalents
|
|
|
(21,319
|
)
|
|
|
4,886
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
78,315
|
|
|
|
9,767
|
|
Cash
and cash equivalents at end of period
|
|
$
|
56,996
|
|
|
$
|
14,653
|
|
|
|
|
|
|
|
|
|
|
Supplementary
cash flow information:
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
1,309
|
|
|
$
|
2,295
|
|
See
accompanying notes to unaudited consolidated financial
statements.
Cen
tral Jersey Bancorp and Subsidiary
NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of
Presentation
The
accompanying consolidated financial statements include the accounts of Central
Jersey Bancorp and its wholly-owned bank subsidiary, Central Jersey Bank, N.A.,
which are sometimes collectively referred to herein as the
“Company.” All significant inter-company accounts and transactions
have been eliminated in consolidation. The interim unaudited
consolidated financial statements of the Company have been prepared in
conformity with U.S. generally accepted accounting principles (“U.S.
GAAP”).
The
interim unaudited consolidated financial statements reflect all normal and
recurring adjustments that are, in the opinion of management, considered
necessary for a fair presentation of the financial condition and results of
operations for the periods presented. The results of operations for
the three months ended March 31, 2010 are not necessarily indicative of the
results of operations that may be expected for all of 2010.
Certain
information and note disclosures normally included in financial statements
prepared in accordance with U.S. GAAP have been condensed or omitted, pursuant
to the rules and regulations of the Securities and Exchange Commission (the
“SEC”).
These
interim unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in Central Jersey Bancorp’s annual report on Form 10-K for the year
ended December 31, 2009.
Reclassifications
Certain
reclassifications have been made to the prior period amounts to conform to the
current period presentation. These reclassifications had no effect on
results of operations.
New
Accounting Standards
Effective
April 1, 2009, the Company adopted Financial Accounting Standards Board (“FASB”)
guidance now codified as FASB Accounting Standards Codification (“ASC”) Topic
855, “
Subsequent Events.”
This guidance establishes general standards for accounting and for
disclosure of events that occur after the balance sheet date but before
financial statements are issued. The subsequent event guidance sets
forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition in the financial statements, identifies the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in the financial statements, and the disclosures that
should be made about events or transactions that occur after the balance sheet
date. The Company has evaluated events and transactions occurring
subsequent to the balance sheet date of March 31, 2010, for items that should
potentially be recognized or disclosed in the accompanying interim unaudited
consolidated financial statements and has determined that no such items were
required to be recognized or disclosed.
In June
2009, the FASB issued guidance now codified as FASB ASC Topic 105, “
Generally Accepted Accounting
Principles
,” as the single source of authoritative nongovernmental U.S.
GAAP. FASB ASC Topic 105 does not change current U.S. GAAP, but is
intended to simplify user access to all authoritative U.S. GAAP by providing all
authoritative literature related to a particular topic in one place. The
provisions of FASB ASC Topic 105 are effective for interim and annual periods
ending after September 15, 2009 and, accordingly, are effective for the Company
for the current reporting period. The adoption of this pronouncement
did not have an impact on the Company’s financial condition or results of
operations, but impacted the Company’s financial reporting process by
eliminating all references to pre-
codification
standards. On the effective date of FASB ASC Topic 105, the
Codification superseded all then-existing non-SEC accounting and reporting
standards, and all other non-grandfathered non-SEC accounting literature not
included in the Codification became non-authoritative.
Note
2. Restrictions on Cash and Amounts Due From
Banks
Central
Jersey Bank, N.A. is required to maintain average balances on hand or with the
Federal Reserve Bank of New York. At March 31, 2010 and December 31, 2009, these
reserve balances amounted to $563,000 and $276,000, respectively.
Note 3. Earnings
Per Common Share
The
following tables reconcile shares outstanding for basic and diluted earnings per
common share for the three months ended March 31, 2010 and 2009:
|
|
Three
months ended March 31, 2010
|
|
(amounts
in thousands, except for per share data)
|
|
Income
(numerator)
|
|
|
Average shares
(denominator)
|
|
|
Per share
amount
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
|
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
$
|
554
|
|
|
|
9,257
|
|
|
$
|
0.06
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
--
|
|
|
|
14
|
|
|
|
--
|
|
Diluted
earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common shareholders, plus
|
|
|
|
|
|
|
|
|
|
|
|
|
assumed
exercise of options and warrants
|
|
$
|
554
|
|
|
|
9,271
|
|
|
$
|
0.06
|
|
|
|
Three
months ended March 31, 2009
|
|
(amounts
in thousands, except for per share data)
|
|
Income
(numerator)
|
|
|
Average shares
(denominator)
|
|
|
Per share
amount
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
|
|
|
|
|
|
|
|
Net
income available to common shareholders
|
|
$
|
125
|
|
|
|
9,019
|
|
|
$
|
0.01
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
--
|
|
|
|
312
|
|
|
|
--
|
|
Diluted
earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income available to common shareholders, plus
|
|
|
|
|
|
|
|
|
|
|
|
|
assumed
exercise of options and warrants
|
|
$
|
125
|
|
|
|
9,331
|
|
|
$
|
0.01
|
|
Basic and
diluted net income per common share for the three months ended March 31, 2010
was calculated by dividing the net income available to common shareholders
(which is equal to net income less dividends on preferred stock) of $554,000 by
the weighted average number of shares outstanding of 9,256,975 (as to the basic
net income per common share determination) and 9,270,867 (as to the diluted net
income per common share determination). Basic and diluted net income
per common share for the three months ended March 31, 2009 was calculated by
dividing the net income available to common shareholders of $125,000 by the
weighted average number of common shares outstanding of 9,018,497 (as to the
basic net income per common share determination) and 9,330,730 (as to the
diluted net income per common share determination). For the three
months ended March 31, 2010 and 2009, 900,586 and
250,257
antidilutive stock options, respectively, were excluded from earnings per common
share calculation.
Stock
Based Compensation
Stock
compensation accounting guidance, FASB ASC Topic 718, “
Compensation—Stock
Compensation
,” requires that the compensation cost relating to
share-based payment transactions be recognized in financial statements. That
cost will be measured based on the grant date fair value of the equity or
liability instruments issued. The stock compensation accounting guidance covers
a wide range of share based compensation arrangements, including stock options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans.
The stock
compensation accounting guidance requires that compensation cost for all stock
awards be calculated and recognized over an employee’s service period, generally
defined as the vesting period. For awards with graded-vesting, compensation cost
is recognized on a straight-line basis over the requisite service period for the
entire award. A Black-Sholes model is used to estimate the fair value of stock
options, while the market price of the Company’s common stock at the date of
grant is used for restricted stock awards.
There
were no new employee or director stock option grants during the three months
ended March 31, 2010 and 2009.
Stock
Appreciation Rights
On
January 31, 2006, the Company granted under its 2005 Equity Incentive Plan,
173,644 Stock Appreciation Rights (“SARS”) (98,398 were granted to employees and
75,246 were granted to directors), each with an exercise price of
$9.40. These SARS can only be settled in cash. The SARS
vest over a four year period and expire February 1, 2016.
The fair
value of SARS granted was estimated on March 31, 2010 using the Black-Scholes
option pricing model with the following weighted-average assumptions used: stock
price $3.28, dividend yield of 0%; expected volatility of 81.55%; risk free
interest rate of 2.55%; and expected life of seven years. These SARS
had a fair value of approximately $1.92 per share at March 31,
2010. The Company did not record a share based payment expense for
the three months ended March 31, 2010 related to the granting of the
SARS. As of March 31, 2010, all SARS were fully
vested.
A summary
of the status of the Company’s SARS as of and for the three months ended March
31, 2010 is presented below:
|
|
As of and for the three months
ended
March 31, 2010
|
|
|
|
SARS
|
|
|
Weighted average
exercise price
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year
|
|
|
113,448
|
|
|
$
|
9.40
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Outstanding at period end
|
|
|
113,448
|
|
|
$
|
9.40
|
|
|
|
|
|
|
|
|
|
|
SARS
exercisable at period end
|
|
|
113,448
|
|
|
$
|
9.40
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of SARS
granted
|
|
$
|
1.92
|
|
|
|
|
|
Stock
Option Plans
In 2000,
the Company established its Employee and Director Stock Option Plan (the
“Plan”). The Plan currently provides for the granting of stock
options to purchase in aggregate up to 1,263,197 shares of the Company’s common
stock, subject to adjustment for certain dilutive events such as stock
distributions. During the three months ended March 31, 2010, no
options were granted under the Plan. As a result of the January 1,
2005 combination with Allaire Community Bank, all outstanding options granted
under the Plan became fully vested. The Company does not anticipate
granting any additional stock options under the Plan or any of the Allaire
Community Bank stock option plans assumed by the Company.
A summary
of the status of the Company’s stock options as of and for the three months
ended March 31, 2010 is presented below:
|
|
As of and for the three months
ended March 31, 2010
|
|
|
|
Shares
|
|
|
Weighted
average
exercise
price
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year
|
|
|
1,023,442
|
|
|
$
|
5.05
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
Outstanding at period end
|
|
|
1,023,442
|
|
|
$
|
5.05
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at period end
|
|
|
1,023,442
|
|
|
$
|
5.05
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value of
|
|
|
|
|
|
|
|
|
options granted
|
|
|
|
|
|
|
n/a
|
|
Note 4. Loans
Receivable, Net
Loans
receivable, net at March 31, 2010 and December 31, 2009, consisted of the
following (in thousands):
|
|
March 31,
|
|
|
December 31,
|
|
Loan Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate loans – commercial
|
|
$
|
221,424
|
|
|
$
|
229,295
|
|
Home
equity and second mortgages
|
|
|
65,654
|
|
|
|
65,116
|
|
Commercial
and industrial loans
|
|
|
47,724
|
|
|
|
46,160
|
|
Construction
loans
|
|
|
30,862
|
|
|
|
33,673
|
|
1-4
family real estate loans
|
|
|
2,772
|
|
|
|
2,876
|
|
Consumer
loans
|
|
|
1,613
|
|
|
|
1,475
|
|
Total
loans
|
|
|
370,049
|
|
|
|
378,595
|
|
|
|
|
|
|
|
|
|
|
Net
deferred costs
|
|
|
481
|
|
|
|
492
|
|
Less: allowance
for loan losses
|
|
|
9,300
|
|
|
|
9,613
|
|
Loans
receivable, net
|
|
$
|
361,230
|
|
|
$
|
369,474
|
|
A
substantial portion of the Company’s loans are secured by real estate and made
to borrowers located in New Jersey, primarily in Monmouth and Ocean
Counties. Accordingly, as with most financial institutions in the
Company’s market area, the ultimate collectibility of a substantial portion of
the Company’s loan portfolio is susceptible to changes in market conditions in
the market area.
Activity
in the allowance for loan losses (sometimes referred to herein as “ALL”) for the
three months ended March 31, 2010 is summarized as follows (dollars in
thousands):
|
|
Three months ended
March 31, 2010
|
|
Balance,
beginning of year
|
|
$
|
9,613
|
|
Provision
charged to expense
|
|
|
--
|
|
Charge-offs
|
|
|
(358
|
)
|
Recoveries
|
|
|
45
|
|
Balance, end of year
|
|
$
|
9,300
|
|
Ratio of ALL to total loans
|
|
|
2.51
|
%
|
Impaired
Loans
When
necessary, Central Jersey Bancorp performs individual loan reviews in accordance
with FASB ASC Topic 310, “
Receivables
,” to determine
whether any individually reviewed loans are impaired and, if impaired, measures
a valuation allowance allocation in accordance with FASB ASC Topic
310. A loan is recognized as impaired when it is probable that
principal and/or interest are not collectible in accordance with the loan’s
contractual terms. The Company considers loans on non-accrual status
or risk rated “8” or higher as impaired and automatically subject to a FASB ASC
Topic 310 review. In addition, any other loan that management
considers possibly impaired due to deteriorating conditions or for any other
reasons, is, at management’s discretion, subject to a FASB ASC Topic 310
review.
At March
31, 2010, Central Jersey Bancorp had impaired loans totaling $22.9 million, as
compared to $23.2 million at December 31, 2009. The decrease in
impaired loans was due primarily to the charge-off of $300,000 in impaired loans
during the three months ended March 31, 2010. These loans were
considered permanently impaired and were evaluated and charged-off in accordance
with FASB ASC Topic 310. At March 31, 2010, specific reserves for
impaired loans totaled $3.8 million, as compared to $4.1 million at December 31,
2009.
Central
Jersey Bancorp’s policy for interest income recognition on non-accrual loans is
to recognize income on currently performing restructured loans under the accrual
method. Central Jersey Bancorp recognizes income on non-accrual loans
under the accrual basis when the principal payments on the loans become current
and the collateral on the loan is sufficient to cover the outstanding obligation
to Central Jersey Bancorp. If these factors do not exist, Central
Jersey Bancorp does not recognize income. There was no income
recognized on non-accrual loans during the three months ended March 31,
2010. Total cash collected on non-accrual loans during the three
months ended March 31, 2010 was $57,000, as compared to $39,000 for the three
months ended March 31, 2009, all of which was credited to the principal balances
outstanding.
Impaired
loans for the three months ended March 31, 2010 and December 31, 2009 are
summarized as follows (dollars in thousands):
|
|
March 31,
2010
|
|
|
December 31,
2009
|
|
Balance
of impaired loans with no allowance allocation
|
|
$
|
4,037
|
|
|
$
|
4,035
|
|
Balance
of impaired loans with an allocated allowance
|
|
|
18,860
|
|
|
|
19,140
|
|
|
|
|
|
|
|
|
|
|
Total
recorded investment in impaired loans
|
|
$
|
22,897
|
|
|
$
|
23,175
|
|
|
|
|
|
|
|
|
|
|
Amount
of the allowance allocated to impaired loans
|
|
$
|
3,837
|
|
|
$
|
4,085
|
|
|
|
|
|
|
|
|
|
|
Average
balance of impaired loans
|
|
$
|
22,278
|
|
|
$
|
21,538
|
|
Note
5. Investment Securities
The
amortized cost, gross unrealized gains and losses, and fair value of investment
securities held-to-maturity and securities available-for-sale at March 31, 2010
and December 31, 2009 are as follows (in thousands):
|
|
March
31, 2010
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
unrealized
|
|
|
unrealized
|
|
|
Fair
|
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
|
Investment
securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of U.S. Government
|
|
|
|
|
|
|
|
|
|
|
|
|
sponsored
agencies
|
|
$
|
25,819
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
25,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities of U.S. Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sponsored agencies
|
|
|
11,537
|
|
|
|
297
|
|
|
|
--
|
|
|
|
11,834
|
|
Total
|
|
$
|
37,356
|
|
|
$
|
297
|
|
|
$
|
--
|
|
|
$
|
37,653
|
|
Investment
securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of U.S. Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sponsored
agencies
|
|
$
|
19,996
|
|
|
$
|
326
|
|
|
$
|
--
|
|
|
$
|
20,322
|
|
Municipal
obligations
|
|
|
40,659
|
|
|
|
126
|
|
|
|
27
|
|
|
|
40,758
|
|
Mortgage-backed
securities of U.S. Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sponsored
agencies
|
|
|
26,378
|
|
|
|
1,607
|
|
|
|
--
|
|
|
|
27,985
|
|
Other debt securities
|
|
|
2,299
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,299
|
|
Total
|
|
$
|
89,332
|
|
|
$
|
2,059
|
|
|
$
|
27
|
|
|
$
|
91,364
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
unrealized
|
|
|
unrealized
|
|
|
Fair
|
|
|
|
cost
|
|
|
gains
|
|
|
losses
|
|
|
value
|
|
Investment
securities held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
securities of U.S. Government
|
|
|
|
|
|
|
|
|
|
|
|
|
sponsored agencies
|
|
$
|
7,217
|
|
|
$
|
245
|
|
|
$
|
--
|
|
|
$
|
7,462
|
|
Total
|
|
$
|
7,217
|
|
|
$
|
245
|
|
|
$
|
--
|
|
|
$
|
7,462
|
|
Investment
securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of U.S. Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sponsored
agencies
|
|
$
|
14,996
|
|
|
$
|
140
|
|
|
$
|
8
|
|
|
$
|
15,128
|
|
Municipal
Obligations
|
|
|
48,222
|
|
|
|
130
|
|
|
|
71
|
|
|
|
48,281
|
|
Mortgage-backed
securities of U.S. Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sponsored
agencies
|
|
|
29,198
|
|
|
|
1,432
|
|
|
|
--
|
|
|
|
30,630
|
|
Other debt securities
|
|
|
2,908
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,908
|
|
Total
|
|
$
|
95,324
|
|
|
$
|
1,702
|
|
|
$
|
79
|
|
|
$
|
96,947
|
|
The
available for sale securities are reported at fair value with unrealized gains
or losses included in equity, net of taxes. Accordingly, the carrying
value of such securities reflects their fair value at the balance sheet date.
Fair value is based upon either quoted market prices, or
,
in certain cases
where there is limited activity in the market for a particular instrument,
assumptions are made to determine their fair values. See Note 12,
Fair Value Measurements,
for
these additional disclosures.
The
amortized cost and fair value of investment securities held-to-maturity and
investment securities available-for-sale at March 31, 2010 by contractual
maturity are shown below (in thousands). Expected maturities will
differ from contractual maturities because issuers may have the right to call or
prepay obligations with or without call or prepayment penalties.
|
|
Amortized
|
|
|
Fair
|
|
|
|
cost
|
|
|
value
|
|
Investment
securities held-to-maturity:
|
|
|
|
|
|
|
Due
in one year or less
|
|
$
|
633
|
|
|
$
|
644
|
|
Due
after one year through fifth year
|
|
|
16,593
|
|
|
|
16,619
|
|
Due
after fifth year through tenth year
|
|
|
6,830
|
|
|
|
6,939
|
|
Due after tenth year
|
|
|
13,300
|
|
|
|
13,451
|
|
Total
|
|
$
|
37,356
|
|
|
$
|
37,653
|
|
Investment
securities available-for-sale:
|
|
|
|
|
|
|
|
|
Due
in one year or less
|
|
$
|
33,258
|
|
|
$
|
33,304
|
|
Due
after one year through fifth year
|
|
|
18,379
|
|
|
|
18,430
|
|
Due
after fifth year through tenth year
|
|
|
19,200
|
|
|
|
20,064
|
|
Due after tenth year
|
|
|
18,495
|
|
|
|
19,566
|
|
Total
|
|
$
|
89,332
|
|
|
$
|
91,364
|
|
FASB
recently issued accounting guidance related to the recognition and presentation
of other-than-temporary impairment, which the Company adopted effective June 30,
2009 (“Pending Content” of FASB ASC Topic 320-10). This recent
accounting guidance amends the recognition guidance for other-than-temporary
impairments of debt securities and expands the financial statement disclosures
for other-than-temporary impairment losses on debt and equity
securities. The recent guidance replaced the “intent and ability”
indication in former guidance by specifying that if (a) a company does not have
the intent to sell a
debt
security prior to recovery and, (b) it is more likely than not that it will not
have to sell the debt security prior to recovery, the security would not be
considered other-than-temporarily impaired unless there is a credit
loss.
When an
entity does not intend to sell a debt security, and it is more likely than not
that the entity will not have to sell the security before recovery of its cost
basis, it will recognize the credit component of an other-than-temporary
impairment of a debt security in earnings and the remaining portion in other
comprehensive income. For held-to-maturity debt securities, the
amount of an other-than-temporary impairment recorded in other comprehensive
income for the noncredit portion of a previous other-than-temporary impairment
will be amortized prospectively over the remaining life of the security on the
basis of the timing of future estimated cash flows of the security.
Prior to
the adoption of the recent accounting guidance on June 30, 2009, management
considered, in determining whether other-than-temporary impairment exists (a)
the length of time and the extent to which the fair value has been less than
amortized cost, (b) the financial condition and near-term prospects of the
issuer, and (c) the intent and ability of the Company to retain the investment
in the issuer for a period of time sufficient to allow for any anticipated
recovery in fair value.
During
the three months ended March 31, 2010, there were no sales of investment
securities available-for-sale
,
as compared to
sales generating $65.3 million in proceeds during the three months ended March
31, 2009, which resulted in $1.8 million in gains on securities
available-for-sale during such period
.
At March
31, 2010 and December 31, 2009, there were $74.8 million and $76.5 million,
respectively, of investment securities pledged as collateral for short term
borrowings, to secure public funds or for any other purposes required by
law.
Gross
unrealized losses on investment securities available-for-sale and their fair
values, aggregated by security category and length of time that individual
securities have been in a continuous unrealized loss position, at March 31, 2010
and December 31, 2009, were as follows (in thousands):
|
|
March 31, 2010
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
Unrealized
losses
|
|
|
Fair value
|
|
|
Unrealized
losses
|
|
|
Fair value
|
|
|
Unrealized
losses
|
|
|
Fair value
|
|
Municipal obligations
|
|
$
|
27
|
|
|
$
|
6,619
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
27
|
|
|
$
|
6,619
|
|
Total
|
|
$
|
27
|
|
|
$
|
6,619
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
27
|
|
|
$
|
6,619
|
|
|
|
December 31, 2009
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
|
|
Unrealized
losses
|
|
|
Fair value
|
|
|
Unrealized
losses
|
|
|
Fair value
|
|
|
Unrealized
losses
|
|
|
Fair value
|
|
Municipal obligations
|
|
$
|
71
|
|
|
$
|
7,652
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
71
|
|
|
$
|
7,652
|
|
Obligations of U.S.
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sponsored agencies
|
|
|
8
|
|
|
|
4,992
|
|
|
|
--
|
|
|
|
--
|
|
|
|
8
|
|
|
|
4,992
|
|
Total
|
|
$
|
79
|
|
|
$
|
12,644
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
79
|
|
|
$
|
12,644
|
|
Management
does not believe that any of the individual unrealized losses represent an
other-than-temporary impairment. The Company does not intend to sell
any of its investment securities and it is not more likely than not that the
Company will be required to sell its investment securities, therefore, no
other-than-temporary impairment is required. As of March 31, 2010, there were
nine municipal obligations and no obligations of U.S. Government sponsored
agencies in unrealized loss positions
compared
to twelve municipal obligations and one obligation of U.S. Government sponsored
agencies in unrealized loss positions as of December 31, 2009.
Note 6. Other
Real Estate Owned
Assets
acquired through, or in lieu of, loan foreclosure are held for sale and are
initially recorded at fair value less cost to sell at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are
periodically performed by management and the assets are carried at the lower of
carrying amount or fair value less cost to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in net expense
from other non-interest expense.
The
following table represents the balance of other real estate owned at March 31,
2010 and December 31, 2009 (in thousands):
|
|
March 31,
2010
|
|
|
December 31,
2009
|
|
Other
real estate owned
|
|
$
|
1,055
|
|
|
$
|
1,055
|
|
At
December 31, 2009, two loans totaling $1.1 million were transferred to other
real estate owned, impacting the Company’s provision for loan losses by
$245,000, and recorded as other real estate owned at their initial fair market
value less cost to sell. At March 31, 2010, there was no decline in
fair value of the properties, and, therefore, no change in the December 31, 2009
balance was required.
Note 7. Financial
Instruments with Off-Balance Sheet Risk and Concentrations of Credit
Risk
In the
ordinary course of business to meet the financial needs of the Company’s
customers, the Company is party to financial instruments with off-balance sheet
risk. These financial instruments include unused lines of credit and
involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the consolidated financial statements. The contract or
notional amounts of these instruments express the extent of involvement the
Company has in each category of financial instruments.
The
Company’s exposure to credit loss from nonperformance by the other party to the
above-mentioned financial instruments is represented by the contractual amount
of those instruments. The Company uses the same credit policies in
making commitments and conditional obligations as it does for on-balance sheet
instruments. The contract or notional amount of financial instruments
which represent credit risk at March 31, 2010 and December 31, 2009 is as
follows (in thousands):
|
|
March 31,
2010
|
|
|
December 31,
2009
|
|
Standby
letters of credit
|
|
$
|
1,463
|
|
|
$
|
2,140
|
|
Outstanding loan and credit line
commitments
|
|
$
|
67,301
|
|
|
$
|
67,122
|
|
Standby
letters of credit are conditional commitments issued by the Company which
guarantee performance by a customer to a third party. The credit risk
and underwriting procedures involved in issuing letters of credit are
essentially the same as those involved in extending loan facilities to
customers. All of Central Jersey Bank, N.A.’s outstanding standby
letters of credit are performance standby letters within the scope of FASB ASC
Topic 952, “
Franchisors
.” These
are irrevocable undertakings by Central Jersey Bank, N.A., as guarantor, to make
payments in the event a specified third party fails to perform under a
non-financial contractual obligation. Most of Central Jersey Bank,
N.A.’s performance standby letters of credit arise in connection with lending
relationships and have terms of one year or less. The maximum
potential future payments Central Jersey Bank, N.A. could be required to make
equals the face
amount of
the letters of credit shown above. Central Jersey Bank, N.A.’s
liability for performance standby letters of credit was immaterial at March 31,
2010 and December 31, 2009.
Outstanding
loan commitments represent the unused portion of loan commitments available to
individuals and companies as long as there is no violation of any condition
established in the contract. Outstanding loan commitments generally
have a fixed expiration date of one year or less, except for home equity loan
commitments which generally have an expiration date of up to 15
years. The Company evaluates each customer’s creditworthiness on a
case-by-case basis. The amount of collateral obtained, if any, upon
extension of credit is based upon management’s credit evaluation of the
customer. Various types of collateral may be held, including property
and marketable securities. The credit risk involved in these
financial instruments is essentially the same as that involved in extending loan
facilities to customers.
Note
8. Deposits
The major
types of deposits at March 31, 2010 and December 31, 2009 were as follows (in
thousands):
|
|
March 31,
|
|
|
December 31,
|
|
Deposit Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits, non-interest bearing
|
|
$
|
79,656
|
|
|
$
|
80,500
|
|
Savings,
N.O.W. and money market accounts
|
|
|
215,152
|
|
|
|
226,729
|
|
Certificates
of deposit of less than $100
|
|
|
69,412
|
|
|
|
72,089
|
|
Certificates
of deposit of $100 or more
|
|
|
91,901
|
|
|
|
88,560
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
456,121
|
|
|
$
|
467,878
|
|
Note
9. Borrowings
Borrowed
funds at March 31, 2010 and December 31, 2009 are summarized as follows (in
thousands):
|
|
March 31,
2010
|
|
|
December 31,
2009
|
|
Borrowings
|
|
$
|
45,608
|
|
|
$
|
47,575
|
|
Borrowings
typically include wholesale borrowing arrangements as well as arrangements with
deposit customers of Central Jersey Bank, N.A. to sweep funds into short-term
borrowings. At March 31, 2010, borrowings included $34.5 million in
bank sweep funds, $5.0 million in Federal Home Loan Bank of New York
(“FHLBNY”)
callable
advances and $6.1 million in FHLBNY fixed rate advances. At December
31, 2009, borrowings included $26.4 million in bank sweep funds, $15.0 million
in FHLBNY
callable
advances and $6.2 million in FHLBNY fixed rate advances. At March 31, 2010 and
December 31, 2009, Central Jersey Bank, N.A. had unused lines of credit with the
FHLBNY of $30.3 million and $26.2 million, respectively.
At March
31, 2010, Central Jersey Bank, N.A. had the following outstanding FHLBNY
callable advances (in thousands):
Date
|
|
Amount
|
|
|
Rate
|
|
Term
|
Call Feature
|
2/01/2008
|
|
$
|
5,000
|
|
|
|
2.903
|
%
|
7
year non-call
3
years
|
One
Time
|
At March
31, 2010, Central Jersey Bank, N.A. had the following outstanding FHLBNY fixed
rate advances (in thousands):
Date
|
|
Amount
|
|
|
Rate
|
|
Term
|
Maturity
|
2/01/2008
|
|
$
|
5,000
|
|
|
|
2.380
|
%
|
5
years
|
2/01/2013
|
5/28/2008
|
|
|
1,115
|
|
|
|
4.940
|
%
|
13
years
|
5/28/2021
|
|
|
$
|
6,115
|
|
|
|
2.871
|
%
|
|
|
Note
10. Subordinated Debentures
In March
2004, MCBK Capital Trust I, a special purpose business trust of Central Jersey
Bancorp, issued an aggregate of $5.0 million of trust preferred securities to
ALESCO Preferred Funding III, a pooled investment vehicle. Sandler
O’Neill & Partners, L.P. acted as placement agent in connection with the
offering of the trust preferred securities. The securities issued by
MCBK Capital Trust I are fully guaranteed by Central Jersey Bancorp with respect
to distributions and amounts payable upon liquidation, redemption or
repayment. These securities have a floating interest rate equal to
the three-month LIBOR plus 285 basis points, which resets
quarterly. The securities mature on April 7, 2034 and may be called
at par by Central Jersey Bancorp any time after April 7, 2009. These
securities were placed in a private transaction exempt from registration under
the Securities Act of 1933, as amended.
The
entire proceeds to MCBK Capital Trust I from the sale of the trust preferred
securities were used by MCBK Capital Trust I in order to purchase $5.1 million
of subordinated debentures from Central Jersey Bancorp. The
subordinated debentures bear a variable interest rate equal to LIBOR plus 285
basis points. Although the subordinated debentures are treated as
debt of Central Jersey Bancorp, they currently qualify as Tier I Capital
investments, subject to the 25% limitation under risk-based capital guidelines
of the Federal Reserve. The portion of the trust preferred securities
that exceeds this limitation qualifies as Tier II Capital of Central Jersey
Bancorp. At March 31, 2010, $5.0 million of the trust preferred
securities qualified for treatment as Tier I Capital. Central Jersey
Bancorp is using the proceeds it received from the subordinated debentures to
support the general balance sheet growth of Central Jersey Bancorp and to
maintain Central Jersey Bank, N.A.’s required regulatory capital
ratios.
On March
1, 2005, the Federal Reserve adopted a final rule that allows the continued
inclusion of outstanding and prospective issuances of trust preferred securities
in the Tier I Capital of bank holding companies, subject to stricter
quantitative limits and qualitative standards. Under the final rules,
trust preferred securities and other restricted core capital elements are
limited to 25% of all core capital elements. Amounts of restricted
core capital elements in excess of these limits may be included in Tier II
Capital. At March 31, 2010, the only restricted core capital element
owned by Central Jersey Bancorp is trust preferred
securities. Central Jersey Bancorp believes that its trust preferred
issues qualify as Tier I Capital. However, in the event that the
trust preferred issues do not qualify as Tier I Capital, Central Jersey Bank,
N.A. would remain well capitalized.
Note 11. Income
Tax Expense (Benefit)
The
Company recorded an income tax expense of $298,000 on income before taxes of
$1.0 million for the three months ended March 31, 2010, resulting in an
effective tax rate of 28.71%. The reduction in the Company’s
effective tax rate was primarily the result of an
increased proportion of the Company’s income
being
derived from tax-exempt sources, such as municipal bonds and note
obligations. The Company recorded an income tax benefit of ($601,000)
on a loss before taxes of ($291,000) for the three months ended March 31, 2009,
resulting in an effective income tax benefit rate of (209.62%). The
2009 income tax benefit was due to the utilization of capital tax loss
carry-forwards which resulted from the 2007 balance sheet restructuring
initiative. As a result of the restructuring, a deferred tax valuation allowance
was established against deferred tax assets generated from the capital tax loss
carry-forwards. Since $1.1 million of the $1.8 million in gains from
the sale of available-for-sale investment securities recorded during the three
months ended March 31, 2009 were realized in CJB Investment Company, a
wholly-owned subsidiary of Central Jersey Bank, N.A., these gains are considered
capital gains and are permitted to be offset against the remaining capital tax
loss carry-forwards. The federal income tax benefit was primarily the
result of the reversal of the deferred tax valuation allowance which totaled
approximately $369,000.
Note 12. Fair
Value Measurements
The
Company applies the provisions of FASB ASC Topic 820, “
Fair Value Measurements and
Disclosures,”
for financial assets and financial
liabilities. FASB ASC Topic 820 defines fair value, establishes a
framework for measuring fair value in U.S. GAAP and expands disclosures about
fair value measurements.
Financial
assets and financial liabilities recorded at fair value in the Consolidated
Statements of Financial Condition are categorized based upon the level of
judgment associated with the inputs used to measure their fair
value. Under the guidance, fair value measurements are not adjusted
for transaction costs. FASB ASC Topic 820 establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities and the
lowest priority to unobservable inputs. A financial instrument’s
level within the fair value hierarchy is based on the lowest level of input that
is significant to the fair value measurement. The three levels of the
fair value hierarchy under FASB ASC Topic 820 are described below.
Management
uses its best judgment in estimating the fair value of the Company’s financial
instruments; however, there are inherent weaknesses in any estimation
technique. Therefore, for substantially all financial instruments,
the fair value estimates herein are not necessarily indicative of the amount the
Company could have realized in a sales transaction on the dates
indicated. The estimated fair value amounts have been measured as of
their respective period ends and have not been re-evaluated or updated for
purposes of the consolidated financial statements included elsewhere herein
subsequent to those respective dates. As such, the estimated fair
values of these financial instruments subsequent to the respective reporting
dates may be different than the amounts reported at each
period-end.
Basis of Fair Value
Measurement
Level
I
|
Unadjusted
quoted prices in active markets that are accessible at the measurement
date for identical, unrestricted assets or
liabilities;
|
Level
II
|
Quoted
prices in markets that are not active, or inputs that are observable
either directly or indirectly, for substantially the full term of the
asset or liability; and
|
Level
III
|
Prices
or valuation techniques that require inputs that are both significant to
the fair value measurement and unobservable (i.e., supported by little or
no market activity).
|
A
description of the valuation methodologies used for instruments measured at fair
value, as well as the general classification of such instruments pursuant to the
valuation hierarchy, is set forth below. These valuation
methodologies were applied to all of the Company's financial assets and
financial liabilities carried at fair value.
In
general, fair value is based upon quoted market prices, where
available. If such quoted market prices are not available, fair value
is based upon internally developed models that primarily use, as inputs,
observable market-based parameters. Valuation adjustments may be made
to ensure that financial instruments are recorded at fair
value. These adjustments may include amounts to reflect counterparty
credit quality, the Company's creditworthiness, among other things, as well as
unobservable parameters. Any such valuation adjustments are applied
consistently over time.
Investment securities
available-for-sale –
Investment securities classified as
available-for-sale are reported at fair value utilizing Level II
inputs. For these investment securities, the Company obtains fair
value measurements from an independent pricing service. The fair
value measurements consider observable data that may include dealer quotes,
market spreads, cash flows, the U.S. Department of the Treasury yield curve,
live trading levels, trade execution data, market consensus prepayment speeds,
credit information and the investment security’s terms and conditions, among
other things.
Impaired loan
s - Loans that
Central Jersey Bank, N.A. has measured impairment generally based on fair value
of the loan’s collateral. Fair value is generally determined based
upon independent third-party appraisals of the properties, or discounted cash
flows based upon the expected proceeds. These assets are included at
Level III fair values, based upon the lowest level of input that is significant
to the fair value measurements.
Other Real Estate Owned –
Real estate owned is adjusted to fair value less estimated selling costs
upon transfer of the loans to real estate owned. Subsequently, real
estate owned assets are carried at the lower of carrying value or fair
value. Fair value is based upon independent market prices, appraised
values of collateral or management’s estimation of the value of the
collateral. These assets are included as Level III fair
values.
Servicing rights
– The fair
value of mortgage servicing rights is based on a valuation model that calculates
the present value of estimated net servicing income. The valuation
model incorporates assumptions that market participants would use in estimating
future net servicing income. The Company is able to compare the
valuation model inputs and results to widely available published industry data
for reasonableness.
The
following tables summarize financial assets measured at fair value on a
recurring basis at March 31, 2010 and December 31, 2009, segregated by the level
of valuation inputs within the fair value hierarchy utilized to measure fair
value (in thousands):
|
|
At March 31, 2010
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
fair value
|
|
Investment
securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of U.S. Government sponsored
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
$
|
--
|
|
|
$
|
20,322
|
|
|
$
|
--
|
|
|
$
|
20,322
|
|
Municipal
obligations
|
|
|
--
|
|
|
|
40,758
|
|
|
|
--
|
|
|
|
40,758
|
|
Mortgage-backed
securities of U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
sponsored agencies
|
|
|
--
|
|
|
|
27,985
|
|
|
|
--
|
|
|
|
27,985
|
|
Other
securities
|
|
|
--
|
|
|
|
2,299
|
|
|
|
--
|
|
|
|
2,299
|
|
Total
assets measured fair value on a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recurring
basis
|
|
$
|
--
|
|
|
$
|
91,364
|
|
|
$
|
--
|
|
|
$
|
91,364
|
|
|
|
At December 31, 2009
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
fair value
|
|
Investment
securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations
of U.S. Government sponsored
|
|
|
|
|
|
|
|
|
|
|
|
|
agencies
|
|
$
|
--
|
|
|
$
|
15,128
|
|
|
$
|
--
|
|
|
$
|
15,128
|
|
Municipal
obligations
|
|
|
--
|
|
|
|
48,281
|
|
|
|
--
|
|
|
|
48,821
|
|
Mortgage-backed
securities of U.S.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
sponsored agencies
|
|
|
--
|
|
|
|
30,630
|
|
|
|
--
|
|
|
|
30,630
|
|
Other
securities
|
|
|
--
|
|
|
|
2,908
|
|
|
|
--
|
|
|
|
2,908
|
|
Total
assets measured fair value on a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recurring
basis
|
|
$
|
--
|
|
|
$
|
96,947
|
|
|
$
|
--
|
|
|
$
|
96,947
|
|
Certain
financial assets and financial liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at fair value on
an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of impairment).
The
following tables summarize financial assets measured at fair value on a
nonrecurring basis at March 31, 2010 and December 31, 2009, segregated by the
level of valuation inputs within the fair value hierarchy utilized to measure
fair value (in thousands):
|
|
At March 31, 2010
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
fair value
|
|
Impaired
loans
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
15,023
|
|
|
$
|
15,023
|
|
Other
real estate owned
|
|
|
--
|
|
|
|
--
|
|
|
|
1,055
|
|
|
|
1,055
|
|
Servicing
rights
|
|
|
--
|
|
|
|
--
|
|
|
|
281
|
|
|
|
281
|
|
Total
assets measured fair value on a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
nonrecurring
basis
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
16,359
|
|
|
$
|
16,359
|
|
|
|
At December 31, 2009
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
fair value
|
|
Impaired
loans
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
15,055
|
|
|
$
|
15,055
|
|
Other
real estate owned
|
|
|
--
|
|
|
|
--
|
|
|
|
1,055
|
|
|
|
1,055
|
|
Servicing
rights
|
|
|
--
|
|
|
|
--
|
|
|
|
289
|
|
|
|
289
|
|
Total
assets measured fair value on a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
nonrecurring
basis
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
16,399
|
|
|
$
|
16,399
|
|
The
following information should not be interpreted as an estimate of the fair value
of the entire Company since a fair value calculation is only provided for a
limited portion of the Company’s assets and liabilities. Due to a
wide range of valuation techniques and the degree of subjectivity used in making
the estimates, comparisons between the Company’s disclosures and those of other
companies may not be meaningful. The following methods and
assumptions were used to estimate the fair values of the Company’s financial
instruments at March 31, 2010 and December 31, 2009:
Cash
and Cash Equivalents (Carried at Cost)
The
carrying amounts reported in the Consolidated Statements of Financial Condition
for cash and short-term instruments approximate those assets’ fair
values.
Investment
Securities
The fair
value of investment securities available-for-sale (carried at fair value) and
held-to-maturity
(carried
at amortized cost) are determined by obtaining quoted market prices on
nationally recognized securities exchanges (Level I), or matrix pricing (Level
II), which is a mathematical technique used widely in the industry to value debt
securities without relying exclusively on quoted market prices for the specific
investment securities but rather by relying on the investment securities’
relationship to other benchmark quoted prices. For certain investment securities
which are not traded in active markets or are subject to transfer restrictions,
valuations are adjusted to reflect illiquidity and/or nontransferability, and
such adjustments are generally based on available market evidence (Level
III). In the absence of such evidence, management’s best estimate is
used. Management’s best estimate consists of both internal and
external support on certain Level III investments. Internal cash flow
models using a present value formula that includes assumptions market
participants would use along with indicative exit pricing obtained from
broker/dealers (where available) were used to support fair values of certain
Level III investments.
Loans
Receivable (Carried at Cost)
The fair
values of loans are estimated using discounted cash flow analyses, using market
rates at the dates of the Consolidated Statements of Financial Condition that
reflect the credit and interest rate-risk inherent in the loans. Projected
future cash flows are calculated based upon contractual maturity or call dates,
projected repayments and prepayments of principal. Generally, for
variable rate loans that reprice frequently and with no significant change in
credit risk, fair values are based on carrying values.
Loans
Held for Sale (Carried at Lower of Cost or Fair Value)
The fair
value of loans held for sale is determined, when possible, using quoted
secondary-market prices. If no such quoted prices exist, the fair
value of a loan is determined using quoted prices for a similar loan or loans,
adjusted for the specific attributes of that loan.
Servicing
Rights (Carried at Lower of Cost or Fair Value)
The fair
value of mortgage servicing rights is based on a valuation model that calculates
the present value of estimated net servicing income. The valuation
incorporates assumptions that market participants would use in estimating future
net servicing income. The Company is able to compare the valuation
model inputs and results to widely available published industry data for
reasonableness.
Restricted
Investment in Bank Stock (Carried at Cost)
The
carrying amount of restricted investment in bank stock approximates fair value,
and considers the limited marketability of such securities.
Accrued
Interest Receivable and Payable (Carried at Cost)
The
carrying amount of accrued interest receivable and accrued interest payable
approximates the fair value of such interest receivable and interest
payable.
Deposit
Liabilities (Carried at Cost)
The fair
values disclosed for demand deposits (e.g., interest and noninterest checking,
passbook savings and money market accounts) are, by definition, equal to the
amount payable on demand at the reporting date (i.e., their carrying
amounts). Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered in the market on certificates to a schedule of
aggregated expected monthly maturities on time deposits.
Borrowings
(Carried at Cost)
Fair
values of FHLBNY advances are estimated using a discounted cash flow analysis,
based on quoted prices for new FHLBNY advances with similar credit risk
characteristics, terms and remaining maturity. These prices obtained
from this active market represent a fair value that is deemed to represent the
transfer price if the liability were assumed by a third party.
Subordinated
Debt (Carried at Cost)
The fair
value of subordinated debentures is estimated by discounting the estimated
future cash flows, using market discount rates of financial instruments with
similar characteristics, terms and remaining maturity.
Off-Balance
Sheet Financial Instruments (Disclosed at Notional Amounts)
Fair
values for the Company’s off-balance sheet financial instruments (lending
commitments and letters of credit) are based on fees currently charged in the
market to enter into similar agreements, taking into account, the remaining
terms of the agreements and the counterparties’ credit standing.
Limitations
Fair
value estimates were made at March 31, 2010 and December 31, 2009, based upon
pertinent market data and relevant information on each financial
instrument. These estimates do not include any premium or discount
that could result from an offer to sell the Company’s entire holdings of a
particular financial instrument or category thereof at one time. Since no market
exists for a substantial portion of the Company’s financial instruments, fair
value estimates were necessarily based on judgments with respect to future loss
experience, current economic conditions, risk assessments of various financial
instruments involving a myriad of individual borrowers, and other
factors. Given the subjective nature of these estimates, the
uncertainties surrounding them and other matters of significant judgment that
must be applied, these fair value estimations cannot be calculated with
precision. Modifications in such assumptions could meaningfully alter
these estimates. Since these fair value approximations were made
solely for the financial instruments included in the Consolidated Statements of
Financial Condition at March 31, 2010 and December 31, 2009, no attempt was made
to estimate the value of anticipated future business or the value of
non-financial statement assets or liabilities. Furthermore, certain
tax implications related to the realization of the unrealized gains and losses
could have a substantial impact on these fair value estimates and have not been
incorporated into the estimates.
The
estimated fair values of the Company’s financial instruments were as follows at
March 31, 2010 and December 31, 2009 (dollars in thousands):
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
56,996
|
|
|
$
|
56,996
|
|
|
$
|
78,315
|
|
|
$
|
78,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities available-for-sale
|
|
|
91,364
|
|
|
|
91,364
|
|
|
|
96,947
|
|
|
|
96,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities held-to-maturity
|
|
|
37,356
|
|
|
|
37,653
|
|
|
|
7,217
|
|
|
|
7,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans,
net
|
|
|
361,230
|
|
|
|
368,073
|
|
|
|
369,474
|
|
|
|
377,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing
rights
|
|
|
281
|
|
|
|
281
|
|
|
|
289
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock
|
|
|
3,300
|
|
|
|
3,300
|
|
|
|
3,750
|
|
|
|
3,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
interest receivable
|
|
|
2,072
|
|
|
|
2,072
|
|
|
|
2,285
|
|
|
|
2,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
456,121
|
|
|
|
441,561
|
|
|
|
467,878
|
|
|
|
452,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
45,608
|
|
|
|
46,198
|
|
|
|
47,575
|
|
|
|
48,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
interest payable
|
|
|
159
|
|
|
|
159
|
|
|
|
231
|
|
|
|
231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated
debentures
|
|
|
5,155
|
|
|
|
1,804
|
|
|
|
5,155
|
|
|
|
1,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 13. New
Accounting Standards
FASB
ASC Topic 860
In
October 2009, the FASB issued ASC Topic 860, “
Transfers and Servicing – Accounting
for Transfers of Financial Assets.”
This update amends the ASC
for the issuance of FASB Statement No. 166, “
Accounting for Transfers of
Financial Assets-an amendment of FASB Statement No.
140.”
The amendments in this update improve financial
reporting by eliminating the exceptions for qualifying special-purpose entities
from the consolidation guidance and the exception that permitted sale accounting
for certain mortgage securitizations when a transferor has not surrendered
control over the transferred financial assets. In addition, the
amendments require enhanced disclosures about the risks that a transferor
continues to be exposed to because of its continuing involvement in transferred
financial assets. Comparability and consistency in accounting for
transferred financial assets will also be improved through clarifications of the
requirements for isolation and limitations on portions of financial assets that
are eligible for sale accounting. This update is effective at the
start of a reporting entity’s first fiscal year beginning after November 15,
2009. Early application is not permitted. The adoption of
this pronouncement did not have a material impact on the Company’s consolidated
financial position, results of operations or cash flows.
FASB
ASC Topic 810
In
October 2009, the FASB issued ASU Topic 810, “
Consolidations – Improvements to
Financial Reporting by Enterprises Involved with Variable Interest Entities.”
This update amends the ASC for the
issuance
of FASB Statement No. 167, “
Amendments to FASB Interpretation
No. 46(R).”
The amendments in this update replace the
quantitative-based risks and rewards calculation for determining which reporting
entity, if any, has a controlling financial interest in a variable interest
entity with an approach focused on identifying which reporting entity has the
power to direct the activities of a variable interest entity that most
significantly impact the entity’s economic performance and (1) the obligation to
absorb losses of the entity or (2) the right to receive benefits from the
entity. An approach that is expected to be primarily qualitative will
be more effective for identifying which reporting entity has a controlling
financial interest in a variable interest entity. The amendments in
this update also require additional disclosures about a reporting entity’s
involvement in variable interest entities, which will enhance the information
provided to users of financial statements. This update is effective
at the start of a reporting entity’s first fiscal year beginning after November
15, 2009. Early application is not permitted. The adoption
of this pronouncement did not have a material impact on the Company’s
consolidated financial position, results of operations or cash
flows.
FASB
ASC Topic 825
In April
2009, the FASB issued guidance now codified as FASB ASC Topic 825, “
Financial Instruments,”
which
amends previous Topic 825 guidance to require disclosures about fair value of
financial instruments in interim as well as annual financial
statements. This pronouncement is effective for periods ending after
June 15, 2009. Accordingly, the Company adopted these provisions of
FASB ASC Topic 825 on March 29, 2009. The adoption of this pronouncement did not
have a material impact on the Company’s consolidated financial position, results
of operations or cash flows. However, these provisions of FASB ASC Topic 825
resulted in additional disclosures with respect to the fair value of the
Company’s financial instruments. See Note 12,
Fair Value Measurements,
for
these additional disclosures.
FASB
ASC Topic 320
In April
2009, the FASB issued guidance now codified as FASB ASC Topic 320, “
Investments — Debt and Equity
Securities
” and Topic 325 “
Investments — Other,
” which
is designed to create greater clarity and consistency in accounting for and
presenting impairment losses on securities. The pronouncement is
effective for periods ending after June 15, 2009. Accordingly, the
Company adopted this pronouncement on March 29, 2009. The adoption of
this guidance did not have a material impact on the Company’s consolidated
financial position, results of operations or cash flows. However, the
provisions of FASB ASC Topic 320 resulted in additional disclosures with respect
to the fair value of the Company’s investments with unrealized losses that are
not deemed other-than-temporarily impaired. See Note 12,
Fair Value Measurements,
for
these additional disclosures.
FASB
ASC Topic 820
In April
2009, the FASB issued guidance now codified as FASB ASC Topic 820, “
Fair Value Measurements and
Disclosures.
” This guidance defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. This guidance establishes a fair value hierarchy about
the assumptions used to measure fair value and clarifies assumptions about risk
and the effect of a restriction on the sale or use of an asset. The
pronouncement is effective for periods ending after June 15,
2009. Accordingly, the Company adopted this pronouncement on March
29, 2009. The adoption of this guidance did not have a material
impact on the Company’s consolidated financial position, results of operations
or cash flows. However, the provisions of FASB ASC Topic 320 resulted in
additional disclosures with respect to the fair value of the Company’s
investments with unrealized losses that are not deemed other-than-temporarily
impaired. See Note 12,
Fair Value Measurements,
for
these additional disclosures.
Item
2.
Management's Discussion and
Analysis of Financial Condition and Results of Operations
General
The
following discussion and analysis is intended to provide information about the
Company’s financial condition as of March 31, 2010 and results of operations for
the three months ended March 31, 2010 and 2009. The following
information should be read in conjunction with the Company’s unaudited
consolidated financial statements for the three months ended March 31, 2010 and
2009, including the related notes thereto, contained elsewhere in this
document.
Critical
Accounting Policies
“Management's
Discussion and Analysis of Financial Condition and Results of Operations,” as
well as disclosures found elsewhere in this quarterly report on Form 10-Q, are
based upon the Company's unaudited consolidated financial statements, which have
been prepared in accordance with U.S. GAAP. The preparation of these
unaudited consolidated financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. Note 1 to Central Jersey Bancorp’s audited
consolidated financial statements for the year ended December 31, 2009, included
with Central Jersey Bancorp’s annual report on Form 10-K for the year ended
December 31, 2009, contains a summary of the Company's significant accounting
policies. Management believes the Company's policy with respect to
the methodology for the determination of the allowance for loan losses and the
impairment of investment securities requires management to make difficult and
subjective judgments that often require assumptions or estimates about uncertain
matters. Changes in these judgments, assumptions or estimates could
materially impact results of operations. This critical policy and its
application are periodically reviewed with Central Jersey Bancorp’s Audit
Committee and its Board of Directors.
Additional
critical accounting policies relate to judgments about other asset impairments,
including core deposit intangible, investment securities, servicing rights and
deferred tax assets.
Other
intangible assets are specifically identified intangible assets created from a
business combination. Core deposit intangibles represent the value of checking,
savings and other acquired, low cost deposits. Core deposit intangibles are
amortized over the lesser of the estimated lives of deposit accounts or ten
years on an accelerated basis. Decreases in deposit lives may result
in increased amortization and/or an impairment charge.
For
purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks with original maturities of three months or less
and overnight federal funds sold. Federal funds sold are generally
sold for one-day periods.
FASB ASC
Topic 320, “
Investments-Debt
and Equity Securities,
” requires that investment 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. FASB ASC Topic 320 allows debt securities to be classified
as “held to maturity” and reported in consolidated financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold these securities to maturity. When an entity does not
intend to sell a debt security, and it is more likely than not that the entity
will not have to sell the debt security before recovery of its cost basis, it
will recognize the credit component of an other-than-temporary impairment of the
debt security in earnings and the remaining portion in other comprehensive
income. Such securities are stated at cost, adjusted for amortization
of premiums and accretion of discounts over the estimated remaining lives of the
investment securities utilizing the level-yield method.
Central Jersey Bank,
N.A. does not currently use or maintain a trading account. Investment
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. Investment securities
available-for-sale include investment securities that management intends to use
as part of its asset/liability management strategy and that may be sold in
response to changes in interest rates, resultant prepayment risk and other
factors related to interest rate and resultant prepayment risk
changes. Investment securities available-for-sale are carried at
estimated fair value. Gains and losses on sales of investment
securities are based on the specific identification method and are accounted for
on a trade date basis.
On a
quarterly basis, Central Jersey Bank, N.A. evaluates investment securities for
other-than-temporary impairment. For individual investment securities
classified as either available-for-sale or held-to-maturity, a determination is
made as to whether a decline in fair value below the amortized cost basis is
other than temporary. When an entity does not intend to sell a debt
security, and it is more likely than not that the entity will not have to sell
the security before recovery of its cost basis, it will recognize the credit
component of an other-than-temporary impairment of the debt security in earnings
and the remaining portion in other comprehensive income. For
held-to-maturity debt securities, the amount of an other-than-temporary
impairment recorded in other comprehensive income for the noncredit portion of a
previous other-than-temporary impairment should be amortized prospectively over
the remaining life of the security on the basis of the timing of future
estimated cash flows of the security. After evaluation, as of
March 31, 2010, Central Jersey Bank, N.A. noted no other-than-temporary
impairment issues.
Loans are
stated at unpaid principal balances, less unearned income and deferred loan fees
and costs. Interest on loans is credited to operations based upon the
principal amount outstanding. Loan origination and commitment fees
and certain direct loan origination costs are deferred, and the net amount is
amortized over the estimated life of the loan as an adjustment to the loan’s
yield using the level-yield method.
A loan is
considered impaired when, based on current information and events, it is
probable that Central Jersey Bank, N.A. will be unable to collect all amounts
due according to the contractual terms of the loan
agreement. Impaired loans are measured based on the present value of
expected future cash flows, at the loan’s observable market price, or the fair
value of the underlying collateral, if the loan is collateral
dependent. Conforming residential mortgage loans, home equity and
second mortgages and loans to individuals, are excluded from the definition of
impaired loans as they are characterized as smaller balance, homogeneous loans
and are collectively evaluated.
The
accrual of income on loans, including impaired loans, is generally discontinued
when a loan becomes more than 90 days delinquent as to principal or interest or
when other circumstances indicate that collection is questionable, unless the
loan is well secured and in the process of collection. Income on
non-accrual loans, including impaired loans, is recognized only in the period in
which it is collected, and only if management determines that the loan principal
is fully collectible. Loans are returned to an accrual status when a
loan is brought current as to principal and interest and reasons for doubtful
collection no longer exist.
A loan is
considered past due when a payment has not been received in accordance with the
contractual terms. Generally, commercial loans are placed on
non-accrual status when they are 90 days past due unless they are well secured
and in the process of collection or, regardless of the past due status of the
loan, when management determines that the complete recovery of principal and
interest is in doubt. Commercial loans are generally written down
after an analysis is completed which indicates that collectibility of the full
principal balance is in doubt. Consumer loans are generally written
down after they become 120 days past due. Mortgage loans are not
generally placed on a non-accrual status unless the value of the real estate has
deteriorated to the point that a potential loss of principal or interest
exists. Subsequent payments are credited to income only if collection
of principal is not in doubt. If principal and interest payments are
brought contractually current and future collectibility is reasonably assured,
loans are returned to accrual status. Mortgage loans are generally
written down when the value of the underlying collateral does not cover the
outstanding principal balance. Loan origination and commitment fees
less certain costs are deferred and the net amount amortized as an adjustment to
the related loan’s yield. Loans held-for-sale are recorded at the
lower of aggregate cost or fair value.
The ALL
is based upon the Interagency Policy Statement on the Allowance for Loan and
Lease Losses issued jointly by the federal banking agencies on December 13, 2006
(OCC Bulletin 2006-47) and management’s evaluation of the adequacy of the
allowance, including an assessment of: (a) known and inherent risks
in the loan portfolio; (b) the size and composition of the loan portfolio; (c)
actual loan loss experience; (d) the level of delinquencies; (e) the individual
loans for which full collectibility may not be assured; (f) the existence and
estimated net realizable value of any underlying collateral and guarantees
securing the loans; and (g) the current economic and market
conditions. Although management uses the best information available,
the level of the ALL remains an estimate that is subject to significant judgment
and short-term change. Various regulatory agencies, as an integral
part of their examination process, periodically review Central Jersey Bank,
N.A.’s ALL. Such agencies may require Central Jersey Bank, N.A. to
make additional provisions for loan losses based upon information available to
them at the time of their examination. Furthermore, the majority of
Central Jersey Bank, N.A.’s loans are secured by real estate in the state of New
Jersey. Accordingly, the collectibility of a substantial portion of
the carrying value of Central Jersey Bank, N.A.’s loan portfolio is susceptible
to changes in local market conditions and may be adversely affected should real
estate values decline or the central New Jersey area experience an adverse
economic climate. Future adjustments to the ALL may be necessary due
to economic, operating, regulatory and other conditions beyond Central Jersey
Bank, N.A.’s control. Management believes that the ALL is adequate as
of March 31, 2010.
Assets
acquired through, or in lieu of, loan foreclosure are held for sale and are
initially recorded at fair value less cost to sell at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are
periodically performed by management and the assets are carried at the lower of
carrying amount or fair value less cost to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in net expenses
from other non-interest expenses.
Income
taxes are accounted for under the asset and liability method. Current
income taxes are provided for based upon amounts estimated to be currently
payable, for both federal and state income taxes. Deferred federal
and state tax assets and liabilities are recognized for the expected future tax
consequences of existing differences between financial statement and tax basis
of existing assets and liabilities. Deferred tax assets are
recognized for future deductible temporary differences and tax loss carry
forwards if their realization is “more-likely-than-not.” The effect
of a change in the tax rate on deferred taxes is recognized in the period of the
enactment date.
Comprehensive
income is segregated into net income and other comprehensive
income. Other comprehensive income includes items previously recorded
directly to equity, such as unrealized gains and losses on securities
available-for-sale. Comprehensive income is presented in the
Consolidated Statements of Changes in Shareholders’ Equity.
Central
Jersey Bank, N.A.’s operations are solely in the financial services industry and
include traditional banking and other financial services. Central
Jersey Bank, N.A. operates primarily in the geographical region of central New
Jersey. Management makes operating decisions and assesses performance
based on an ongoing review of Central Jersey Bank, N.A.’s consolidated financial
results. Therefore, Central Jersey Bancorp has a single operating
segment for financial reporting purposes.
Central
Jersey Bank, N.A. originates SBA loans and typically sells the U.S. Government
guaranteed portion of the outstanding loan balance to investors, with servicing
retained. Servicing rights fees, which are usually based on a
percentage of the outstanding principal balance of the loan, are recorded for
servicing functions. Central Jersey Bank, N.A. accounts for its
transfers and servicing of financial assets in accordance with FASB ASC Topic
860,
“Transfers and
Servicing.”
Central Jersey Bank, N.A. records servicing rights
based on the fair values at the date of sale.
The
determination of whether deferred tax assets will be realizable is predicated on
estimates of future taxable income. Such estimates are subject to
management’s judgment. A valuation reserve is
established
when
management is unable to conclude that it is more likely than not that it will
realize deferred tax assets based on the nature and timing of these
items.
Overview
Central
Jersey Bancorp, the parent company of Central Jersey Bank, N.A., reported net
income and net income available to common shareholders of $740,000 and $554,000,
respectively, for the three months ended March 31, 2010, as compared to $310,000
and $125,000, respectively, for the same period in 2009. The
operating results for the three months ended March 31, 2010 represent increases
over the same period in 2009 of $430,000, or 139%, and $429,000, or 343%, for
net income and net income available to common shareholders,
respectively. The net income available to common shareholders takes
into account $141,250 in preferred stock dividends paid to the
U.S. Department of the Treasury as part of the Capital Purchase
Program (“CPP”) and $45,000 in related preferred stock discount accretion during
the three months ended March 31, 2010. The comparative increase in
net income for the three months ended March 31, 2010 is primarily attributable
to Central Jersey Bancorp not having to record a provision for loan losses
during the three months ended March 31, 2010, as compared to recording a $3.1
million provision for loan losses during the three months ended March 31,
2009. There was no required provision for loan losses due primarily
to an $8.6 million decrease in gross loan balances from December 31, 2009 and
the net risk rating upgrade of certain commercial loans. The absence
of a first quarter 2010 loan loss provision was somewhat offset, on a
comparative basis, by no gains on the sale of securities available-for-sale
during the three months ended March 31, 2010, as compared to $1.8 million of
gains on the sale of securities available-for-sale recorded during the three
months ended March 31, 2009. Basic and diluted earnings per common
share for the three months ended March 31, 2010 and 2009 were $0.06 and $0.01,
respectively.
Total
assets of $571.3 million at March 31, 2010 were comprised primarily of $361.2
million in net loans, $128.7 million in investment securities and $57.0 million
in cash and cash equivalents, as compared to total assets of $577.7 million at
December 31, 2009, which primarily consisted of $369.5 million in net loans,
$104.2 million in investment securities and $78.3 million in cash and cash
equivalents. Total assets at March 31, 2010 were funded primarily
through deposits totaling $456.1 million and borrowings totaling $45.6 million,
as compared to deposits totaling $467.9 million and borrowings totaling $47.6
million at December 31, 2009.
Results
of Operations
General
Central
Jersey Bancorp’s principal source of revenue is derived from its bank
subsidiary’s net interest income, which is the difference between interest
income on earning assets and interest expense on deposits and borrowed
funds. Interest-earning assets consist principally of loans,
investment securities and federal funds sold, while the sources used to fund
such assets consist primarily of deposits and borrowings. Central
Jersey Bancorp’s net income is also affected by its bank subsidiary’s provision
for loan losses, non-interest income and non-interest
expenses. Non-interest income consists primarily of service charges
and fees and the gain on sale of securities
available-for-sale. Non-interest expenses consist primarily of
salaries and employee benefits, occupancy costs, data processing fees and other
operating related expenses.
For
the Three Months Ended March 31, 2010 and 2009
Net
Interest Income
Net
interest income was $4.7 million for both the three months ended March 31, 2010
and 2009. Net interest income for the three months ended March 31,
2010 and 2009 was comprised primarily of $5.2 million and $5.0 million,
respectively, in interest and fees on loans, $795,000 and $1.9 million,
respectively, in interest on investment securities and $56,000 and $33,000,
respectively, in interest income on federal funds sold and due
from
banks, less interest expense on deposits of $1.2 million and $2.0 million,
respectively, interest expense on borrowed funds of $153,000 and $247,000,
respectively, and interest expense on subordinated debentures of $39,000 and
$57,000, respectively.
For the
three months ended March 31, 2010, the average yield on interest-earning assets
was 4.21% as compared to 5.87% for the same period in 2009. The
average cost of deposits and interest-bearing liabilities for the three months
ended March 31, 2010 was 1.28%, as compared to an average cost of 2.66% for the
same period in 2009. The decrease in the average yield on
interest-earning assets for the three months ended March 31, 2010 was primarily
due to significantly higher federal funds sold balances at an average yield of
19 basis points and lower reinvestment yields on cash flows derived from
maturing and amortizing investment securities. The decrease in the
average cost of deposits and interest-bearing liabilities for the three months
ended March 31, 2010 was primarily due to across-the-board reductions in deposit
rates, which were reflective of the local banking market. The average
net interest margin for the three months ended March 31, 2010 was 3.49%, as
compared to 3.53% for the same period in 2009. On a linked quarter
basis, net interest margin increased by 30 basis points from 3.19% during the
fourth quarter of 2009 to 3.49% for the first quarter of 2010.
Provision
for Loan Losses
For the
three months ended March 31, 2010, there was no provision for loan losses, as
compared to $3.1 million for the same period in 2009. A provision for
loan losses was not required for the three months ended March 31, 2010, due
primarily to an $8.6 million decrease in gross loan balances from December 31,
2009 and the net risk rating upgrade of certain commercial loans. The
recorded provision for loan losses for the three months ended March 31, 2009 was
due to the credit deterioration of certain commercial loans as a result of the
rapid decline of general economic conditions.
Non-Interest
Income
Non-interest
income, which consists of service charges on deposit accounts, income from bank
owned life insurance, gains on the sale of investment securities
available-for-sale, and other income, was $393,000 for the three months ended
March 31, 2010, as compared to $2.2 million for the same period in
2009. The decrease was the result of no gains on the sale of
investment securities available-for-sale for the three months ended March 31,
2010, as compared to a $1.8 million gain on the sale of investment securities
available-for-sale for the same period in 2009.
Non-Interest
Expense
Non-interest
expense remained consistent at $4.0 million for both the three months ended
March 31, 2010 and 2009. Non-interest expense generally includes
costs associated with employee salaries and benefits, occupancy expenses, data
processing fees, FDIC deposit insurance premiums, core deposit intangible
amortization and other operating expenses.
The table
below presents non-interest expense, by major category, for the three months
ended March 31, 2010 and 2009 (in thousands):
|
|
Three months ended
March
31,
|
|
Non-Interest Expense
|
|
2010
|
|
|
2009
|
|
Salaries
and employee benefits
|
|
$
|
1,973
|
|
|
$
|
1,937
|
|
Net
occupancy expenses
|
|
|
538
|
|
|
|
525
|
|
Outside
service fees
|
|
|
260
|
|
|
|
203
|
|
Data
processing fees
|
|
|
259
|
|
|
|
233
|
|
FDIC
deposit insurance premiums
|
|
|
202
|
|
|
|
70
|
|
Premises
and equipment depreciation
|
|
|
192
|
|
|
|
183
|
|
Core
deposit intangible amortization
|
|
|
86
|
|
|
|
104
|
|
Audit
and accounting services
|
|
|
75
|
|
|
|
128
|
|
Legal
fees
|
|
|
61
|
|
|
|
151
|
|
Advertising
and marketing expenses
|
|
|
51
|
|
|
|
60
|
|
Printing,
stationery and supplies
|
|
|
45
|
|
|
|
62
|
|
Other
operating expenses
|
|
|
290
|
|
|
|
389
|
|
Total
|
|
$
|
4,032
|
|
|
$
|
4,045
|
|
Income
Tax Expense (Benefit)
The
Company recorded an income tax expense of $298,000 on income before taxes of
$1.0 million for the three months ended March 31, 2010, resulting in an
effective tax rate of 28.71%. The reduction in the Company’s
effective tax rate was primarily the result of an increased proportion of the
Company’s income being derived from tax-exempt sources, such as municipal bonds
and note obligations. The Company recorded an income tax benefit of
($601,000) on a loss before taxes of ($291,000) for the three months ended March
31, 2009, resulting in an effective income tax benefit rate of
(209.62%). The 2009 income tax benefit was due to the utilization of
capital tax loss carry-forwards which resulted from the 2007 balance sheet
restructuring initiative. As a result of the restructuring, a deferred tax
valuation allowance was established against deferred tax assets generated from
the capital tax loss carry-forwards. Since $1.1 million of the $1.8
million in gains from the sale of available-for-sale investment securities
recorded during the three months ended March 31, 2009 were realized in CJB
Investment Company, a wholly-owned subsidiary of Central Jersey Bank, N.A.,
these gains are considered capital gains and are permitted to be offset against
the remaining capital tax loss carry-forwards. The federal income tax
benefit was primarily the result of the reversal of the deferred tax valuation
allowance which totaled approximately $369,000.
Financial
Condition
Cash
and Cash Equivalents
Cash and
cash equivalents were $57.0 million at March 31, 2010, a decrease of $21.3
million from the December 31, 2009 total of $78.3 million. The
decrease in liquidity is due primarily to the timing of cash flows related to
Central Jersey Bank, N.A.’s business activities and the purchase of investment
securities effected during the first quarter of 2010.
Investment
Portfolio
Investment
securities totaled $128.7 million at March 31, 2010, an increase of $24.5
million, or 23.5%, over the December 31, 2009 total of $104.2
million. The increase was primarily due to the purchase of $26.0
million of government-sponsored agency securities held-to-maturity, $5.5 million
of mortgage-backed
securities
held-to-maturity, $15.0 million of government-sponsored agency securities
available-for-sale, and $356,000 of municipal bond and note
obligations. These purchases were partly offset by maturities and
calls of $10.0 million of government-sponsored agency securities
available-for-sale, $8.4 million of municipal bond and note obligations and
$383,000 of mortgage-backed securities held-to-maturity and principal paydowns
of $4.0 million for the three months ended March 31, 2010. In
addition, at March 31, 2010, the net change of the unrealized gain on
available-for-sale securities increased by $408,000 from $1.6 million on
December 31, 2009 to $2.0 million on March 31, 2010.
Loan
Portfolio
Loans,
net of the allowance for loan losses, totaled $361.2 million at March 31, 2010,
a decrease of $8.3 million, or 2.3%, from the $369.5 million balance at December
31, 2009. Gross loans totaled $370.5 million at March 31, 2010, a
decrease of $8.6 million, or 2.3%, from the $379.1 million balance at December
31, 2009. The decrease in loan balances was due primarily to
principal pay downs of commercial real estate loans, consumer home equity loans
and lines of credit during the period. Organic balance sheet growth
is challenging as quality incremental loan volume is somewhat constrained by
overall sluggish economic activity.
Loan
portfolio composition remained fairly consistent at March 31, 2010, with gross
commercial loans totaling $300.0 million, or 81.1%, of total gross loans
outstanding at March 31, 2010, as compared to $309.1 million, or 81.5%, at
December 31, 2009.
Criticized/classified
assets as of March 31, 2010 and December 31, 2009 are summarized as follows (in
thousands):
|
|
2010
|
|
|
2009
|
|
Special
Mention
|
|
$
|
8,213
|
|
|
$
|
11,770
|
|
Substandard
|
|
|
20,267
|
|
|
|
23,306
|
|
Doubtful
|
|
|
4,015
|
|
|
|
5,052
|
|
Loss
|
|
|
84
|
|
|
|
109
|
|
Total
criticized/classified assets
|
|
$
|
35,579
|
|
|
$
|
40,237
|
|
The total
balance of criticized/classified assets at March 31, 2010 and December 31, 2009
totaled $35.6 million and $40.2 million, respectively. The $4.6 million decrease
was representative of the changes in the risk profile of the loan
portfolio. Loans which were risk rated “special mention” were $8.2
million at March 31, 2010, a decrease of $3.6 million from the $11.8 million
total at December 31, 2009. Loans which were risk rated “substandard”
were $20.3 million at March 31, 2010, a decrease of $3.0 million from the $23.3
million total at December 31, 2009. Loans which were risk rated
“doubtful” were $4.0 million at March 31, 2010, a $1.0 million decrease from the
$5.0 million total at December 31, 2009. A majority of the risk
rating changes occurred in the commercial mortgage loan
portfolio.
Non-Performing
Loans
A loan is
considered to be non-performing if it (1) is on a non-accrual basis, (2) is past
due 90 days or more and still accruing interest, or (3) has been renegotiated to
provide a reduction or deferral of interest or principal because of a weakening
in the financial position of the borrower. A loan, which is past due
90 days or more and still accruing interest, remains on accrual status only
where it is both adequately secured as to principal and is in the process of
collection. Central Jersey Bank, N.A. had non-performing loans
totaling $8.1 million and $8.6 at March 31, 2010 and December 31, 2009,
respectively. Additionally, Central Jersey Bank, N.A. had $1.1
million in other real estate owned (“OREO”) properties as of March 31, 2010 and
December 31, 2009. At March 31, 2010, there were no commitments to
lend additional funds to borrowers whose loans are on non-accrual.
Central
Jersey Bank, N.A.’s policy for interest income recognition on non-accrual loans
is to recognize income on currently performing restructured loans under the
accrual method. Central Jersey Bank, N.A. recognizes income on
non-accrual loans under the accrual basis when the principal payments on the
loans become current and the collateral on the loan is sufficient to cover the
outstanding obligation to Central Jersey Bancorp. If these factors do
not exist, Central Jersey Bank, N.A. does not recognize income. There
was no income recognized on non-accrual loans during the three months ended
March 31, 2010. Total cash collected on non-accrual loans during the
three months ended March 31, 2010 was $57,000, as compared to $39,000 for the
three months ended March 31, 2009, all of which was credited to the principal
balances outstanding.
Impaired
Loans
When
necessary, Central Jersey Bank, N.A. performs individual loan reviews in
accordance with FASB ASC Topic 310 to determine whether any individually
reviewed loans are impaired and, if impaired, measures a valuation allowance
allocation in accordance with FASB ASC Topic 310. A loan is
recognized as impaired when it is probable that principal and/or interest are
not collectible in accordance with the loan’s contractual terms. The
Company considers loans on non-accrual status or risk rated “8” or higher as
impaired and automatically subject to a FASB ASC Topic 310 review. In
addition, any other loan that management considers possibly impaired due to
deteriorating conditions or for any other reasons, is, at management’s
discretion, subject to a FASB ASC Topic 310 review.
At March
31, 2010, Central Jersey Bank, N.A. had impaired loans totaling $22.9 million,
as compared to $23.2 million at December 31, 2009. The decrease in
impaired loans was due primarily to the charge-off of $300,000 in impaired loans
during the three months ended March 31, 2010. These loans were
considered permanently impaired and were evaluated and charged-off in accordance
with FASB ASC Topic 310. At March 31, 2010, specific reserves for
impaired loans totaled $3.8 million, as compared to $4.1 million in specific
reserves for impaired loans at December 31, 2009.
Central
Jersey Bank, N.A.
Troubled
Asset and Delinquency Trends
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
12/31/09-3/31/10
|
|
|
CATEGORY
|
|
3/31/2009
|
|
|
6/30/2009
|
|
|
9/30/2009
|
|
|
12/31/2009
|
|
|
3/31/2010
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89
Day
|
|
$
|
7,180
|
|
|
$
|
9,287
|
|
|
$
|
11,138
|
|
|
$
|
6,912
|
|
|
$
|
7,008
|
|
|
$
|
96
|
|
|
|
1.39
|
%
|
|
90
Days +
|
|
$
|
1,582
|
|
|
$
|
1,450
|
|
|
$
|
2,019
|
|
|
$
|
775
|
|
|
$
|
-
|
|
|
$
|
(775
|
)
|
|
|
-100.00
|
%
|
|
Total
Delinquencies
|
|
$
|
8,762
|
|
|
$
|
10,737
|
|
|
$
|
13,157
|
|
|
$
|
7,687
|
|
|
$
|
7,008
|
|
|
$
|
(679
|
)
|
|
|
-8.83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accrual
Loans
|
|
$
|
3,169
|
|
|
$
|
8,515
|
|
|
$
|
8,483
|
|
|
$
|
7,868
|
|
|
$
|
8,088
|
|
|
$
|
220
|
|
|
|
2.80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Performing
Loans (90+; Non-Accrual)
|
|
$
|
4,751
|
|
|
$
|
9,965
|
|
|
$
|
10,502
|
|
|
$
|
8,643
|
|
|
$
|
8,088
|
|
|
$
|
(555
|
)
|
|
|
-6.42
|
%
|
|
OREO
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,055
|
|
|
$
|
1,055
|
|
|
$
|
-
|
|
|
|
0.00
|
%
|
|
Total
Non-Performing Loans and OREO
|
|
$
|
4,751
|
|
|
$
|
9,965
|
|
|
$
|
10,502
|
|
|
$
|
9,698
|
|
|
$
|
9,143
|
|
|
$
|
(555
|
)
|
|
|
-5.72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Delinquencies, Non-Accrual and OREO
|
|
$
|
11,931
|
|
|
$
|
19,252
|
|
|
$
|
21,640
|
|
|
$
|
16,610
|
|
|
$
|
16,151
|
|
|
$
|
(459
|
)
|
|
|
-2.76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Criticized
Loans
|
|
$
|
18,353
|
|
|
$
|
19,954
|
|
|
$
|
12,979
|
|
|
$
|
11,770
|
|
|
$
|
8,213
|
|
|
$
|
(3,557
|
)
|
|
|
-30.22
|
%
|
|
Classified
Loans
|
|
$
|
16,231
|
|
|
$
|
18,631
|
|
|
$
|
28,928
|
|
|
$
|
28,467
|
|
|
$
|
24,366
|
|
|
$
|
(4,101
|
)
|
|
|
-14.41
|
%
|
|
Total
Criticized/Classified Loans
|
|
$
|
34,584
|
|
|
$
|
38,585
|
|
|
$
|
41,907
|
|
|
$
|
40,237
|
|
|
$
|
32,579
|
|
|
$
|
(7,658
|
)
|
|
|
-19.03
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL
|
|
$
|
7,180
|
|
|
$
|
7,605
|
|
|
$
|
8,677
|
|
|
$
|
9,613
|
|
|
$
|
9,300
|
|
|
$
|
(313
|
)
|
|
|
-3.26
|
%
|
|
Total
Loans
|
|
$
|
361,421
|
|
|
$
|
375,080
|
|
|
$
|
380,206
|
|
|
$
|
379,087
|
|
|
$
|
370,530
|
|
|
$
|
(8,557
|
)
|
|
|
-2.26
|
%
|
|
Total
Assets
|
|
$
|
576,223
|
|
|
$
|
603,312
|
|
|
$
|
577,673
|
|
|
$
|
577,658
|
|
|
$
|
571,295
|
|
|
$
|
(6,363
|
)
|
|
|
-1.10
|
%
|
|
Tier
1 Capital (bank) *
|
|
$
|
44,373
|
|
|
$
|
45,727
|
|
|
$
|
46,805
|
|
|
$
|
45,801
|
|
|
$
|
56,508
|
|
|
$
|
10,707
|
|
|
|
23.38
|
%
|
|
Net
$ Recoveries (Charge-offs) (quarter)
|
|
$
|
(697
|
)
|
|
$
|
108
|
|
|
$
|
15
|
|
|
$
|
(769
|
)
|
|
$
|
(313
|
)
|
|
$
|
456
|
|
|
|
-59.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Delinquencies / Total Loans
|
|
|
2.42
|
%
|
|
|
2.86
|
%
|
|
|
3.46
|
%
|
|
|
2.03
|
%
|
|
|
1.89
|
%
|
|
|
|
|
|
|
|
|
|
Total
Non-Accrual Loans / Total Loans
|
|
|
0.88
|
%
|
|
|
2.27
|
%
|
|
|
2.23
|
%
|
|
|
2.08
|
%
|
|
|
2.18
|
%
|
|
|
|
|
|
|
|
|
|
Total
Delinquencies + NA Loans / Total Loans
|
|
|
3.30
|
%
|
|
|
5.13
|
%
|
|
|
5.69
|
%
|
|
|
4.10
|
%
|
|
|
4.07
|
%
|
|
|
|
|
|
|
|
|
|
ALL
/ Total Loans
|
|
|
1.99
|
%
|
|
|
2.03
|
%
|
|
|
2.28
|
%
|
|
|
2.54
|
%
|
|
|
2.51
|
%
|
|
|
|
|
|
|
|
|
|
ALL
/ Non-Performing Loans
|
|
|
151.1
|
%
|
|
|
76.3
|
%
|
|
|
82.6
|
%
|
|
|
111.2
|
%
|
|
|
115.0
|
%
|
|
|
|
|
|
|
|
|
|
ALL
/ Non-Performing Loans and OREO
|
|
|
151.1
|
%
|
|
|
76.3
|
%
|
|
|
82.6
|
%
|
|
|
99.1
|
%
|
|
|
101.7
|
%
|
|
|
|
|
|
|
|
|
|
Non-Performing
Loans / Total Loans
|
|
|
1.3
|
%
|
|
|
2.7
|
%
|
|
|
2.8
|
%
|
|
|
2.3
|
%
|
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
Non-Performing
Loans and OREO / Total Assets
|
|
|
0.8
|
%
|
|
|
1.7
|
%
|
|
|
1.8
|
%
|
|
|
1.7
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
Criticized
Loans/ Total Loans
|
|
|
5.1
|
%
|
|
|
5.3
|
%
|
|
|
3.4
|
%
|
|
|
3.1
|
%
|
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
Classified
Loans/ Total Loans
|
|
|
4.5
|
%
|
|
|
5.0
|
%
|
|
|
7.6
|
%
|
|
|
7.5
|
%
|
|
|
6.6
|
%
|
|
|
|
|
|
|
|
|
|
Criticized
+ Classified Loans / Total Loans
|
|
|
9.6
|
%
|
|
|
10.3
|
%
|
|
|
11.0
|
%
|
|
|
10.6
|
%
|
|
|
8.8
|
%
|
|
|
|
|
|
|
|
|
|
Criticized
Loans / Tier 1 Capital + ALL
|
|
|
35.6
|
%
|
|
|
37.4
|
%
|
|
|
23.4
|
%
|
|
|
21.2
|
%
|
|
|
12.5
|
%
|
|
|
|
|
|
|
|
|
|
Classified
Loans / Tier 1 Capital + ALL
|
|
|
31.5
|
%
|
|
|
34.9
|
%
|
|
|
52.1
|
%
|
|
|
51.4
|
%
|
|
|
37.0
|
%
|
|
|
|
|
|
|
|
|
|
Criticized
+ Classified Loans / Tier 1 Capital + ALL
|
|
|
67.1
|
%
|
|
|
72.3
|
%
|
|
|
75.5
|
%
|
|
|
72.6
|
%
|
|
|
49.5
|
%
|
|
|
|
|
|
|
|
|
|
Net
$ Recoveries (Charge-off's) / Total Loans
|
|
|
-0.19
|
%
|
|
|
0.03
|
%
|
|
|
0.00
|
%
|
|
|
-0.20
|
%
|
|
|
-0.08
|
%
|
|
|
|
|
|
|
|
|
|
*
$11.3 million of CPP capital is included in Tier 1 Capital at the bank
level beginning with the three-months ended March 31,
2010.
|
|
|
Asset
Quality
|
·
|
Troubled
asset trends continued to improve in most areas as delinquencies, which
totaled $7.0 million at March 31, 2010, decreased by $679,000, or 8.8%, on
a linked quarter basis, from the $7.7 million total reported at December
31, 2009. The decrease was due primarily to the payoff of a
previously delinquent loan totaling $753,000. From the recorded
highpoint of $13.2 million at September 30, 2009, total delinquencies have
decreased by $6.2 million, or 47.0%, as of March 31,
2010.
|
|
·
|
Non-accrual
loans increased by $220,000, or 2.5%, on a linked quarter basis, from $7.9
million at December 31, 2009 to $8.1 million at March 31,
2010. The increase was primarily due to the addition of one
loan totaling $400,000 to non-accrual status, which was partly offset by
the charge-off of one loan totaling $200,000. From the
highpoint of $8.5 million at June 30, 2009, total non-accrual loans have
decreased by $427,000, or 5.0%, as of March 31,
2010.
|
|
·
|
The
aggregate of total delinquencies, non-accrual loans, and OREO decreased by
$459,000, or 2.8%, on a linked quarter basis, from $16.6 million at
December 31, 2009 to $16.2 million at March 31, 2010. From the
highpoint of $21.6 million at September 30, 2009, the aggregate of total
delinquencies, non-accrual loans, and OREO have decreased by $5.5 million,
or 25.4%, as of March 31, 2010.
|
|
·
|
Total
criticized/classified loans decreased by $7.7 million, or 19.0%, on a
linked quarter basis, from $40.2 million at December 31, 2009, to $32.6
million at March 31, 2010. The decrease is
due
|
primarily
to the net risk rating upgrade of certain loans which migrated out of the
criticized/classified category. From the highpoint of $41.9 million
at September 30, 2009, total criticized/classified loans have decreased by $9.6
million, or 28.5%, as of March 31, 2010.
Allowance
for Loan Losses and Related Provision for Loan Loss
The
allowance for loan losses, which began the year 2010 at $9.6 million, or 2.54%
of total loans, decreased to $9.3 million at March 31, 2010, or 2.51% of total
loans. The $313,000 decrease is due primarily to loan charge-offs
totaling $358,000, which were partially mitigated by recoveries totaling
$44,500.
Activity
in the ALL for the three months ended March 31, 2010 is summarized as follows
(dollars in thousands):
|
|
Three months ended
March 31, 2010
|
|
Balance,
beginning of year
|
|
$
|
9,613
|
|
Provision
charged to expense
|
|
|
--
|
|
Charge-offs
|
|
|
(358
|
)
|
Recoveries
|
|
|
45
|
|
Balance, end of year
|
|
$
|
9,300
|
|
Ratio of ALL to total loans
|
|
|
2.51
|
%
|
For the
three months ended March 31, 2010, there was no provision for loan losses, as
compared to $3.1 million for the same period in 2009. A provision for
loan losses was not required for the three months ended March 31, 2010, due
primarily to an $8.6 million decrease in gross loan balances from December 31,
2009 and the net risk rating upgrade of certain commercial loans resulting from
improved asset quality trends. The recorded provision for loan losses
for the three months ended March 31, 2009 was due to the credit deterioration of
certain commercial loans as a result of the rapid decline of general economic
conditions.
Other
Real Estate Owned
Assets
acquired through, or in lieu of, loan foreclosure are held for sale and are
initially recorded at fair value less cost to sell at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are
periodically performed by management and the assets are carried at the lower of
carrying amount or fair value less cost to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in net expenses
from other non-interest expenses.
The
following table represents the balance of other real estate owned at March 31,
2010 and December 31, 2009 (in thousands):
|
|
March 31,
2010
|
|
|
December 31,
2009
|
|
Other
real estate owned
|
|
$
|
1,055
|
|
|
$
|
1,055
|
|
At
December 31, 2009, two loans totaling $1.1 million were transferred to OREO,
impacting the Company’s provision for loan losses by $245,000, and recorded as
OREO at their initial fair market value less estimated cost to
sell. At March 31, 2010 there was no decline in fair value of the
properties, and, therefore, no change in balance from December 31, 2009 was
required.
Commitments
and Conditional Obligations
In the
ordinary course of business to meet the financial needs of the Company’s
customers, the Company is party to financial instruments with off-balance sheet
risk. These financial instruments include unused lines of credit and
involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the consolidated financial statements. The contract or
notional amounts of these instruments express the extent of involvement the
Company has in each category of financial instruments.
The
Company’s exposure to credit loss from nonperformance by the other party to the
above-mentioned financial instruments is represented by the contractual amount
of those instruments. The Company uses the same credit policies in
making commitments and conditional obligations as it does for on-balance sheet
instruments. The contract or notional amount of financial instruments
which represent credit risk at March 31, 2010 and December 31, 2009 is as
follows (in thousands):
|
|
March 31,
2010
|
|
|
December 31,
2009
|
|
Standby
letters of credit
|
|
$
|
1,463
|
|
|
$
|
2,140
|
|
Outstanding loan and credit line
commitments
|
|
$
|
67,301
|
|
|
$
|
67,122
|
|
Standby
letters of credit are conditional commitments issued by the Company which
guarantee performance by a customer to a third party. The credit risk
and underwriting procedures involved in issuing letters of credit are
essentially the same as that involved in extending loan facilities to
customers. All of Central Jersey Bank, N.A.’s outstanding standby
letters of credit are performance standby letters within the scope of FASB ASC
Topic 952. These are irrevocable undertakings by Central Jersey Bank,
N.A., as guarantor, to make payments in the event a specified third party fails
to perform under a non-financial contractual obligation. Most of
Central Jersey Bank, N.A.’s performance standby letters of credit arise in
connection with lending relationships and have terms of one year or
less. The maximum potential future payments Central Jersey Bank, N.A.
could be required to make equals the face amount of the letters of credit shown
above. Central Jersey Bank, N.A.’s liability for performance standby
letters of credit was immaterial at March 31, 2010 and December 31,
2009.
Outstanding
loan commitments represent the unused portion of loan commitments available to
individuals and companies as long as there is no violation of any condition
established in the contract. Outstanding loan commitments generally
have a fixed expiration date of one year or less, except for home equity loan
commitments which generally have an expiration date of up to 15
years. The Company evaluates each customer’s creditworthiness on a
case-by-case basis. The amount of collateral obtained, if any, upon
extension of credit is based upon management’s credit evaluation of the
customer. Various types of collateral may be held, including property
and marketable securities. The credit risk involved in these
financial instruments is essentially the same as that involved in extending loan
facilities to customers.
Deposits
One of
Central Jersey Bank, N.A.’s primary strategies is the accumulation and retention
of core deposits. Core deposits are defined as all deposits with the
exception of certificates of deposits in excess of
$100,000. Deposits, at March 31, 2010, totaled $456.1 million, a
decrease of $11.8 million, or 2.5%, from the December 31, 2009 total of $467.9
million. The decrease in deposit balances was reflective of decreases
in public fund deposits.
Borrowings
Borrowings
were $45.6 million at March 31, 2010, as compared to $47.6 million at December
31, 2009, a decrease of $2.0 million, or 4.2%. The decrease was
primarily due to a decrease in overnight borrowings of $10.0 million offset by
growth in the sweep account for business customers of $8.1
million.
Borrowings
typically include wholesale borrowing arrangements as well as arrangements with
deposit customers of Central Jersey Bank, N.A. to sweep funds into short-term
borrowings. At March 31, 2010, borrowings included $34.5 million in
bank sweep funds, $5.0 million in FHLBNY
callable advances and
$6.1 million in FHLBNY fixed rate advances. At December 31, 2009,
borrowings included $26.4 million in bank sweep funds, $15.0 million in
FHLBNY
callable
advances and $6.2 million in FHLBNY fixed rate advances. At March 31, 2010 and
December 31, 2009, Central Jersey Bank, N.A. had unused lines of credit with the
FHLBNY of $30.3 million and $26.2 million, respectively.
Liquidity
and Capital Resources
Liquidity
defines the ability of Central Jersey Bank, N.A. to generate funds to support
asset growth, meet deposit withdrawals, maintain reserve requirements and
otherwise operate on an ongoing basis. An important component of a
bank’s asset and liability management structure is the level of liquidity, which
are net liquid assets available to meet the needs of its customers and
regulatory requirements. The liquidity needs of Central Jersey Bank,
N.A. have been primarily met by cash on hand, loan and investment amortizations
and borrowings. Central Jersey Bank, N.A. invests funds not needed
for operations (excess liquidity) primarily in daily federal funds
sold. During the three months ended March 31, 2010, Central Jersey
Bank, N.A. continued to maintain a large secondary source of liquidity known as
investment securities available-for-sale. The fair value of that
portfolio was $91.4 million at March 31, 2010 and $96.9 million at December 31,
2009.
It has
been Central Jersey Bank, N.A.’s experience that its core deposit base (which is
defined as transaction accounts and term deposits of less than $100,000) is
primarily relationship-driven. Non-core deposits (which are defined
as term deposits of $100,000 or greater) are much more interest rate
sensitive. In any event, adequate sources of reasonably priced
on-balance sheet funds, such as overnight federal funds sold, due from banks and
short-term investments maturing in less than one year, must be continually
accessible for contingency purposes. This is accomplished primarily
by the daily monitoring of certain accounts for sufficient balances to meet
future loan commitments, as well as measuring Central Jersey Bank, N.A.’s
liquidity position on a monthly basis.
Supplemental
sources of liquidity include large certificates of deposit, wholesale and retail
repurchase agreements, and lines of credit with correspondent
banks. Correspondent banks, which are typically referred to as
“banker’s banks,” offer essential services such as cash letter processing,
investment services, loan participation support, wire transfer operations and
other traditional banking services. Brokered deposits, which are
deposits obtained, directly or indirectly, from or through the mediation or
assistance of a deposit broker, may be utilized as supplemental sources of
liquidity in accordance with Central Jersey Bank, N.A.’s balance sheet
management policy. Contingent liquidity sources may include
off-balance sheet funds, such as advances from both the FHLBNY and the Federal
Reserve Bank, and federal funds purchase lines with “upstream”
correspondents. An additional source of liquidity is made available
by curtailing loan activity and instead using the available cash to fund
short-term investments such as overnight federal funds sold or other approved
investments maturing in less than one year. In addition, future
expansion of Central Jersey Bank, N.A.’s retail banking network is expected to
create additional sources of liquidity from new deposit customer
relationships. Available liquidity and borrowing capacity is reviewed
by management on a monthly basis and totaled $143.9 million at March 31,
2010.
Central
Jersey Bank, N.A. is subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on Central Jersey Bank, N.A.’s financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, Central Jersey Bank, N.A. must meet
specific capital guidelines that involve quantitative measures of Central Jersey
Bank, N.A.’s assets, liabilities and certain off-balance-sheet items as
calculated under regulatory accounting practices. Central Jersey
Bank, N.A.’s
capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative
measures established by regulation to ensure capital adequacy require Central
Jersey Bank, N.A. to maintain minimum amounts and ratios (set forth in the
following table) of Total Capital and Tier 1 Capital to risk weighted assets and
of Tier 1 Capital to average assets (leverage ratio). As of March 31,
2010, Central Jersey Bancorp and Central Jersey Bank, N.A. met all capital
adequacy requirements to which they were subject.
The
following is a summary of Central Jersey Bank, N.A.’s and Central Jersey
Bancorp’s actual capital ratios as of March 31, 2010 and December 31, 2009,
compared to the minimum capital adequacy requirements and the requirements for
classification as a “well-capitalized” institution:
|
|
Tier
I
Capital
to
Average Assets Ratio
(Leverage
Ratio)
|
|
|
Tier
I
Capital
to
Risk Weighted
Asset
Ratio
|
|
|
Total
Capital to
Risk
Weighted
Asset
Ratio
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
March
31,
|
|
|
December
31,
|
|
|
March
31,
|
|
|
December
31,
|
|
Actual Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
Jersey Bancorp
|
|
|
9.90
|
%
|
|
|
9.68
|
%
|
|
|
12.90
|
%
|
|
|
12.50
|
%
|
|
|
14.16
|
%
|
|
|
13.76
|
%
|
Central
Jersey Bank, N.A.
|
|
|
10.02
|
%
|
|
|
7.89
|
%
|
|
|
13.06
|
%
|
|
|
10.19
|
%
|
|
|
14.33
|
%
|
|
|
14.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Required Regulatory Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
“Adequately
capitalized”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
institution
(under federal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
regulations)
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
“Well
capitalized”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
institution
(under federal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
regulations)
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
|
|
10.00
|
%
|
|
|
10.00
|
%
|
Item
3.
Quantitative and Qualitative Disclosures About Market
Risk
Central
Jersey Bancorp is a smaller reporting company and is therefore not required to
provide the information required by this item.
As
required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), as of the end of the period covered by this quarterly
report, the Company carried out an evaluation of the effectiveness of the design
and operation of its disclosure controls and procedures. This
evaluation was carried out under the supervision and with the participation of
the Company's management, including its President and Chief Executive Officer
and Senior Executive Vice President and Chief Financial Officer, who concluded
that the Company's disclosure controls and procedures are
effective. The Company's Internal Auditors
also participated in
this evaluation. There has been no change in the Company's internal
controls during the last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in the Company’s reports filed
or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed in the Company’s reports filed under the Exchange Act is
accumulated and communicated to management, including its President and Chief
Executive Officer and Senior Executive Vice President and Chief Financial
Officer, to allow timely decisions regarding required
disclosure.
PART
II. OTHER INFORMATION
None.
Central
Jersey Bancorp is a smaller reporting company and is therefore not required to
provide the information required by this item.
|
Unregistered Sales of
Equity Securities and Use of
Proceeds
|
None.
|
Defaults Upon Senior
Securities
|
None.
None.
See Index
of Exhibits commencing on page E-1.
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
Central Jersey Bancorp
|
|
Registrant
|
|
|
|
|
Date: May
14, 2010
|
/s/ James S. Vaccaro
|
|
James
S. Vaccaro
|
|
Chairman,
President and
|
|
Chief
Executive Officer
|
|
(Principal
Executive Officer)
|
|
|
|
|
Date: May
14, 2010
|
/s/ Anthony Giordano,
III
|
|
Anthony
Giordano, III
|
|
Senior
Executive Vice President, Chief Financial Officer, Treasurer and Assistant
Secretary
|
|
(Principal
Financial and Accounting
Officer)
|
Exhibit No.
|
|
Description of Exhibit
|
|
|
|
2.1
|
|
Agreement
and Plan of Acquisition, dated as of September 30, 2004, by and between
the Registrant and Allaire Community Bank (“Allaire”): Upon the
request of the Securities and Exchange Commission (the “SEC”), the
Registrant agrees to furnish a copy of Exhibit A – Voting Agreement of
Allaire Stockholders and Voting Agreement of the Registrant’s
Shareholders; Exhibit B – Allaire Affiliate Agreement, Exhibit C – Opinion
of Giordano, Halleran & Ciesla, P.C., as counsel to the Registrant,
and Exhibit D – Opinion of Frieri Conroy & Lombardo, LLC, as counsel
to Allaire, and the following Schedules: Schedule 1.10(a) –
Composition of the Registrant’s Board of Directors; Schedule 1.10(b) –
Composition of Allaire and Monmouth Community Bank Boards of Directors;
Schedule 1.10(c) - Executive Officers of the Registrant, Allaire and
Monmouth Community Bank; Schedule 3.02(a) – Stock Options (Allaire);
Schedule 3.02(b) – Subsidiaries (Allaire); Schedule 3.08 – Absence of
Changes or Events (Allaire); Schedule 3.09 – Loan Portfolio (Allaire);
Schedule 3.10 – Legal Proceedings (Allaire); Schedule 3.11 – Tax
Information (Allaire); Schedule 3.12(a) – Employee Benefit Plans
(Allaire); Schedule 3.12(b) – Defined Benefit Plans (Allaire); Schedule
3.12(h) – Payments or Obligations (Allaire); Schedule 3.12(m) – Grantor or
“Rabbi” Trusts (Allaire); Schedule 3.12(n) – Retirement Benefits
(Allaire); Schedule 3.13(c) – Buildings and Structures (Allaire); Schedule
3.14(a) – Real Estate (Allaire); Schedule 3.14(b) – Leases (Allaire);
Schedule 3.16(a) – Material Contracts (Allaire); Schedule 3.16(c) –
Certain Other Contracts (Allaire); Schedule 3.16(d) – Effect on Contracts
and Consents (Allaire); Schedule 3.18 – Registration Obligations
(Allaire); Schedule 3.20 – Insurance (Allaire); Schedule 3.21(b) – Benefit
or Compensation Plans (Allaire); Schedule 3.21(d) – Labor Relations
(Allaire); Schedule 3.22 – Compliance with Applicable Laws (Allaire);
Schedule 3.23 – Transactions with Management (Allaire); Schedule 3.25 –
Deposits (Allaire); Schedule 4.02(a) – Stock Options (Registrant);
Schedule 4.02(b) – Subsidiaries (Registrant); Schedule 4.08 – Absence of
Changes or Events (Registrant); Schedule 4.09 – Loan Portfolio
(Registrant); Schedule 4.10 – Legal Proceedings (Registrant); Schedule
4.11 – Tax Information (Registrant); Schedule 4.12(a) – Employee Benefit
Plans (Registrant); Schedule 4.12(b) – Defined Benefit Plans (Registrant);
Schedule 4.12(g) – Payments or Obligations (Registrant); Schedule 4.12(l)
– Grantor or “Rabbi” Trusts (Registrant); Schedule 4.12(m) – Retirement
Benefits (Registrant); Schedule 4.13(c) – Buildings and Structures;
(Registrant) Schedule 4.14(a) and 4.14(b) – Real Estate and Leases
(Registrant); Schedule 4.16(a) – Material Contracts (Registrant); Schedule
4.16(c) – Certain Other Contracts (Registrant); Schedule 4.16(d) – Effect
on Contracts and Consents (Registrant); Schedule 4.18 – Registration
Obligations (Registrant); Schedule 4.20 – Insurance (Registrant); Schedule
4.21(b) – Benefit or Compensation Plans (Registrant); Schedule 4.21(d) –
Labor Relations (Registrant); Schedule 4.22 – Compliance with Applicable
Laws (Registrant); Schedule 4.23 – Transactions with Management
(Registrant); Schedule 4.25 – Deposits (Registrant); Schedule 6.18(a) –
Notice of Deadlines (Allaire); and Schedule 6.18(b) – Notice of Deadlines
(Registrant) (Incorporated by reference to Exhibit 2.2 to the Registrant’s
Quarterly Report on Form 10-QSB for the quarter ended September 30,
2004).
|
|
|
|
2.2
|
|
Agreement
and Plan of Merger, dated as of May 26, 2009, between OceanFirst Financial
Corp. and the Registrant (Incorporated by reference to Exhibit 2.1 to the
Registrant’s Current Report on Form 8-K, dated May 26, 2009 and filed with
the SEC
|
|
|
on
May 27, 2009).
|
|
|
|
3.1
|
|
Amended
and Restated Certificate of Incorporation of the Registrant (Incorporated
by reference to Exhibit 3.1 to the Registrant’s Current Report on Form
8-K, dated December 23, 2008 and filed with the SEC on December 31,
2008).
|
|
|
|
3.2
|
|
Certificate
of Amendment to the Amended and Restated Certificate of Incorporation of
the Registrant (Incorporated by reference to Exhibit 3.2 to the
Registrant’s Current Report on Form 8-K, dated December 23, 2008 and filed
with the SEC on December 31, 2008).
|
|
|
|
3.3
|
|
By-laws
of the Registrant, as amended and restated on January 1, 2005
(Incorporated by reference to Exhibit 3.2 to the Registrant’s Annual
Report on Form 10-KSB for the year ended December 31, 2004, filed with the
SEC on March 31, 2005).
|
|
|
|
4.1
|
|
Specimen
certificate representing the Registrant’s common stock, par value $0.01
per share (Incorporated by reference to Exhibit 4 to Amendment No. 1 to
the Registrant’s Registration Statement on Form SB-2 (Registration No.
333-87352), effective July 23, 2002).
|
|
|
|
4.2
|
|
Warrant
to Purchase Common Stock, dated December 23, 2008 (Incorporated by
reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K,
dated December 23, 2008 and filed with the SEC on December 31,
2008).
|
|
|
|
10.1
|
|
Registrant’s
Stock Option Plan (Incorporated by reference to Exhibit 10.1 to the
Registrant’s Registration Statement on Form SB-2 (Registration No.
333-87352), effective July 23, 2002).
|
|
|
|
10.2
|
|
Indenture
between Registrant and Wilmington Trust Company, dated March 25, 2004
(Incorporated by reference to Exhibit 10.10 to the Registrant’s Annual
Report on Form 10-KSB for the year ended December 31, 2003, filed with the
SEC on March 30, 2004).
|
|
|
|
10.3
|
|
Amended
and Restated Declaration of Trust of MCBK Capital Trust I, dated March 25,
2004 (Incorporated by reference to Exhibit 10.11 to the Registrant’s
Annual Report on Form 10-KSB for the year ended December 31, 2003, filed
with the SEC on March 30, 2004).
|
|
|
|
10.4
|
|
Guarantee
Agreement by Registrant and Wilmington Trust Company, dated March 25, 2004
(Incorporated by reference to Exhibit 10.12 to the Registrant’s Annual
Report on Form 10-KSB for the year ended December 31, 2003, filed with the
SEC on March 30, 2004).
|
|
|
|
10.5
|
|
Amended
and Restated Change of Control Agreement, dated December 23, 2008, by and
between James S. Vaccaro and the Registrant (Incorporated by reference to
Exhibit 10.8 to the Registrant’s Current Report on Form 8-K, dated
December 23, 2008 and filed with the SEC on December 31,
2008).
|
|
|
|
10.6
|
|
Amended
and Restated Change of Control Agreement, dated December 23, 2008, by and
between Robert S. Vuono and the Registrant (Incorporated by reference to
Exhibit 10.9 to the Registrant’s Current Report on Form 8-K, dated
December 23, 2008 and
|
|
|
filed
with the SEC on December 31, 2008).
|
|
|
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10.7
|
|
Second
Amended and Restated Change of Control Agreement, dated March 29, 2010, by
and between Anthony Giordano, III and the Registrant (Incorporated by
reference to Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K
for the year ended December 31, 2009 and filed with the SEC on March 30,
2010).
|
|
|
|
10.8
|
|
Senior
Executive Officer Agreement, dated December 19, 2008, by and between James
S. Vaccaro and the Registrant (Incorporated by reference to Exhibit 10.5
to the Registrant’s Current Report on Form 8-K, dated December 23, 2008
and filed with the SEC on December 31, 2008).
|
|
|
|
10.9
|
|
Senior
Executive Officer Agreement, dated December 19, 2008, by and between
Robert S. Vuono and the Registrant (Incorporated by reference to Exhibit
10.6 to the Registrant’s Current Report on Form 8-K, dated December 23,
2008 and filed with the SEC on December 31, 2008).
|
|
|
|
10.10
|
|
Senior
Executive Officer Agreement, dated December 19, 2008, by and between
Anthony Giordano, III and the Registrant (Incorporated by reference to
Exhibit 10.7 to the Registrant’s Current Report on Form 8-K, dated
December 23, 2008 and filed with the SEC on December 31,
2008).
|
|
|
|
10.11
|
|
Registrant’s
2005 Equity Incentive Plan (Incorporated by reference to Exhibit 10.10 to
the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2005 and filed with the SEC on May 16, 2005).
|
|
|
|
10.12
|
|
Letter
Agreement, dated December 23, 2008, including the Securities Purchase
Agreement – Standard Terms attached thereto, by and between the U.S.
Department of Treasury and the Registrant (Incorporated by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, dated
December 23, 2008 and filed with the SEC on December 31,
2008).
|
|
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|
|
|
Section
302 Certification of Chief Executive Officer.
|
|
|
|
|
|
Section
302 Certification of Chief Financial Officer.
|
|
|
|
|
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350.
|
|
|
|
|
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350.
|
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