Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CBNJ > SEC Filings for CBNJ > Form 10-Q on 7-May-2014All Recent SEC Filings

Show all filings for CAPE BANCORP, INC.

Form 10-Q for CAPE BANCORP, INC.


7-May-2014

Quarterly Report


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 is a New Jersey chartered savings bank originally founded in 1923. We are a community bank focused on providing deposit and loan products to retail customers and to small and mid-sized businesses from fourteen full service branch offices located in Atlantic and Cape May Counties, New Jersey, including our main office located at 225 North Main Street, Cape May Court House, New Jersey 08210, one drive-up teller/ATM operation in Atlantic County and our two market development offices ("MDOs") located in Burlington County, New Jersey and in Radnor, Pennsylvania, which serves the five county Philadelphia market area. We attract deposits from the general public and use those funds to originate a variety of loans, including commercial mortgages, commercial business loans, residential mortgage loans, home equity loans and lines of credit ("HELOC") and construction loans. Effective December 31, 2013, the Company exited the residential mortgage loan origination business which will allow for more resources to be focused on commercial lending. 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, 2014, the Company had total assets of $1.091 billion compared to $1.093 billion at December 31, 2013. For the three months ended March 31, 2014 and 2013, the Company had total revenues (interest income plus non-interest income) of $13.4 million and $11.8 million, respectively. Net income for each of the three months ended March 31, 2014 totaled $2.0 million or $0.18 per common and fully diluted share compared to net income of $1.5 million, or $0.12 per common and fully diluted share for the three months ended March 31, 2013.

We offer banking services to individuals and businesses predominantly located in our primary market area of Cape May and Atlantic Counties, New Jersey and through our MDOs. 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 2013 and through the first quarter of 2014, the Bank experienced significant declines in its level of non-performing assets as well as making progress in improving its credit quality ratios. At March 31, 2014, non-performing loans as a percentage of total gross loans totaled 0.99% compared to 0.93% of total gross loans at December 31, 2013 and 2.46% of total gross loans at March 31, 2013. The Company's Adversely Classified Asset Ratio (Classified Assets/Tier I Capital plus the allowance for loan losses) at March 31, 2014 was 18%, an improvement from 26% at December 31, 2013 and 27% at March 31, 2013. Non-performing assets (non-performing loans, other real estate owned and non-accruing investment securities) as a percentage of total assets decreased to 1.31% at March 31, 2014 from 1.35% at December 31, 2013, and 2.38% at March 31, 2013. For the periods ended, and as of March 31, 2014 and December 31, 2013, loans held for sale ("HFS") are excluded from delinquencies, non-performing loans, non-performing assets, impaired loans and all related ratio calculations. The ratio of our allowance for loan losses to total loans increased to 1.24% at March 31, 2014, from 1.18% at December 31, 2013, while the ratio of our allowance for loan losses to non-performing loans decreased to 125.62% at March 31, 2014 from 127.05% at December 31, 2013. For the three months ended March 31, 2014, loan charge-offs and write-downs on loans transferred to held for sale totaled $2.0 million compared to loan charge-offs of $497,000 for the three months ended March 31, 2013. Of the $2.0 million of loan charge-offs and write-downs on loans transferred during the first quarter of 2014, none of these were fully reserved for as of December 31, 2013. Our total loan portfolio decreased from $789.5 million at December 31, 2013 to $782.3 million at March 31, 2014 resulting from a decrease in commercial loans totaling $3.5 million, decreases in residential mortgage loans totaling $2.6 million and a decline in consumer loans totaling $1.1 million. Commercial loan closings totaling $19.7 million during the quarter were more than offset by the following: transfer of $5.3 million of classified commercial loans to loans held


for sale, charge-offs and write-downs of loans transferred to loans held for sale totaling $2.0 million, normal amortizations, and early payoffs (including the payoff of a $6.5 million classified loan relationship). The decline in residential mortgage loans reflects the effect of the Company exiting the residential mortgage loan origination business effective December 31, 2013. At March 31, 2014, 92.2% of our loan portfolio was secured by real estate and 61.6% 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.

Total deposits increased $3.6 million from $798.4 million at December 31, 2013 to $802.0 million at March 31, 2014 primarily resulting from an increase of $12.6 million in certificates of deposit, partially offset by decreases in interest-bearing checking accounts and money market deposit accounts of $7.2 million and $2.7 million, respectively. We also maintain an investment portfolio.

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

2014 Outlook

Our market area has been affected by the recession and the modest recovery. Unemployment in Atlantic and Cape May County was 13.1% and 16.1%, respectively, as of February 2014, an improvement from 2013 levels of 14.8% and 18.8%, respectively. The number of residential building permits issued remained flat in Atlantic County from February 2013 to February 2014 while the values of those permits increased. In Cape May County, both the number of residential permits and the values increased from February 2013 to February 2014. Median sale prices of single-family homes sold during the twelve month periods ended February 2014 and 2013 remained relatively flat in both Atlantic and Cape May Counties. The number of homes sold during those same periods increased 7.1% and 1.7% for Atlantic and Cape May Counties, respectively while the number of new listings increased 19.7% in Atlantic County and 8.5% in Cape May County.

During 2013 and continuing through the first quarter of 2014, Cape Bank was able to make significant strides in reducing non-performing assets and classified items. Many troubled credits finally made their way through the slow foreclosure process, permitting the bank to take title and sell the collateral. This helped reduce non-earning assets and the costs relating to problem loans. Management intends to continue these efforts for the remainder of 2014 with the goal of reducing classified items to levels that would fall more within industry norms.

Management believes that more effort needs to be placed on expense control. In this regard, if management is successful in reducing troubled credits as planned, there will be a corresponding reduction in the costs related to these loans as they work through the foreclosure process.

During 2014, Cape Bank will focus on the following initiatives:

- Core deposit gathering, both retail and commercial

- Continue building commercial loan relationships

- Continue efforts to effectively manage the Bank's capital

- Build core earnings

- Continue efforts to reduce non-performing assets

- Effectively utilize new core processors functionality with an emphasis on digital delivery

Core deposit gathering, both retail and commercial:

The Company recognizes the value associated with strong core deposits and has built company-wide incentive programs to achieve this initiative. Both retail and commercial deposits will be focused on through advertising, branch programs, commercial loan calling officers and digital media. Deposit products will be designed to attract new deposit customers and retain existing ones.


Continue building commercial loan relationships:

Cape Bank has had good success in building strong commercial loan relationships during the past several years. This has been the result of building a seasoned group of professional and knowledgeable staff combined with market driven products. The Company's expansion into Burlington County in 2010 and the Philadelphia metro market in 2013 has produced better than anticipated results. Efforts will be made to continue to attract quality commercial lending staff as well as maximizing the efforts of the existing staff, while remaining flexible with product structure to adapt to market conditions.

Continue efforts to effectively manage the Company's capital:

Despite the Company's problems with credit since the recession, we were able to maintain a strong capital position. With troubled assets posing a reduced concern, the Company reassessed the level of capital and believed a continued active management would be appropriate. The Company began paying a quarterly cash dividend in the fourth quarter of 2012 and increased that dividend from $.05 per share to $.06 per share in the fourth quarter of 2013. Additionally, during 2013, the Company completed two 5% stock buyback programs and announced a third 5% buyback program in December 2013. On January 20, 2014, the Company, with the approval of the regulators, declared a $0.06 per common share cash dividend to shareholders of record on February 3, 2014. The dividend was paid on February 17, 2014.

Build core earnings:

During the economic downturn, Bank values were often a reflection of the perceived adequacy of equity often through the metric of tangible book value. Uncertainty with the economy in general, and with credit in particular, made capital a handy heuristic to gauge the soundness of a Bank.

These macro concerns have been receding as more institutions have gotten on sounder footing. As a result, valuations have begun to focus on earnings as a driver of value. In particular, core earnings are becoming an increasingly important metric.

Management recognizes this development and has made growth in core earnings an integral part of the 2014 Strategic Plan.

Continue efforts to reduce non-performing assets:

Management was able to reduce the level of non-performing assets during 2013 and believes that continued efforts to reduce them further will provide value to the shareholders. Several of the larger troubled credits have moved to OREO as the Bank attempts to move these properties promptly. This area will continue to receive attention in 2014.

Effectively utilize new core processors functionality with an emphasis on digital delivery:

The Bank made a smooth transition to our new core processor, FISERV, in the 4th quarter of 2013. The Bank believes that customers are requiring access to, and communication from, their financial service providers through a multitude of both physical and electronic delivery channels. During 2014, the Bank will maximize its opportunities to provide products and services via multiple delivery channels offered through FISERV and other available sources.

Comparison of Financial Condition at March 31, 2014 and December 31, 2013

At March 31, 2014, the Company's total assets were $1.091 billion, a decrease of $1.8 million, or 0.17%, from the December 31, 2013 level of $1.093 billion.

Cash and cash equivalents decreased $4.0 million, or 16.02%, to $20.9 million at March 31, 2014 from $24.9 million at December 31, 2013.

Interest-bearing time deposits increased $207,000, or 2.25%, from $9.2 million at December 31, 2013 to $9.4 million at March 31, 2014. 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 loans decreased to $782.3 million at March 31, 2014 from $789.5 million at December 31, 2013, a decrease of $7.2 million, or 0.91%. Net loans decreased $7.6 million, net of an increase in the allowance for loan losses of $406,000, primarily resulting from a decrease in commercial loans totaling $3.5 million, decreases in residential mortgage loans totaling $2.6 million and a decline in consumer loans totaling $1.1 million. Commercial loan closings totaling $19.7 million during the quarter were more than offset by the following: transfer of $5.3 million of classified commercial loans to loans held for sale, charge-offs and write-downs of loans transferred to loans held for sale totaling $2.0 million, normal amortizations, and early payoffs (including the payoff of a $6.5


million classified loan relationship). 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 $109,000 to $9.9 million, or 1.27% of total gross loans, at March 31, 2014 from $9.8 million, or 1.24% of total gross loans at December 31, 2013. Total delinquent loans by portfolio at March 31, 2014 were $6.7 million of commercial mortgage and $303,000 commercial business loans, $2.2 million of residential mortgage loans and $662,000 of home equity loans. At March 31, 2014, delinquent loan balances by number of days delinquent were: 31 to 59 days - $2.4 million; 60 to 89 days - $603,000; and 90 days and greater - $6.9 million.

At March 31, 2014, the Company had $7.7 million in non-performing loans, or 0.99% of total gross loans, an increase of $407,000 from $7.3 million, or 0.93% of total gross loans at December 31, 2013. Non-performing loans do not include loans held for sale. Loans held for sale include $6.1 million of loans that are on non-accrual status. At March 31, 2014, non-performing loans by loan portfolio category were as follows: $6.4 million of commercial loans, $823,000 of residential mortgage loans, and $465,000 of consumer loans. Of these stated delinquencies, the Company had $390,000 of loans that were 90 days or more delinquent and still accruing (6 residential mortgage loans for $316,000 and 3 consumer loans for $74,000). These loans are well secured, in the process of collection and we anticipate no losses will be incurred.

At March 31, 2014, commercial non-performing loans had collateral type concentrations of $352,000 (1 loan or 5%) secured by commercial buildings and equipment, $982,000 (6 loans or 15%) secured by residential related commercial loans, $1.0 million (3 loans or 16%) secured by restaurant properties, $759,000 (3 loans or 12%) secured by land and building lots, and $3.4 million (8 loans or 52%) secured by retail stores. The three largest commercial non-performing loan relationships are $1.8 million, $773,000 and $666,000.

We believe we have appropriately charged-off, written-down or established adequate loss reserves on problem loans that we have identified. For 2014, 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 increased $6.5 million, or 3.88%, to $172.7 million at March 31, 2014 from $166.3 million at December 31, 2013. At March 31, 2014, AFS securities totaled $155.0 million and HTM securities totaled $17.7 million. At December 31, 2013, AFS securities totaled $157.2 million and HTM securities totaled $9.1 million. Investment securities are classified as HTM when management has the positive intent and ability to hold them to maturity. In March 2014, the Bank reclassified $7.6 million of its AFS securities as HTM, as these securities may be particularly susceptible to changes in fair value in the near term, as a result of market volatility. On February 27, 2014, the Company sold its remaining portion of collateralized debt obligation securities ("CDOs") with a book value of zero, resulting in $1.9 million gain.

Other real estate owned ("OREO") decreased $919,000 from $7.4 million at December 31, 2013 to $6.5 million at March 31, 2014, and consisted at March 31, 2014 of eleven commercial properties and fifteen residential properties (including seven building lots). During the quarter ended March 31, 2014, the Company added one residential property to OREO with an aggregate carrying value of $56,000. In addition, nine residential OREO properties with an aggregate carrying value totaling $885,000 were sold during the quarter ended March 31, 2014 with recognized net losses of $8,000. In addition, in the second quarter of 2014, to date, the Company has sold four residential OREO properties, including two building lots, with an aggregate carrying value of $824,000 resulting in net gains totaling $67,000. As of the date of this filing, the Company has agreements of sale for six OREO properties with an aggregate carrying value of $1.7 million.

Total deposits increased $3.6 million, or 0.45%, from $798.4 million at December 31, 2013 to $802.0 million at March 31, 2014 primarily resulting from increases in certificates of deposit of $12.6 million partially offset by decreases in interest-bearing checking accounts of $7.2 million and money market accounts of $2.7 million. Noninterest-bearing deposit accounts increased $776,000 and savings accounts increased $124,000. At March 31, 2014, certificates of deposit totaled $281.8 million, an increase of $12.6 million, or 4.68%, from the December 31, 2013 total of $269.2 million. Interest-bearing checking accounts declined $7.2 million, or 3.42%, to $204.4 million at March 31, 2014 from $211.6 million at December 31, 2013. Money market accounts declined $2.7 million, or 1.94%, to $136.4 million at March 31, 2014 from $139.1 million at December 31, 2013.

Borrowings decreased $4.4 million from $143.9 million at December 31, 2013 to $139.5 million at March 31, 2014.

Cape Bancorp's total equity increased $670,000, or 0.48%, to $141.1 million at March 31, 2014 from $140.4 million at December 31, 2013 primarily resulting from a net increase of $1.3 million (earnings less dividends declared) in retained earnings and a decrease of $960,000 in the accumulated other comprehensive loss, partially offset by a $1.8 million decrease related to the Company's stock repurchase program. Tangible equity to tangible assets increased to 11.07% at March 31, 2014 compared to 10.99% at December 31, 2013. At March 31, 2014, Cape Bank's regulatory capital ratios for Tier I Leverage Ratio, Tier I Risk-Based Capital and Total Risk-Based Capital were 9.56%, 13.16% and 14.41%, 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.

                                                           For the three months ended March 31,
                                                 2014                                                2013
                                                   Interest                                            Interest
                                                    Income/        Average                              Income/        Average
                             Average Balance        Expense         Yield        Average Balance        Expense         Yield
                                                                  (dollars in thousands)
Assets
Interest-earning deposits   $          22,722     $        23          0.41 %   $          25,639     $        28          0.44 %
Investments                           181,104             945          2.09 %             175,741           1,004          2.29 %
Loans                                 791,858           9,331          4.78 %             726,380           9,076          5.07 %
Total interest-earning
assets                                995,684          10,299          4.19 %             927,760          10,108          4.42 %
Noninterest-earning assets            105,394                                             110,170
Allowance for loan losses              (9,360 )                                            (9,945 )
Total assets                $       1,091,718                                   $       1,027,985

Liabilities and
Stockholders' Equity
Interest-bearing demand
accounts                    $         214,957              97          0.18 %   $         190,055             120          0.26 %
Savings accounts                       95,731              13          0.06 %              95,485              16          0.07 %
Money market accounts                 139,535              62          0.18 %             173,992              90          0.21 %
Certificates of deposit               264,785             432          0.66 %             231,093             613          1.08 %
Borrowings                            146,946             598          1.65 %              95,354             610          2.59 %
Total interest-bearing
liabilities                           861,954           1,202          0.57 %             785,979           1,449          0.75 %
Noninterest-bearing
deposits                               80,262                                              84,082
Other liabilities                       7,248                                               6,402
Total liabilities                     949,464                                             876,463
Stockholders' equity                  142,254                                             151,522
Total liabilities and
stockholders' equity        $       1,091,718                                   $       1,027,985
Net interest income                               $     9,097                                         $     8,659
Net interest spread                                                    3.62 %                                              3.67 %
Net interest margin                                                    3.71 %                                              3.79 %
Net interest income and
margin (tax
  equivalent basis) (1)                           $     9,169          3.73 %                         $     8,731          3.82 %
Ratio of average
interest-earning assets
  to average
interest-bearing
liabilities                            115.51 %                                            118.04 %

(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 equivalent adjustment has been computed using a Federal income tax rate of 35%, and has the effect of increasing interest income by $46,000 and $72,000 for the three month period ended March 31, 2014 and 2013, respectively. The average yield on investments decreased to 2.19% from 2.09% for the three month period ended March 31, 2014 and increased to 2.45% from 2.29% for the three month period ended March 31, 2013.


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.

                                                  For the three months ended March 31, 2014
                                              compared to the three months ended March 31, 2013
                                                    Increase (decrease) due to changes in:
                                         Average                     Average                    Net
                                          Volume                      Rate                    Change
                                                                 (in thousands)
Interest Earning Assets
Interest-earning deposits            $             (3 )         $              (2 )       $            (5 )
Investments                                        25                         (84 )                   (59 )
Loans                                             789                        (534 )                   255
Total interest income                             811                        (620 )                   191

Interest-Bearing Liabilities
Interest-bearing demand accounts                   14                         (37 )                   (23 )
Savings accounts                                    -                          (3 )                    (3 )
. . .
  Add CBNJ to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CBNJ - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.