Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
Certain statements contained herein are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity.
Cape Bancorp wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.
Overview
Cape Bancorp, Inc. (“Cape Bancorp” or the “Company”) is a Maryland corporation that was incorporated on September 14, 2007 for the purpose of becoming the holding company of Cape Bank (the “Bank”).
Cape Bank was organized in 1923. Over the years, we have expanded primarily through internal growth. On January 31, 2008, we completed our mutual-to-stock conversion and initial public stock offering, and our acquisition of Boardwalk Bancorp and Boardwalk Bank. The merger resulted in a well-capitalized community oriented bank with a significant commercial loan presence and an experienced executive management team. For the three years prior to the merger, both banks had experienced strong asset quality and financial performance. The severe economic recession affected the merged financial institution as a whole, as well as the loan portfolios of each of the constituent banks to the merger.
On September 10, 2014, the Company, entered into an Agreement and Plan of Merger (the “Agreement”) with Colonial Financial Services, Inc. (“Colonial”). The Agreement provided that, upon the terms and subject to the conditions set forth therein, Colonial would merge with and into Cape Bancorp, with Cape Bancorp continuing as the surviving entity. Thereafter, Colonial Bank, FSB, a wholly-owned subsidiary of Colonial, would merge with and into Cape Bank, with Cape Bank continuing as the surviving Bank. On April 1, 2015, the Company announced that it had successfully completed its acquisition of Colonial and Colonial Bank.
At closing, two members of the Colonial Board of Directors, Gregory J. Facemyer and Hugh J. McCaffrey, were added to the Boards of Directors of Cape and Cape Bank.
We are a community bank focused on providing deposit and loan products to retail customers and to small and mid-sized businesses from our twenty-two full service branch offices (including the Hammonton, New Jersey branch location purchased on August 28, 2015 from Sun National Bank)
located throughout Atlantic, Cape May, Cumberland and Gloucester counties in New Jersey, including its main office located at 225 North Main Street, Cape May Court House, New Jersey, three market development offices (“MDOs”) located in Burlington, Cape May and Atlantic Counties in New Jersey, and two MDOs in Pennsylvania servicing the five county Philadelphia market located in Radnor, Delaware County and in Philadelphia (opened in Center City in January 2015).
We attract deposits from the general public and use those funds to originate a variety of loans, including commercial mortgages, commercial business loans, home equity loans and lines of credit (“HELOC”) and construction loans. Our retail and business banking deposit products include checking accounts, money market accounts, savings accounts, and certificates of deposit with terms ranging from 30 days to 84 months.
At March 31, 2016, the Company had total assets of $1.585 billion compared to $1.602 billion at December 31, 2015. For the three months ended March 31, 2016 and 2015, the Company had total revenues (interest income plus non-interest income) of $17.1 million and $10.8 million, respectively. Net income for each of the three months ended March 31, 2016 totaled $2.0 million, or $0.16 per common share and $0.15 per fully diluted share, compared to net income of $1.0 million, or $0.10 per common share and $0.09 per fully diluted share for the three months ended March 31, 2015.
On January 5, 2016, the Company entered into a definitive agreement and plan of merger with OceanFirst Financial Corp. (“OceanFirst”) pursuant to which Cape Bancorp will merge with and into OceanFirst and Cape Bank will merge with and into OceanFirst Bank. The transaction is expected to close in May 2016, subject to fulfillment of customary closing conditions.
In the interim, Cape Bank will focus on:
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•
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Core deposit gathering, both retail and commercial
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•
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Continue building commercial loan relationships
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|
•
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Continue efforts to effectively manage the Bank’s capital
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Core deposits:
For many years, core deposits were a key driver of value for community banks. With the high level liquidity available since the recession, banks were able to have sufficient deposit levels to fund the modest demand for loans. Management believes that this may be changing particularly in light of a potential increase in rates stemming from a policy shift at the FOMC. In response, the ability to establish and grow core deposits is another tool in creating shareholder value.
Loan growth:
Management believes that the most effective earning asset for a community bank like Cape is commercial lending. This product offers a market yield and can come coupled with deposit relationships. The shorter term of commercial loans make them less exposed to interest rate risk and quicker to reprice in a rising interest rate environment than residential mortgage loans. While a target, management recognizes the highly competitive market for commercial loans makes growth a challenge.
Our business and results of operations are significantly affected by local and national economic conditions, as well as market interest rates. With the local and national economic conditions continuing to improve during 2015 and through the first quarter of 2016, the Company’s Adversely Classified Asset Ratio (Classified Assets/Tier I Capital plus the allowance for loan losses) at March 31, 2016 was 8%, an improvement from 10% at December 31, 2015 and 17% at March 31, 2015. Non-performing assets (non-performing loans, other real estate owned and non-accruing investment securities) as a percentage of total assets increased to 0.63% at March 31, 2016 from 0.61% at December 31, 2015. Nnon-performing loans as a percentage of total gross loans was 0.64% at March 31, 2016 compared to 0.57% of total gross loans at December 31, 2015. For the periods ended, and as of March 31, 2016 and December 31, 2015, loans held for sale (“HFS”) are excluded from delinquencies, non-performing loans, non-performing assets, impaired loans and all related ratio calculations. There were no loans held for sale in either period. The ratio of our allowance for loan losses to total loans decreased to 0.84% at March 31, 2016, from 0.85% at December 31, 2015, while the ratio of our allowance for loan losses to non-performing loans decreased to 131.5% at March 31, 2016 from 148.70% at December 31, 2015. For the three months ended March 31, 2016, loan charge-offs totaled $1.3 million compared to loan charge-offs of $253,000 for the first quarter of 2015. Of the $1.3 million of loan charge-offs during the first quarter of 2016, none were fully reserved at December 31, 2015. At March 31, 2016, 91.6% of our loan portfolio was secured by real estate and 67.2% of our portfolio was commercial related loans. We believe our existing loan underwriting practices are appropriate in the current market environment while continuing to address the local credit needs of our customers.
Our principal business is acquiring deposits from individuals and businesses in the communities surrounding our offices and using these deposits to fund loans and other investments. We currently offer personal and business checking accounts, commercial mortgage loans, construction loans, home equity loans and lines of credit and other types of commercial loans
Comparison of Financial Condition at March 31, 2016 and December 31, 2015
At March 31, 2016, the Company’s total assets were $1.585 billion, a decrease of $17.2 million, or 1.08%, from the December 31, 2015 level of $1.602 billion.
Cash and cash equivalents decreased $1.2 million, or 5.86%, to $19.3 million at March 31, 2016 from $20.5 million at December 31, 2015.
Interest-bearing time deposits decreased $3.1 million or 37.47%, from $8.2 million at December 31, 2015 to $5.1 million at March 31, 2016. The Company invests in time deposits of other banks generally for terms of one year to five years and not to exceed $250,000, which is the amount currently insured by the Federal Deposit Insurance Corporation.
Total gross loans increased to $1.182 billion at March 31, 2016 from $1.174 billion at December 31, 2014, an increase of $7.4 million, or 0.63%. Total net loans increased $7.0 million from $1.165 billion at December 31, 2015 to $1.172 billion at March 31, 2016. An increase in commercial loans of $17.3 million was partially offset by a decrease of $10.3 million in residential mortgage loans. Commercial loan closings during the quarter more than offset early payoffs, charge-offs, normal amortizations, and loans transferred to OREO. The decline in residential mortgage loans reflects the effect of the Company exiting the residential mortgage loan origination business effective December 31, 2013.
Delinquent loans increased $1.0 million to $9.2 million, or 0.78% of total gross loans, at March 31, 2016 from $8.2 million, or 0.70% of total gross loans at December 31, 2015. Total delinquent loans by portfolio at March 31, 2016 were $3.3 million of commercial mortgage, $4.4 million of residential mortgage loans and $1.5 million of consumer loans. At March 31, 2016, delinquent loan balances by number of days delinquent were: 31 to 59 days – $4.4 million; 60 to 89 days – $1.1 million; and 90 days and greater – $3.7 million.
At March 31, 2016, the Company had $7.6 million in non-performing loans, or 0.64% of total gross loans, an increase of $900,000 from $6.7 million, or 0.57% of total gross loans at December 31, 2015. Non-performing loans do not include loans held for sale. There were no loans held for sale in either period. At March 31, 2016, non-performing loans by loan portfolio category were as follows: $3.8 million of commercial mortgage loans, $3.3 million of residential mortgage loans, and $525,000 of consumer loans. Of these stated delinquencies, the Company had $313,000 of loans that were 90 days or more delinquent and still accruing (4 residential mortgage loans for $137,000 and 4 consumer loans for $176,000). These loans are well secured, in the process of collection and we anticipate no losses will be incurred.
At March 31, 2016, commercial non-performing loans had collateral type concentrations of $2.0 million (4 loans or 52%) secured by retail stores; $141,000 (2 loans or 3%) secured by residential, duplex and multi-family properties; $981,000 (6 loans or 26%) secured by commercial buildings and equipment; and $718,000 (1 loan or 19%) secured by restaurant properties. The three largest commercial non-performing loan relationships are $1.6 million, $718,000 and $423,000.
We believe we have appropriately charged-off, written-down or established adequate loss reserves on problem loans that we have identified. For 2016, we anticipate a gradual decrease in the amount of problem assets. This improvement is due, in part, to our disposing of assets collateralizing loans that have gone through foreclosure. We are aggressively managing all loan relationships, and where necessary, we will continue to apply our loan work-out experience to protect our collateral position and actively negotiate with mortgagors to resolve these non-performing loans.
Total investment securities decreased $18.9 million, or 6.80%, to $259.3 million at March 31, 2016 from $278.2 million at December 31, 2015. At March 31, 2016, AFS securities totaled $245.4 million and HTM securities totaled $13.9 million. At December 31, 2015, AFS securities totaled $263.9 million and HTM securities totaled $14.3 million. Investment securities are classified as HTM when management has the positive intent and ability to hold them to maturity.
Other real estate owned (“OREO”) decreased $669,000 from $3.1 million at December 31, 2015 to $2.4 million at March 31, 2016, and consisted at March 31, 2016 of eleven commercial properties and six residential properties (including five building lots). During the quarter ended March 31, 2016, the Company added one residential property to OREO with a carrying value of $285,000. In addition, three commercial OREO properties with an aggregate carrying value totaling $642,000 were sold during the quarter ended March 31, 2016 with recognized gross gains of $152,000.
Total deposits decreased $74.4 million, or 5.66%, from $1.313 billion at December 31, 2015 to $1.239 billion at March 31, 2016. Certificates of deposit totaled $246.4 million at March 31, 2016, a decrease of $47.0 million, or 16.03%, from the December 31, 2015 total of $293.4 million, primarily resulting from a lower levels of municipal and brokered certificates of deposit. In addition, interest bearing checking accounts, savings accounts and money market deposit accounts odecreased $17.8 million, $12.5 million and $4.0 million, respectively. Noninterest-bearing deposit accounts increased $7.0 million, from $158.7 million at December 31, 2015 to $165.8 million at March 31, 2016,
Borrowings increased $57.8 million from $111.0 million at December 31, 2015 to $168.8 million at March 31, 2016.
Cape Bancorp’s total equity increased $2.3 million, or 1.38%, to $170.7 million at March 31, 2016 from $168.4 million at December 31, 2015 primarily resulting from a net increase of $646,000 (earnings less dividends declared) in retained earnings, an improvement of $1.5 million in the accumulated other comprehensive loss and increases in paid-in-capital and unearned ESOP shares totaling $136,000. Tangible equity to tangible assets increased to 9.34% at March 31, 2016 from 9.09% at December 31, 2015.
At March 31, 2016, Cape Bank’s regulatory capital ratios for Tier I Leverage Ratio, Common EquityTier I, Risk-Based Capital and Total Risk-Based Capital were 8.65%, 11.24%, 11.24% and 12.09%, respectively, all of which exceed well capitalized status.
The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. Non-accrual loans and loans held for sale were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense. Yields and rates have been annualized.
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|
For the three months ended March 31,
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2016
|
|
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2015
|
|
|
|
Average Balance
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|
|
Interest Income/ Expense
|
|
|
Average Yield
|
|
|
Average Balance
|
|
|
Interest Income/ Expense
|
|
|
Average Yield
|
|
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|
(dollars in thousands)
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning deposits
|
|
$
|
19,542
|
|
|
$
|
23
|
|
|
|
0.47
|
%
|
|
$
|
44,794
|
|
|
$
|
35
|
|
|
|
0.32
|
%
|
Investments
|
|
|
278,391
|
|
|
|
1,336
|
|
|
|
1.95
|
%
|
|
|
164,231
|
|
|
|
793
|
|
|
|
1.93
|
%
|
Loans
|
|
|
1,174,573
|
|
|
|
13,794
|
|
|
|
4.72
|
%
|
|
|
771,203
|
|
|
|
8,843
|
|
|
|
4.65
|
%
|
Total interest-earning assets
|
|
|
1,472,506
|
|
|
|
15,153
|
|
|
|
4.14
|
%
|
|
|
980,228
|
|
|
|
9,671
|
|
|
|
4.00
|
%
|
Noninterest-earning assets
|
|
|
131,227
|
|
|
|
|
|
|
|
|
|
|
|
101,485
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(10,043
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,364
|
)
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,593,690
|
|
|
|
|
|
|
|
|
|
|
$
|
1,072,349
|
|
|
|
|
|
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Liabilities and Stockholders'
Equity
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|
|
|
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|
|
|
|
|
|
Interest-bearing demand accounts
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|
$
|
487,747
|
|
|
|
298
|
|
|
|
0.25
|
%
|
|
$
|
236,796
|
|
|
|
99
|
|
|
|
0.17
|
%
|
Savings accounts
|
|
|
155,885
|
|
|
|
22
|
|
|
|
0.06
|
%
|
|
|
92,366
|
|
|
|
14
|
|
|
|
0.06
|
%
|
Money market accounts
|
|
|
197,523
|
|
|
|
148
|
|
|
|
0.30
|
%
|
|
|
133,121
|
|
|
|
84
|
|
|
|
0.26
|
%
|
Certificates of deposit
|
|
|
290,122
|
|
|
|
562
|
|
|
|
0.78
|
%
|
|
|
237,519
|
|
|
|
493
|
|
|
|
0.84
|
%
|
Borrowings
|
|
|
125,505
|
|
|
|
626
|
|
|
|
2.01
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%
|
|
|
134,716
|
|
|
|
615
|
|
|
|
1.85
|
%
|
Total interest-bearing liabilities
|
|
|
1,256,782
|
|
|
|
1,656
|
|
|
|
0.53
|
%
|
|
|
834,518
|
|
|
|
1,305
|
|
|
|
0.63
|
%
|
Noninterest-bearing deposits
|
|
|
158,515
|
|
|
|
|
|
|
|
|
|
|
|
89,254
|
|
|
|
|
|
|
|
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Other liabilities
|
|
|
7,624
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|
|
|
|
|
|
|
|
|
|
|
6,293
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,422,921
|
|
|
|
|
|
|
|
|
|
|
|
930,065
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|
|
|
|
|
|
|
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|
Stockholders' equity
|
|
|
170,769
|
|
|
|
|
|
|
|
|
|
|
|
142,284
|
|
|
|
|
|
|
|
|
|
Total liabilities & stockholders'
equity
|
|
$
|
1,593,690
|
|
|
|
|
|
|
|
|
|
|
$
|
1,072,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
13,497
|
|
|
|
|
|
|
|
|
|
|
$
|
8,366
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
3.61
|
%
|
|
|
|
|
|
|
|
|
|
|
3.37
|
%
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
3.69
|
%
|
|
|
|
|
|
|
|
|
|
|
3.46
|
%
|
Net interest income and margin (tax equivalent basis) (1)
|
|
|
|
|
|
$
|
13,569
|
|
|
|
3.71
|
%
|
|
|
|
|
|
$
|
8,438
|
|
|
|
3.49
|
%
|
Ratio of average interest-earning assets to average interest-bearing liabilities
|
|
|
117.16
|
%
|
|
|
|
|
|
|
|
|
|
|
117.46
|
%
|
|
|
|
|
|
|
|
|
|
(1) In order to present pre-tax income and resultant yields on tax-exempt investments on a basis comparable to those on taxable investments, a tax equivalent yield adjustment is made to interest income. The tax equilvalent adjustment has been computed using a Federal income tax rate of 35%, and has the effect of increasing interest income by $60,000 and $50,000 for the three month period ended March 31, 2016 and 2015, respectively. The average yield on investments increased to 2.01% from 1.95% for the three month period ended March 31, 2016 and increased to 2.05% from 1.93% for the three month period ended March 31, 2015.
|
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The average rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The average volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net change column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume.
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|
For the three months ended March 31, 2016
|
|
|
|
compared to March 31, 2015
|
|
|
|
Increase (decrease) due to changes in:
|
|
|
|
Average
|
|
|
Average
|
|
|
Net
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Change
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Interest Earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning deposits
|
|
$
|
(24
|
)
|
|
$
|
12
|
|
|
$
|
(12
|
)
|
Investments
|
|
|
522
|
|
|
|
21
|
|
|
|
543
|
|
Loans
|
|
|
4,782
|
|
|
|
169
|
|
|
|
4,951
|
|
Total interest income
|
|
|
5,280
|
|
|
|
202
|
|
|
|
5,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing demand accounts
|
|
|
139
|
|
|
|
60
|
|
|
|
199
|
|
Savings accounts
|
|
|
9
|
|
|
|
(1
|
)
|
|
|
8
|
|
Money market accounts
|
|
|
47
|
|
|
|
17
|
|
|
|
64
|
|
Certificates of deposit
|
|
|
107
|
|
|
|
(38
|
)
|
|
|
69
|
|
Borrowings
|
|
|
(41
|
)
|
|
|
52
|
|
|
|
11
|
|
Total interest expense
|
|
|
261
|
|
|
|
90
|
|
|
|
351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net interest income
|
|
$
|
5,019
|
|
|
$
|
112
|
|
|
$
|
5,131
|
|
Comparison of Operating Results for the Three Months Ended March 31, 2016 and 2015
General.
Net income for the three months ended March 31, 2016 was $2.0 million, or $0.16 per common share and $0.15 per fully diluted share, compared to net income of $1.0 million, or $0.10 per common share and $0.09 per fully diluted share for the three months ended March 31, 2015. The increase was the result of a $5.1 million increase in net interest income and a $795,000 increase in non-interest income partially offset by a $2.4 million increase in non-interest expense. Increases in net interest income, non-interest income and non-interest expense reflect the acquisition of Colonial, effective April 1, 2015, and the consolidation of operations. The loan loss provision for the first quarter of 2016 totaled $1.2 million compared to no provision for loan losses for the first quarter ended March 31, 2015. The net interest margin increased 23 basis points from 3.46% for the quarter ended March 31, 2015 to 3.69% for the quarter ended March 31, 2016.
Interest Income.
Interest income increased $5.5 million or 56.68%, to $15.2 million for the three months ended March 31, 2016, from $9.7 million for the three months ended March 31, 2015. The increase consists of a $5.0 million increase in interest income on loans and a $531,000 increase in interest income on investment securities.
Average loan balances for the three month period ended March 31, 2016 increased $403.4 million, or 52.30%, to $1.175 billion from $771.2 million for the three month period ended March 31, 2015. The average yield on the loan portfolio increased 7 basis points to 4.72% for the three months ended March 31, 2016 from 4.65% for the three months ended March 31, 2015. The increase in the average loan portfolio is primarily due to the impact of the Colonial acquisition, the Sun branch purchase and the commercial loan portfolio purchase.
The average balance of the investment portfolio increased $114.2 million, or 69.51%, to $278.4 million for the three month period ended March 31, 2015 from $164.2 million for the three month period ended March 31, 2015. The average yield on the investment portfolio increased 2 basis points to 1.95% for the three months ended March 31, 2016 from 1.93% for the three months ended March 31, 2015. The increase in the investment portfolio is primarily due to the impact of the Colonial acquisition.
Interest Expense.
Interest expense increased $351,000, or 26.90%, to $1.7 million for the three months ended March 31, 2016, from $1.3 million for the three months ended March 31, 2015. The increase resulted primarily from increased balances from the Colonial acquisition and higher interest rates being paid on deposits. The average balance of borrowings decreased $9.2 million, or 6.84%, to $125.5 million for the three months ended March 31, 2016 from $134.7 million for the three months ended March 31, 2015, and the average cost of borrowings increased 16 basis points from 1.85% for the three months ended March 31, 2015 to 2.01% for the three months ended March 31, 2016. The average balance of certificates of deposit increased $52.6 million, or 22.15%, to $290.1 million for the three months ended March 31, 2016 from $237.5 million for the same period in 2015, while the average rate paid on certificates of deposit decreased 6 basis points to 0.78% for the three months ended March 31, 2016 from 0.84% for the three months ended March 31, 2015 resulting in a combined interest expense increase of $69,000.
The average rate paid on money market accounts increased 5 basis points while the average balance increased $64.4 million during the same period and the average rate paid on interest-bearing demand accounts increased 8 basis points during the same period while the average balance increased $251.0 million.
Net Interest Income.
Net interest income increased $5.1 million, or 61.33%, to $13.5 million for the three months ended March 31, 2016, from $8.4 million for the three months ended March 31, 2015. The net interest margin increased 23 basis points from 3.46% for the quarter ended March 31, 2015 to 3.69% for the quarter ended March 31, 2016. The ratio of average interest-earning assets to average interest-bearing liabilities decreased to 117.16% for the three months ended March 31, 2016, from 117.46% for the three months ended March 31, 2015.
Provision for Loan Losses.
In accordance with FASB ASC Topic No. 450 Contingencies, we establish provisions for loan losses which are charged to operations in order to maintain the allowance for loan losses at a level we consider necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the balance sheet date. In determining the level of the allowance for loan losses, we consider, among other things, past and current loss experience, evaluations of real estate collateral, current economic conditions, volume and type of lending, external factors such as competition and regulations, adverse situations that may affect a borrower’s ability to repay a loan and the levels of delinquent loans.
The amount of the allowance is based on management’s judgment of probable losses, and the ultimate losses may vary from such estimates as more information becomes available or conditions change. We assess the allowance for loan losses and make provisions for loan losses on a quarterly basis.
The Company recorded a provision for loan losses of $1.2 million for the three months ended March 31, 2016 compared to no provision for loan losses for the three months ended March 31, 2015. Loan charge-offs for the first quarter of 2016 totaled $1.3 million compared to loan charge-offs for the first quarter of 2015 of $253,000. The ratio of the allowance for loan losses to non-performing loans (coverage ratio) totaled 131.30% at March 31, 2016, an increase from 106.82% at December 31, 2015. Loan loss recoveries for the three months ended March 31, 2016 were $82,000 compared to $30,000 for the three months ended March 31, 2015.
The allowance for loan losses decreased $29,000, or 0.29%, to $9.960 million at March 31, 2016, from $9.989 million at December 31, 2015. The ratio of our allowance for loan losses to total gross loans totaled 0.84% at March 31, 2016 compared to 0.85% of total gross loans at December 31, 2015. Certain impaired loans (troubled debt restructurings) have a valuation allowance determined by discounting expected cash flows at the respective loan’s effective interest rate. Included in the allowance for loan losses at March 31, 2016 was an impairment reserve for TDRs in the amount of $175,000 compared to $182,000 at December 31, 2015.
Non-Interest Income.
Non-interest income increased $795,000, or 67.49% to $2.0 million for the three months ended March 31, 2016 from $1.2 million for the three months ended March 31, 2015, primarily resulting from the inclusion of Colonial in the first quarter 2016 results. The increase in service fee income and the net increase from BOLI result from the acquisition of Colonial. The first quarter of 2016 included net gains on sales of investment securities of $244,000 compared to $114,000 for the same period in 2015. Net gains on the sales of loans totaled $91,000 for the three months ended March 31, 2016 compared to $30,000 for the same period in 2015, resulting from an increase of $61,000 in gains on the sale of Small Business Administration (“SBA”) loans.
Non-Interest Expense
.
Non-interest expense increased $2.4 million, or 30.59%, to $10.3 million for the three months ended March 31, 2016 from $7.9 million for the three months ended March 31, 2015. Increases in most categories of non-interest expense reflect increased volume from the merger and integration of Colonial operations into Cape. Salaries and employee benefits totaled $4.9 million for the first quarter of 2016, an increase of $1.0 million from the first quarter 2015 of $3.8 million. The first quarter of 2016 includes expenses related to the pending merger with Ocean First totaling $1.1 million and the first quarter of 2015 included expenses related to the acquisition of Colonial totaling $266,000. OREO expenses totaled $410,000 for the three months ended March 31, 2016 compared to $902,000 for the three months ended March 31, 2015, a decrease of $492,000 primarily resulting from higher OREO write-downs in the 2015 period.
Income Tax Expense.
For the three months ended March 31, 2016, the Company recorded a net tax expense of $1.9 million compared to a net tax expense of $613,000 for the three months ended March 31, 2015.
Liquidity and Capital Resources
Liquidity refers to our ability to meet the cash flow requirements of depositors and borrowers as well as our operating cash needs with cost-effective funding. We generate funds to meet these needs primarily through our core deposit base and the maturity or repayment of loans and other interest-earning assets, including investments. Proceeds from the call, maturity, redemption, and return of principal of investment securities totaled $13.1 million at March 31, 2016 and were used either for liquidity, to reduce borrowings, or to invest in securities of similar quality as our current investment portfolio. We also have available unused wholesale sources of liquidity, including overnight federal funds and repurchase agreements, advances from the FHLB of New York, borrowings through the discount window at the Federal Reserve Bank of Philadelphia and access to certificates of deposit through brokers. We can also raise cash through the sale of earning assets, such as loans and marketable securities. As of March 31, 2016, the Company’s investment portfolio consisted of AFS securities with a fair market value of $245.4 million and HTM securities at amortized cost of $13.9 million. The Company has no intention to sell these securities, nor is it more likely than not that we will be required to sell any securities prior to their recovery in fair market value.
Liquidity risk arises from the possibility that we may not be able to meet our financial obligations and operating cash needs or may become overly reliant upon external funding sources. In order to manage this risk, our Board of Directors has approved a Liquidity Management Policy and Contingency Funding Plan that identifies primary sources of liquidity, establishes procedures for monitoring and measuring liquidity, and quantifies minimum liquidity requirements based on approved limits. This policy designates our Asset/Liability Committee (“ALCO”) as the body responsible for meeting these objectives. The ALCO, which includes members of executive management, reviews liquidity on a periodic basis and approves significant changes in strategies that affect balance sheet or cash flow positions. Liquidity is centrally managed on a daily basis by our Chief Financial Officer and our Treasury function. Liquidity stress testing is performed annually, unless circumstance dictates more frequently, and all testing results are reported to the Board of Directors through the ALCO minutes.
Cape Bank’s long-term liquidity source is a large core deposit base and a strong capital position. Core deposits are the most stable source of liquidity a bank can have due to the long-term relationship with a deposit customer. The level of deposits during any period is sometimes influenced by factors outside of management’s control, such as the level of short-term and long-term market interest rates and yields offered on competing investments, such as money market mutual funds. Deposits decreased $74.4 million, or 5.66%, during the first three months of 2016 and comprised 87.62% of total liabilities at March 31, 2016, as compared to 91.61% at December 31, 2015.
Regulatory Matters.
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Management believes as of March 31, 2016, the Company and Bank meet all capital adequacy requirements to which it is subject.
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators. 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 the Bank’s financial statements. The Bank’s Board of Directors has established a Capital Plan to ensure the Bank is managed to provide an appropriate level of capital. This plan includes strategies which enable the Bank to maintain targeted capital ratios in excess of the regulatory definition of “well capitalized”, identify sources of additional capital and evaluate on a quarterly basis the impact on capital resulting from certain potential significant financial events (stress testing). Additionally, a Contingency Plan exists which identifies scenarios that require specific actions in the event capital falls below certain levels.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of Total risk based capital, Common Equity Tier I (CET I) risk based capital, and Tier I risk based capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier I leverage ratio (as defined) to average assets (as defined).
The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. The net unrealized gain or loss on available- for-sale securities is not included in computing regulatory capital. Capital amounts and ratios for December 31, 2014 are calculated using Basel I rules.
As of March 31, 2016, the Bank was categorized as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, the Bank must maintain minimum Total risk based, CET I risk based, Tier I risk based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution’s category as of March 31, 2016.
In 2015, the Company also became subject to the minimum capital requirements per Regulatory Guidelines as set forth in the table below. The Company’s capital ratios were as follows: Total risk based 12.67%, CET I risk based 11.82%, Tier I risk based 11.82%, and Tier I leverage 9.08%, which met the criteria for capital adequacy.
Basel III Capital Rules will require institutions to retain a capital conservation buffer, composed of CET1, of 2.5% above these required minimum capital ratio levels. Banking organizations that fail to maintain the minimum 2.5% capital conservation buffer could face restrictions on capital distributions or discretionary bonus payments to executive officers. Restrictions would begin phasing in where the banking organization's capital conservation buffer was below 2.5% at the beginning of a quarter, and distributions and discretionary bonus payments would be completely prohibited if no capital conservation buffer exists. When the capital conservation buffer is fully phased in on January 1, 2019, the Holding Company and the Bank will effectively have the following minimum capital to risk-weighted assets ratios: a) 7.0% based upon CET1; b) 8.5% based upon tier 1 capital; and c) 10.5% based upon total regulatory capital.
The application of the Capital Conservation Buffer resulted in no limitations to payout of retained earnings as of March 31, 2016.
On January 19, 2016, the Company declared a cash dividend of $0.10 per common share to shareholders of record as of the close of business February 1, 2016. The dividend was paid on February 16, 2016.
The actual capital amounts, ratios and minimum regulatory guidelines for Cape Bank are as follows:
|
|
|
|
|
|
|
|
|
|
Per Regulatory Guidelines
|
|
|
|
Actual
|
|
|
Minimum
|
|
|
"Well Capitalized"
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
(dollars in thousands)
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk based capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I risk based capital
|
|
$
|
135,248
|
|
|
|
11.24
|
%
|
|
$
|
72,196
|
|
|
|
6.00
|
%
|
|
$
|
96,262
|
|
|
|
8.00
|
%
|
CET I risk-based capital
|
|
$
|
135,248
|
|
|
|
11.24
|
%
|
|
$
|
54,147
|
|
|
|
4.50
|
%
|
|
$
|
78,213
|
|
|
|
6.50
|
%
|
Total risk based capital
|
|
$
|
145,449
|
|
|
|
12.09
|
%
|
|
$
|
96,244
|
|
|
|
8.00
|
%
|
|
$
|
120,305
|
|
|
|
10.00
|
%
|
Tier I leverage ratio
|
|
$
|
135,248
|
|
|
|
8.65
|
%
|
|
$
|
62,542
|
|
|
|
4.00
|
%
|
|
$
|
78,178
|
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk based capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I risk based capital
|
|
$
|
133,677
|
|
|
|
11.06
|
%
|
|
$
|
72,519
|
|
|
|
6.00
|
%
|
|
$
|
96,692
|
|
|
|
8.00
|
%
|
CET I risk-based capital
|
|
$
|
133,677
|
|
|
|
11.06
|
%
|
|
$
|
54,389
|
|
|
|
4.50
|
%
|
|
$
|
78,562
|
|
|
|
6.50
|
%
|
Total risk based capital
|
|
$
|
143,908
|
|
|
|
11.91
|
%
|
|
$
|
96,664
|
|
|
|
8.00
|
%
|
|
$
|
120,830
|
|
|
|
10.00
|
%
|
Tier I leverage ratio
|
|
$
|
133,677
|
|
|
|
8.59
|
%
|
|
$
|
62,248
|
|
|
|
4.00
|
%
|
|
$
|
77,810
|
|
|
|
5.00
|
%
|
Critical
Accounting Policies.
In the preparation of our consolidated financial statements, we have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States. Our significant accounting policies are described in
Note 2- Summary of Significant Accounting Policies -
of the
Notes to Consolidated Financial Statements.
Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Actual results could differ from these judgments and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations.
Allowance for Loan Losses.
We consider the allowance for loan losses to be a critical accounting policy. The allowance for loan losses is the amount estimated by management as necessary to cover losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment.
In evaluating the allowance for loan losses, management considers historical loss factors, the mix of the loan portfolio (types of loans and amounts), geographic and industry concentrations, current national and local economic conditions and other factors related to the collectability of the loan portfolio, including underlying collateral values and estimated future cash flows. All of these estimates are susceptible to significant change. Groups of homogeneous loans are evaluated in the aggregate under FASB ASC Topic No. 450 Contingencies, using historical loss factors adjusted for economic conditions and other environmental factors. Other environmental factors include trends in delinquencies and classified loans, loan concentrations by loan category and by property type, seasonality of the portfolio, internal and external analysis of credit quality, and single and total credit exposure. Certain loans that indicate underlying credit or collateral concerns may be evaluated individually for impairment in accordance with FASB ASC Topic No. 310 Receivables. If a loan is impaired and repayment is expected solely from the collateral, the difference between the outstanding balance and the value of the collateral will be charged-off. For potentially impaired loans where the source of repayment may include other sources of repayment from third parties, the evaluation may include these potential sources of repayment and indicate the need for a specific reserve for any potential shortfall. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available or as projected events change.
Management reviews the level of the allowance quarterly. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the FDIC and the New Jersey Department of Banking and Insurance, as an integral part of their examination process, periodically review our allowance for loan losses. Such agencies may require us to recognize adjustments to the allowance based on judgments about information available to them at the time of their examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings.
See Note 2 – Summary of Significant Accounting Policies - of the Notes to Consolidated Financial Statements.
Securities Impairment
.
Securities that are in a loss position for 12 months or longer are reviewed to determine if there is other-than-temporary impairment (OTTI). If the market value of the security is equal to or greater than 90% of the book value, no action will be taken. If the market value of the security is less than 90% of the book value, management will research the security and evaluate the cause of the persistently depressed market value and document the findings. At March 31, 2016, there were no securities to be evaluated.
Income Taxes
.
The Company is subject to the income and other tax laws of the United States and the State of New Jersey. These laws are complex and are subject to different interpretations by the taxpayer and the various taxing authorities. In determining the provisions for income and other taxes, management must make judgments and estimates about the application of these inherently complex laws, related regulations and case law. In the process of preparing the Company provision and tax returns, management attempts to make reasonable interpretations of applicable tax laws. These interpretations are subject to challenge by the taxing authorities upon audit or to reinterpretation based on management’s ongoing assessment of facts and evolving case law.
The Company and its subsidiaries file a consolidated federal income tax return and separate entity state income tax returns. The provision for federal and state income taxes is based on income and expenses, as reported in the consolidated financial statements, rather than amounts reported on the Company’s federal and state income tax returns. When income and expenses are recognized in different periods for tax purposes than for book purposes, applicable deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date.
On a quarterly basis, management assesses the reasonableness of its effective federal and state tax rate based upon its current best estimate of net income and the applicable taxes expected for the full year.
E
ffect of Newly Issued Accounting Standards:
See Note 2 – Summary of Significant Accounting Policies - of the Notes to Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
General
.
The majority of our assets and liabilities are monetary in nature. Consequently, interest rate risk is a significant risk to our net interest income and earnings. Our assets, consisting primarily of loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and limit the exposure of our net interest income to changes in market interest rates. Accordingly, Interest Rate Risk is a prominent responsibility of the Enterprise Risk Management Committee of the Board of Directors, as well as the management level Asset/Liability Committee. The Enterprise Risk Management Committee of the Board of Directors, which meets quarterly, is responsible for advising the Boards of Directors regarding the Company's risk exposures, including interest rate, funding/liquidity, regulatory compliance, credit, operational, and reputational risks. With regard to interest rate risk the Enterprise Risk Management Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for recommending to our Board of Directors the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives and managing this risk consistent with the guidelines approved by the Board of Directors.
We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. As part of our ongoing asset-liability management, we currently use the following strategies to manage our interest rate risk:
|
●
|
originating commercial loans that generally tend to have shorter maturity or repricing characteristics;
|
|
●
|
obtaining general financing through lower cost deposits, brokered deposits and advances from the Federal Home Loan Bank;
|
|
●
|
lengthening the terms of borrowings and deposits; and
|
|
●
|
focusing on core deposit growth.
|
By shortening the average maturity of our interest-earning assets by increasing our investments in shorter term loans, as well as loans with variable interest rates, it helps to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates.
Net Portfolio Value Analysis
.
We compute amounts by which the net present value of our interest-earning assets and interest-bearing liabilities (net portfolio value or “NPV”) would change in the event of a range of assumed changes in market interest rates. Our simulation model uses a discounted cash flow analysis to measure the interest rate sensitivity of net portfolio value. We estimate the economic value of these assets and liabilities under the assumption that interest rates experience an instantaneous and sustained increase of 100 or 200 basis points or decrease of 100 or 200 basis points.
Net Interest Income Analysis.
In addition to NPV calculations, we analyze our sensitivity to changes in interest rates through our net interest income model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. In our model, we estimate what our net interest income would be for a twelve-month period. We then calculate what the net interest income would be for the same period under the assumption that interest rates experience an instantaneous and sustained increase of 100 or 200 basis points or decrease of 100 or 200 basis points.
The table below sets forth, as of March 31, 2016, our calculation of the estimated changes in our net interest income that would result from the designated instantaneous and sustained changes in interest rates. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.
|
|
|
Net Portfolio Value
|
|
|
Net Interest Income
|
|
Changes in
|
|
|
|
|
|
|
Increase (decrease) in
|
|
|
|
|
|
|
Increase (decrease) in
|
|
Interest Rates
|
|
|
Estimated NPV
|
|
|
Estimated NPV
|
|
|
Estimated Net
|
|
|
Estimated Net Interest Income
|
|
(basis points) (1)
|
|
|
(2)
|
|
|
Amount
|
|
|
Percent
|
|
|
Interest Income
|
|
|
Amount
|
|
|
Percent
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+200
|
|
|
$
|
188,025
|
|
|
$
|
(29,231
|
)
|
|
|
-13.45
|
%
|
|
$
|
46,569
|
|
|
$
|
(3,939
|
)
|
|
|
-7.80
|
%
|
+100
|
|
|
$
|
206,543
|
|
|
$
|
(10,713
|
)
|
|
|
-4.93
|
%
|
|
$
|
48,633
|
|
|
$
|
(1,875
|
)
|
|
|
-3.71
|
%
|
0
|
|
|
$
|
217,256
|
|
|
|
|
|
|
|
|
|
|
$
|
50,508
|
|
|
|
|
|
|
|
|
|
-100
|
|
|
$
|
194,033
|
|
|
$
|
(23,223
|
)
|
|
|
-10.69
|
%
|
|
$
|
50,470
|
|
|
$
|
(38
|
)
|
|
|
-0.08
|
%
|
-200
|
|
|
$
|
169,338
|
|
|
$
|
(47,918
|
)
|
|
|
-22.06
|
%
|
|
$
|
50,607
|
|
|
$
|
99
|
|
|
|
0.20
|
%
|
(1)
|
Assumes an instantaneous and sustained uniform change in interest rates at all maturities.
|
(2)
|
NPV is the discounted present value of expected cash flows from interes-earning assets and interest-bearing liabilities.
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The table above indicates that at March 31, 2016, in the event of a 100 basis point increase in interest rates, we would experience a $1.9 million decrease in net interest income. In the event of a 100 basis point decrease in interest rates, we would experience a $38,000 decrease in net interest income.
Certain shortcomings are inherent in the methodologies used in determining interest rate risk through changes in net portfolio value and net interest income. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net portfolio value and net interest income information presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, and assume that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although interest rate risk calculations provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.
Item 4. Controls and Procedures
(a)
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Evaluation of Disclosure Controls and Procedures
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Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2016 (the “Evaluation Date”). Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective in timely alerting them to the material information relating to us (or our consolidated subsidiaries) required to be included in our periodic SEC filings.
(b)
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Changes in internal controls
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There were no changes made in our internal control over financial reporting during the Company’s first fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II – Other Information
Item 1. Legal Proceedings
On March 17, 2016, the Company filed with the Securities and Exchange Commission (the “SEC”) a definitive proxy statement (the “Definitive Proxy Statement”), which was mailed on or about March 18, 2016, to Company shareholders of record with respect to the Company special meeting that was held on April 25, 2016 (the “Special Meeting”). Company shareholders of record voted to approve, among other things, the Agreement and Plan of Merger, dated as of January 5, 2016, by and among OceanFirst Financial Corp. (“OceanFirst”), Justice Merger Sub Corp. (“Merger Sub”) and the Company (the “Merger Agreement”), and the transactions contemplated by the Merger Agreement, including the merger of the Company with and into OceanFirst following an initial merger of Merger Sub with and into the Company (collectively, the “Merger”).
Certain litigation was filed by a putative shareholder, Alan D. Furman, against the Company and its board of directors, as well as against OceanFirst, in the United States District Court for the District of New Jersey (the “Court”), in a case entitled
Furman v. Cape Bancorp Inc. et al.
, Case no. 16-cv-01701, seeking to enjoin the Merger unless certain disclosures are made. We refer to this herein as the “Furman Action.” The Company believes that the Furman Action is without merit. However, to avoid the costs, risks and uncertainties inherent in litigation, the Company has made certain supplemental disclosures to the Definitive Proxy Statement by a Form 8-K filed with the SEC on April 14, 2016
, and, on April 29, 2016, the Company entered into a settlement Agreement with the Plaintiff.
Item 1A. Risk Factors
The Company does not believe its risks have materially changed from those risks included in the Company’s Annual Report on Form 10-K filed with the SEC on March 15, 2016
and the Definitive Proxy Statement filed with the SEC on March 17, 2016.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a)
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There were no sales of unregistered securities during the period covered by this Report.
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(c)
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There were no issuer repurchases of securities during the period covered by this Report.
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Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable
Item 6. Exhibits
The following exhibits are either filed as part of this report or are incorporated herein by reference: