-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BKqoObA439BrQy8t4kgTbRRZtDMalFw+OggS0HOQ+i3AGMKVMhatgKDX60HBo+im E4vV7toBhBdaiNvB0McPhg== 0000943374-08-001202.txt : 20080811 0000943374-08-001202.hdr.sgml : 20080811 20080811155957 ACCESSION NUMBER: 0000943374-08-001202 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20080630 FILED AS OF DATE: 20080811 DATE AS OF CHANGE: 20080811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BANCORP OF NEW JERSEY INC CENTRAL INDEX KEY: 0001330039 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 550897507 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-51500 FILM NUMBER: 081006200 BUSINESS ADDRESS: STREET 1: 365 BROAD STREET CITY: BLOOMFIELD STATE: NJ ZIP: 07003-2798 BUSINESS PHONE: 973 748-3600 MAIL ADDRESS: STREET 1: 365 BROAD STREET CITY: BLOOMFIELD STATE: NJ ZIP: 07003-2798 10-Q 1 form10q_080808.txt FORM 10-Q FOR PERIOD ENDING JUNE 30, 2008 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2008 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __ to __ Commission file number 000-1330039 AMERICAN BANCORP OF NEW JERSEY, INC. (Exact name of registrant as specified in its charter) New Jersey 55-0897507 ---------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 365 Broad Street, Bloomfield, New Jersey 07003 ---------------------------------------------- (Address of Principal Executive Offices) (973) 748-3600 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated Accelerated Non-accelerated Smaller reporting filer [ ] filer [ X ] filer [ ] company [ ] (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes [ ] No [ X ] As of August 8, 2008, there were 10,945,856 outstanding shares of the Registrant's Common Stock. AMERICAN BANCORP OF NEW JERSEY, INC. Table of Contents PART I - FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements 3 Notes to Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk 36 Item 4. Controls and Procedures 41 PART II - OTHER INFORMATION Item 1. Legal Proceedings 42 Item 1A. Risk Factors 42 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 42 Item 3. Defaults Upon Senior Securities 42 Item 4. Submission of Matters to a Vote of Securities Holders 42 Item 5. Other Information 42 Item 6. Exhibits 43 FORM 10-Q SIGNATURE PAGE 44
CERTIFICATIONS 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS American Bancorp of New Jersey, Inc. Statements of Financial Condition (in thousands, except share data) (unaudited)
June 30, September 30, 2008 2007 ---- ---- ASSETS Cash and cash equivalents Cash and due from banks $ 9,952 $ 9,983 Interest-earning deposits 1,711 14,638 Federal funds sold 20,980 12,800 ---------- --------- Total cash and cash equivalents 32,643 37,421 Securities available-for-sale 85,136 58,093 Securities held-to-maturity (fair value, June 30, 2008 - $6,818 September 30, 2007 - $6,671) 6,856 6,730 Loans held for sale - 1,243 Loans receivable, net of allowance for loan losses (June 30, 2008 - $2,965, September 30, 2007 - $2,568) 471,220 437,883 Premises and equipment 12,038 10,856 Federal Home Loan Bank stock, at cost 3,014 2,553 Cash surrender value of life insurance 13,619 13,214 Accrued interest receivable 2,365 2,212 Other assets 3,832 3,533 ---------- --------- Total assets $ 630,723 573,738 ========== ========= LIABILITIES AND EQUITY Deposits Non-interest-bearing $ 30,558 $ 30,494 Interest-bearing 420,202 398,106 ---------- ---------- Total deposits 450,760 428,600 Advance payments by borrowers for taxes and insurance 2,925 2,702 Borrowings 81,564 37,612 Accrued expenses and other liabilities 4,581 4,231 ---------- ---------- Total liabilities $ 539,830 $ 473,145 Commitments and contingent liabilities Equity Preferred stock, $.10 par value, 10,000,000 shares authorized at June 30, 2008 and September 30, 2007; - - Common stock, $.10 par value, 20,000,000 shares authorized, 14,527,953 shares issued at June 30, 2008 and September 30, 2007; 10,948,286 and 11,946,190 outstanding at June 30, 2008 and September 30, 2007; 1,453 1,453 Additional paid in capital 115,235 113,607 Unearned ESOP shares (7,762) (8,099) Retained earnings 23,430 24,258 Treasury Stock; 3,579,667 and 2,581,763 shares at June 30, 2008 and September 30, 2007 (40,805) (30,353) Accumulated other comprehensive loss (658) (273) ---------- ---------- Total equity 90,893 100,593 ---------- ---------- Total liabilities and equity $ 630,723 $ 573,738 ========== ==========
See accompanying notes to unaudited consolidated financial statements 3 American Bancorp of New Jersey, Inc. Statements of Income (in thousands, except share data) (unaudited)
Nine Months Ended Three Months Ended June 30, June 30, -------- -------- 2008 2007 2008 2007 ---- ---- ---- ---- Interest and dividend income Loan, including fees $ 20,107 $ 18,206 $ 6,685 $ 6,299 Securities 2,461 2,306 1,132 699 Federal funds sold and other 819 863 146 510 --------- --------- --------- --------- Total interest income 23,387 21,375 7,963 7,508 Interest expense NOW and money market 2,790 2,140 659 1,072 Savings 1,577 2,054 456 657 Certificates of deposit 7,285 6,124 2,436 2,182 Borrowings 1,714 1,767 699 533 --------- --------- --------- --------- Total interest expense 13,366 12,085 4,250 4,444 Net interest income 10,021 9,290 3,713 3,064 Provision for loan losses 431 320 121 77 ---------- --------- --------- --------- Net interest income after provision for loan losses 9,590 8,970 3,592 2,987 Noninterest income Deposit service fees and charges 704 518 262 183 Income from cash surrender value of life insurance 405 337 139 127 Gain on sale of loans 9 42 - 30 Loss on sales of securities available-for-sale (5) (11) - - Other 201 165 80 68 --------- --------- --------- --------- Total noninterest income 1,314 1,051 481 408 Noninterest expense Salaries and employee benefits 6,729 6,345 2,174 2,254 Occupancy and equipment 1,414 744 506 282 Data processing 591 549 208 191 Advertising and marketing 171 244 39 78 Professional and consulting 308 299 110 95 Legal 160 110 41 27 Other 890 826 342 277 --------- --------- --------- --------- Total noninterest expense 10,263 9,117 3,420 3,204 Income before provision for income taxes 641 904 653 191 Provision for income taxes 129 276 222 41 --------- --------- --------- --------- Net income $ 512 $ 628 $ 431 $ 150 Comprehensive income $ 127 $ 957 $ (466) $ 151 Earnings per share: Basic $ 0.05 $ 0.05 $ 0.04 $ 0.01 Diluted $ 0.05 $ 0.05 $ 0.04 $ 0.01
See accompanying notes to unaudited consolidated financial statements 4 American Bancorp of New Jersey, Inc. Statements of Shareholders' Equity Nine months ended June 30, 2007 (in thousands, except share data) (unaudited)
Accumulated Compre- Additional Unearned Other hensive Common Paid-In ESOP Retained Comprehensive Total Income Stock Capital Shares Earnings Income Treasury Stock Equity (Loss) ----- ------- ------ -------- ------ -------------- ------ ------ Balance at September 30, 2006 $ 1,453 $ 111,780 $ (8,549) $ 25,438 $ (881) $ (4,380) $ 124,861 Cumulative effect of adoption of SAB 108 - - - 130 - - 130 Balance at October 1, 2006 $ 1,453 $ 111,780 $ (8,549) $ 25,568 (881) $ (4,380) $ 124,991 RSP stock grants (6,249 shares issued) - (76) - - - 76 - RSP shares earned including tax benefit of vested awards - 904 - - - - 904 Share purchases (1,700,603 shares) - - - - - (20,347) (20,347) Stock options earned 422 - - - - 422 ESOP shares earned - 127 337 - - - 464 Cash dividends paid $0.12 per share - - - (1,421) - - (1,421) Comprehensive income Net income - - - 628 - - 628 Change in unrealized loss on securities available-for-sale, net of taxes - - - 329 - 329 ------- ----------- --------- -------- ------- --------- --------- Total comprehensive income $ 957 ======= Balance at June 30, 2007 $ 1,453 $ 113,157 $ (8,212) $ 24,775 (552) (24,651) $ 105,970 ======= =========== ========= ========= ======= ======== =========
See accompanying notes to unaudited consolidated financial statements 5 American Bancorp of New Jersey, Inc. Statements of Shareholders' Equity Nine months ended June 30, 2008 (in thousands, except share data) (unaudited)
Accumulated Compre- Additional Unearned Other hensive Common Paid-In ESOP Retained Comprehensive Treasury Total Income Stock Capital Shares Earnings Loss Stock Equity (Loss) ----- ------- ------ -------- ---- ----- ------ ------ Balance at September 30, 2007 $ 1,453 $ 113,607 $ (8,099) $ 24,258 $ (273) $ (30,353) $ 100,593 RSP shares earned including tax benefit of vested awards - 1,010 - - - - 1,010 Tax benefit on dividends paid on unvested RSP shares - 66 - - - - 66 Share purchases (1,002,070 shares) - - - - - (10,500) (10,500) Stock options earned 490 - - - - 490 Stock options exercised - (19) - - - 48 29 ESOP shares earned - 81 337 - - - 418 Cash dividends paid $0.13 per share - - - (1,340) - - (1.340) Comprehensive income Net income - - - 512 - - 512 512 Change in unrealized loss on securities available-for-sale, net of taxes - - - - (385) - (385) (385) ------- ----------- --------- --------- ------- --------- --------- ---------- Total comprehensive income $ 127 ========== Balance at June 30, 2008 $ 1,453 $ 115,235 $ (7,762) $ 23,430 $ (658) $ (40,805) $ 90,893 ======== =========== ========== ========= ======= ========= =========
See accompanying notes to unaudited consolidated financial statements 6 American Bancorp of New Jersey, Inc. Statements of Cash Flows (in thousands) (unaudited)
Nine Months Ended June 30, -------- 2008 2007 ---- ---- Cash flows from operating activities Net Income $ 512 $ 628 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 411 261 Net amortization and accretion of premiums and discounts (54) (10) Losses on sales of securities available-for-sale 5 11 ESOP compensation expense 418 464 RSP compensation expense 979 833 SOP compensation expense 490 422 Provision for loan losses 431 320 Increase in cash surrender value of life insurance (405) (337) Gain on sale of loans (7) (42) Proceeds from sales of loans 1,869 8,421 Origination of loans held for sale (619) (8,882) Increase in accrued interest receivable (153) (183) Decrease (increase) in other assets 398 (41) Change in deferred income taxes (405) (269) Decrease in other liabilities 350 187 ----- ------- Net cash provided by operating activities 4,220 1,783 Cash flows from investing activities Net increase in loans receivable (33,768) (27,259) Purchases of securities held-to-maturity (1,108) - Maturities of securities held-to-maturity - 2,000 Principal paydowns on securities held-to-maturity 972 1,319 Purchases of securities available-for-sale (54,841) (4,990) Sales of securities available-for-sale 11,510 3,227 Maturities of securities available-for-sale 2,000 11,000 Principal paydowns on securities available-for-sale 13,670 13,028 Purchase of Federal Home Loan Bank stock (958) (1,999) Redemption of Federal Home Loan Bank stock 497 2,711 Purchase of bank-owned life insurance - (4,000) Purchase of premises and equipment (1,593) (4,079) -------- ---------- Net cash used in investing activities (63,619) (9,042) Cash flows from financing activities Net increase in deposits 22,160 82,769 Net change in advance payments by borrowers for taxes and insurance 223 399 Proceeds from borrowings 55,000 - Repayment of borrowings (11,048) (6,047) Net change in Federal Home Loan Bank of New York overnight lines of credit - (10,400) RSP tax benefit of vested awards 31 71 Tax benefit on dividends paid on unvested RSP shares 66 - Proceeds from stock option exercises 29 - Cash dividends paid (1,340) (1,421) RSP and treasury share purchases (10,500) (20,347) ------- --------- Net cash provided by financing activities 54,621 45,024 Net change in cash and cash equivalents (4,778) 37,765 Cash and cash equivalents at beginning of year 37,421 7,165 ------- --------- Cash and cash equivalents at end of period $ 32,643 $ 44,930 ========== =========== (Continued) 7 American Bancorp of New Jersey, Inc. Statements of Cash Flows (in thousands) (unaudited) Nine Months Ended June 30, -------- 2008 2007 ---- ---- Supplemental cash flow information: Cash paid during the period for Interest $ 10,067 $ 12,232 Income taxes, net of refunds 506 867 Supplemental disclosures of non-cash financing transaction: Cumulative effect of adoption of SAB 108 - 130
See accompanying notes to unaudited consolidated financial statements 8 American Bancorp of New Jersey, Inc. Notes To Unaudited Financial Statements (in thousands) Note 1 - Basis of Presentation American Bancorp of New Jersey, Inc. (the "Company") is a New Jersey chartered corporation organized in May 2005 that was formed for the purpose of acquiring all of the capital stock of American Bank of New Jersey, a federally chartered Bank, (the "Bank"), which was previously owned by ASB Holding Company ("ASBH"). ASBH was a federally chartered corporation organized in June 2003 that was formed for the purpose of acquiring all of the capital stock of the Bank, which was previously owned by American Savings, MHC (the "MHC"), a federally chartered mutual holding company. The Bank had previously converted from a mutual to a stock savings bank in a mutual holding company reorganization in 1999 in which no stock was issued to any person other than the MHC. On October 3, 2003, ASB Holding Company, the predecessor of American Bancorp of New Jersey, Inc., completed a minority stock offering and sold 1,666,350 shares of common stock in a subscription offering at $10 per share and received proceeds of $16,060,000, net of offering costs of $603,000. ASBH contributed $9,616,000, or approximately 60% of the net proceeds, to the Bank in the form of a capital contribution. ASBH loaned $1,333,080 to the Bank's employee stock ownership plan ("ESOP") and the ESOP used those funds to acquire 133,308 shares of common stock at $10 per share. After the sale of the stock, the MHC held 70%, or 3,888,150 shares, of the outstanding stock of ASBH with the remaining 30% or, 1,666,350 shares, held by persons other than the MHC. ASBH held 100% of the Bank's outstanding common stock. On October 5, 2005, the Company completed a second step conversion in which the 3,888,150 shares of ASB Holding Company held by the MHC were converted and sold in a subscription offering. Through this transaction, ASBH ceased to exist and was replaced by American Bancorp of New Jersey, Inc. as the holding company for the Bank. A total of 9,918,750 shares of common stock were sold in the offering at $10 per share through which the Company received proceeds of $97,524,302, net of offering costs of $1,663,198. The Company contributed $48,762,151 or approximately 50% of the net proceeds to the Bank in the form of a capital contribution. The Company loaned $7,935,000 to the Bank's ESOP which used those funds to acquire 793,500 shares of common stock at $10 per share. As part of the second step conversion, each of the 1,666,350 outstanding shares of ASBH held by public shareholders was exchanged for 2.55102 of the Company's shares. This exchange resulted in an additional 4,250,719 shares of the Company being issued, for a total of 14,169,469 outstanding shares. The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, the Bank and ASB Investment Corp. (the "Investment Corp.") as of June 30, 2008 and September 30, 2007 and for the three and nine months ended June 30, 2008 and June 30, 2007. Significant intercompany accounts and transactions have been eliminated in consolidation. References in this Quarterly Report on Form 10-Q to the Company generally refer to the Company and the Bank, unless the context indicates otherwise. References to "we," "us," or "our" refer to the Bank or Company, or both, as the context indicates. The primary business of the Company is the ownership of the Bank and the Investment Corp. The Bank provides a full range of banking services to individual and corporate customers located primarily in the New Jersey and New York metropolitan area. The Bank is subject to competition from other financial institutions and to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities. The Investment Corp. was organized for the purpose of selling insurance and investment 9 products, including annuities, to customers of the Bank and the general public, with initial activities limited to the sale of fixed rate annuities. The Investment Corp. has had limited activity to date. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. These interim statements should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended September 30, 2007. The September 30, 2007 balance sheet presented herein has been derived from the audited financial statements included in the consolidated financial statements and notes included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission, but does not include all disclosures required by accounting principles generally accepted in the United States of America. To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and future results could differ. The allowance for loan losses, prepayment speeds on mortgage-backed securities, and status of contingencies are particularly subject to change. Interim statements are subject to possible adjustment in connection with the annual audit of the Company for the year ending September 30, 2008. In the opinion of management of the Company, the accompanying unaudited interim consolidated financial statements reflect all of the adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial position and consolidated results of operations for the periods presented. The results of operations for the nine months ended June 30, 2008 are not necessarily indicative of the results to be expected for the full year or any other period. Note 2 - Earnings Per Share (EPS) Amounts reported as basic earnings per share of common stock reflect earnings available to common shareholders for the period divided by the weighted average number of common shares outstanding during the period less unearned ESOP and restricted stock plan shares. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock awards and options) were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed by dividing income by the weighted-average number of shares outstanding for the period plus common-equivalent shares computed using the treasury stock method. 10 The factors used in the earnings per share computation follow (in thousands except share data).
Nine Months Ended Three Months Ended June 30, June 30, -------- -------- 2008 2007 2008 2007 ---- ---- ---- ---- Basic Net income $ 512 $ 628 $ 431 $ 150 Weighted average common shares outstanding 10,167,297 11,729,700 9,862,522 11,273,478 Basic earnings per common share $ 0.05 $ 0.05 $ 0.04 $ 0.01 ============ ========== ============== ========== Diluted Net income $ 512 $ 628 $ 431 $ 150 Weighted average common shares outstanding for basic earnings per common share 10,167,297 11,729,700 9,862,522 11,273,478 Add: Dilutive effects of assumed exercises of stock options 143,583 159,507 151,380 145,837 Add: Dilutive effects of full vesting of stock awards 15,922 31,808 13,601 25,127 ------------ ------- -------------- ------------ Average shares and dilutive potential common shares 10,326,802 11,921,015 10,027,503 11,444,442 ============ ========== ============== ============ Diluted earnings per common share $ 0.05 $ 0.05 $ 0.04 $ 0.01 ============ ============ =============== ============
Note 3 - Other Stock-Based Compensation At June 30, 2008, all shares and options available under the 2005 Restricted Stock Plan, 2005 Stock Option Plan and the 2006 Equity Incentive Plan had been awarded to participants. 11 A summary of the activity in the Company's stock option plans for the nine months ended June 30, 2008 and 2007 is as follows.
For the nine months ended June 30, 2008 June 30, 2007 ------------- ------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price ----- ----- ------ ----- Outstanding at beginning of period 1,416,948 $ 9.26 1,397,854 $ 9.23 Granted - - 19,094 11.87 Exercised ( 4,166) 6.80 - - Forfeited or expired - - - - ---------- ---------- ------------ -------- Outstanding at end of period 1,412,782 $ 9.27 1,416,948 $ 9.26 ========== ========= ========== ======== Options exercisable at period end 733,125 $ 8.82 417,094 $ 8.43 ========== ========== ========== ======== Weighted average remaining contractual life 7.1 years 8.0 years
A summary of the status of the Company's nonvested restricted stock plan shares as of June 30, 2008 and 2007 and changes during the nine months ended June 30, 2008 and 2007 are as follows.
For the nine months ended June 30, 2008 June 30, 2007 ------------- ------------- Weighted Weighted Average Average Grant Date Grant Date Shares Fair Value Shares Fair Value ------ ---------- ------ ----------- Outstanding at beginning of period 414,281 $ 10.13 520,126 $ 10.04 Granted - - 6,249 11.87 Vested (129,112) 9.85 (112,094) 9.80 Forfeited or expired - - - - ----------- --------- ---------- --------- Outstanding at end of period 285,169 $ 10.25 414,281 $ 10.13 =========== ========== ========== ==========
Note 4 - Recent Accounting Pronouncements In July 2006, the FASB released Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." This Interpretation revises the recognition tests for tax positions taken in tax returns such that a tax benefit is recorded only when it is more likely than not that the tax position will be allowed upon examination by taxing authorities. The amount of such a tax benefit to record is the largest amount that is more likely than not to be allowed. Any reduction in 12 deferred tax assets or increase in tax liabilities upon adoption will correspondingly reduce retained earnings. The adoption of Interpretation No. 48 on October 1, 2007 did not have a material impact on the Company's consolidated financial statements. In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157 "Fair Value Measurements" ("SFAS No. 157"), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued Staff Position (FSP) 157-2, Effective Date of FASB Statement No. 157. This FSP delays the effective date of FAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The adoption of SFAS No. 157 when it becomes effective for the Company on October 1, 2008 is not expected to have a material impact on the Company's consolidated financial statements. In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159 "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS No. 159"), SFAS No. 159 permits entities to choose to measure certain financial assets and financial liabilities at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company has not yet determined the effect of adopting SFAS No. 159, which is effective for it on October 1, 2008. At its September 2006 meeting, the Emerging Issues Task Force ("EITF") reached a final consensus on Issue 06-04, "Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements." The consensus stipulates that an agreement by an employer to share a portion of the proceeds of a life insurance policy with an employee during the postretirement period is a postretirement benefit arrangement required to be accounted for under SFAS No. 106 or Accounting Principles Board Opinion ("APB") No. 12, "Omnibus Opinion - 1967." The consensus concludes that the purchase of a split-dollar life insurance policy does not constitute a settlement under SFAS No. 106 and, therefore, a liability for the postretirement obligation must be recognized under SFAS No. 106 if the benefit is offered under an arrangement that constitutes a plan or under APB No. 12 if it is not part of a plan. Issue 06-04 is effective for annual or interim reporting periods beginning after December 15, 2007. The provisions of Issue 06-04 should be applied through either a cumulative effect adjustment to retained earnings as of the beginning of the year of adoption or retrospective application. The Company is currently assessing the financial statement impact of implementing EITF 06-04. On November 5, 2007, the SEC issued Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at Fair Value through Earnings ("SAB 109"). Previously, SAB 105, Application of Accounting Principles to Loan Commitments, stated that in measuring the fair value of a derivative loan commitment, a company should not incorporate the expected net future cash flows related to the associated servicing of the loan. SAB 109 supersedes SAB 105 and indicates that the expected net future cash flows related to the associated servicing of the loan should be included in measuring fair value for all written loan commitments that are accounted for at fair value through earnings. SAB 105 also indicated that internally-developed intangible assets should not be recorded as part of the fair value of a derivative loan commitment, and SAB 109 retains that view. SAB 109 is effective for derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. The Company does not expect the impact of this standard to be material. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 as amended and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identifiable by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse affect on the operations and future prospects of the Company and its wholly-owned subsidiaries include, but are not limited to, changes in: interest rates; general economic conditions; legislative/regulatory provisions; monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board; the quality or composition of the loan or investment portfolios; demand for loan products; deposit flows; competition; and demand for financial services in the Company's market area. These risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. Business Strategy Our business strategy has been to operate as a well-capitalized independent financial institution dedicated to providing convenient access and quality service at competitive prices. During recent years, we have experienced significant loan and deposit growth. Our current strategy seeks to continue that growth while we evolve from a traditional thrift institution into a full service, community bank. Our key business strategies are highlighted below accompanied by a brief overview of our progress in implementing each of these strategies: o Grow and diversify the deposit mix by emphasizing non-maturity account relationships acquired through de novo branching and existing deposit growth. Our current business plan calls for us to open up to three de novo branches over approximately the next five years. Having opened three full service branches located in Verona, Nutley and Clifton, New Jersey during fiscal 2007, the Company currently has no plans or commitments to open additional de novo deposit branches during fiscal 2008. Rather, the Company continues to direct significant strategic effort toward achieving and maintaining profitability within each of these three branches. Based on the Company's internal branch profitability model, the Verona branch, which opened in December 2006, achieved profitability during the quarter ended March 31, 2008 and continued to operate profitably during the quarter ended June 30, 2008. The Bank's Nutley and Clifton branches, which opened in May and August of 2007, respectively, have not yet achieved quarterly profitability. However, the operating losses for each of the two branches decreased during the quarter ended June 30, 2008 compared with prior quarters. Notwithstanding this current focus, the Company would consider additional branching projects during fiscal 2008 if appropriate opportunities were to arise but generally expects to revisit additional branching opportunities after fiscal 2008. 14 o Grow and diversify the loan mix by increasing commercial loan origination volume while increasing the balance of such loans as a percentage of total loans. For the fiscal year ended September 30, 2007, our commercial loans, including multi-family, nonresidential real estate, construction and business loans, grew $45.7 million, or 47.5%, from $96.2 million to $141.9 million. This increase resulted in commercial loans growing from 24.1% to 32.4% of loans receivable, net for fiscal 2007. Such growth continued during the nine months ended June 30, 2008 when our commercial loans grew an additional $32.5 million, or 22.9%, from $141.9 million to $174.4 million increasing the percentage of commercial loans from 32.4% to 37.0% of loans receivable, net. We expect to continue our strategic emphasis on commercial lending throughout the remainder of fiscal 2008 and thereafter. o Continue to implement or enhance alternative delivery channels for the origination and servicing of loan and deposit products. In support of this objective, during fiscal 2007, we completed a significant overhaul of our Internet website which serves as a portal through which our customers access a growing menu of online services. While enhancing our online services for retail customers, we are concurrently addressing the growth in business demand for such services. Toward that end, we have expanded our business online banking product and service offerings to now include remote check deposit, online cash management and online bill payment services for business. o Broaden and strengthen customer relationships by bolstering cross marketing strategies with a focus on multiple account/service relationships. We will continue to cross market other products and services to promote multiple account/service relationships and the retention of long term customers and core deposits. These efforts are expected to be directed to customers within all five of the Bank's branches. o Utilize capital market tools to effectively manage capital and enhance shareholder value. Toward that end, the Company had completed two previous share repurchase plans during fiscal 2007 through which it repurchased ten percent and five percent, respectively, of its outstanding shares. During the quarter ended December 31, 2007, the Company completed its third share repurchase program through which it repurchased five percent of its outstanding shares. A fourth share repurchase plan for an additional five percent of its outstanding shares was announced in January 2008 and remains ongoing at June 30, 2008. Additionally, the Company increased its quarterly dividend paid to shareholders from $0.04 per share to $0.05 per share during the quarter ended June 30, 2008. A number of the strategies outlined above have had a detrimental impact on short term earnings. Notwithstanding, we expect to continue to execute these growth and diversification strategies designed to enhance future earnings and resist adverse changes in market conditions toward the goal of enhancing shareholder value. Toward that end, our deposit pricing strategy through the prior quarter ended March 31, 2008 continued to reduce interest costs by incrementally lowering interest rates paid on de novo branch deposits acquired during fiscal 2007 from the higher promotional rates initially offered. By June 30, 2008, most deposits acquired through those de novo branches no longer reflected the effects of promotional pricing. Additionally, we would expect that the prior reductions in market interest rates and steepening of the yield curve during fiscal 2008 may continue to have a beneficial impact on earnings. However, the resiliency of the Bank's branch deposits to future movements in market interest rates and/or competitive pricing pressures - and their respective impact on earnings - can not be assured. 15 Executive Summary The Company's results of operations depend primarily on its net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. It is a function of the average balances of loans and investments versus deposits and borrowed funds outstanding in any one period and the yields earned on those loans and investments versus the cost of those deposits and borrowed funds. Our loans consist primarily of residential mortgage loans, comprising first and second mortgages and home equity lines of credit, and commercial loans, comprising multi-family and nonresidential real estate mortgage loans, construction loans and business loans. Our investments primarily include U.S. Agency residential mortgage-related securities and U.S. Agency debentures. Our interest-bearing liabilities consist primarily of retail deposits, advances from the Federal Home Loan Bank of New York and other borrowings associated with reverse repurchase agreement transactions with institutional counterparties. During the first nine months of fiscal 2008, the Company's net interest rate spread increased 30 basis points to 1.74% in comparison to 1.44% for all of fiscal 2007. The increase in net interest rate spread resulted primarily from a reduction in the Company's cost of interest-bearing liabilities which decreased 33 basis points to 3.88% from 4.21% for those same comparative periods. The decrease in interest costs was partially offset by a reduction in the Company's yield on earning assets which decreased one basis point to 5.63% from 5.64% for the same comparative periods. This widening of our net interest rate spread reversed the trend of spread compression previously reported during fiscal 2007 when the Company's net interest rate spread decreased 36 basis points from 1.80% during fiscal 2006. In large part, the improvements in net interest rate spread for the nine months ended June 30, 2008 resulted from continued decreases in the cost of retail deposits augmented by the addition of lower cost borrowings during the year. The decrease in retail deposit interest costs continues to reflect the overall reduction in market interest rates coupled with the downward adjustment of interest rates paid on deposits acquired through the de novo branches opened during fiscal 2007 on which the Company originally paid higher, promotional interest rates. By contrast, the effects of lower market interest rates on the Company's adjustable rate loans, including construction loans, business loans and home equity lines of credit, have been substantially offset by the positive effect on overall loan yields attributable to the Company's commercial lending strategies. The factors resulting in the widening of the Company's net interest rate spread also positively impacted the Company's net interest margin. However, the impact of improved net interest rate spread was substantially offset by the impact of the Company's share repurchase program on the Company's net interest margin. The foregone interest income on the earning assets used to fund share repurchases contributed significantly to limiting the increase in the Company's net interest margin which increased two basis points to 2.41% for the nine months ended June 30, 2008 from 2.39% for all of fiscal 2007. Our net interest rate spread and margin may be adversely affected throughout several possible interest rate environments. The risks presented by movements in interest rates is addressed more fully under Item 3. Quantitative and Qualitative Disclosures About Market Risk found later in this report. Our results of operations are also affected by our provision for loan losses. For the nine months ended June 30, 2008, the Company recorded a net loan loss provision of $431,000. The provision for loan losses for the nine months ended June 30, 2008 generally reflected the Bank's increased strategic emphasis in commercial lending and the comparatively higher rate of growth in such loan balances than in earlier years. The provision for loan losses for the nine months ended June 30, 2008 also reflected a specific provision of $34,000 attributable to one impaired construction loan, a portion of which was deemed uncollectible by management and was therefore charged off in the second quarter of fiscal 2008. No other additions to the allowance for loan losses were required during the nine months ended June 30, 2008 for nonperforming loans which decreased as a percentage of total assets to 0.14% at June 30, 2008 from 16 0.22% at September 30, 2007. Net loan loss provision expense, reflected as a percentage of average earning assets, increased one basis point to 0.10% for the nine months ended June 30, 2008 from 0.09% reported for fiscal 2007. Our results of operations also depend on our noninterest income and noninterest expense. Noninterest income includes deposit service fees and charges, income on the cash surrender value of life insurance, gains on sales of loans and securities, gains on sales of other real estate owned and loan related fees and charges. Excluding gains and losses on sale of assets, noninterest income as a percentage of average assets increased four basis points to 0.30% for the nine months ended June 30, 2008 from 0.26% for all of fiscal 2007 primarily due to increases in deposit services fees and charges. Such increases were attributable, in part, to deposit service fees and charges at the Bank's de novo branches opened during fiscal 2007. However, the reported increase was also due to growth in deposit-related fees and charges within the Bank's other branches. Gains and losses on sale of assets, excluded in the comparison above, typically resulted from the Company selling long term, fixed rate mortgage loan originations into the secondary market. Demand for such loans typically fluctuates with market interest rates. As interest rates rise, market demand for long term, fixed rate mortgage loans diminishes in favor of hybrid ARMs which the Company has historically retained in its portfolio rather than selling into the secondary market. Consequently, the gains and losses on sale of loans reported by the Company have fluctuated with market conditions. Additionally, such gains and losses also reflected the impact of infrequent investment security sales for asset/liability management purposes. As a percentage of average total assets, gains and losses on asset sales for the nine months ended June 30, 2008 totaled less than 0.01% which was relatively unchanged from the 0.01% reported for all of fiscal 2007. Noninterest expense includes salaries and employee benefits, occupancy and equipment expenses, data processing and other general and administrative expenses. As a percentage of average total assets, noninterest expense for the nine months ended June 30, 2008 totaled 2.32% representing an increase of one basis point from 2.31% reported for all of fiscal 2007. The noninterest expense reported above for the first nine months of fiscal 2008 fully reflects the ongoing costs of the three full service branches opened during the prior fiscal year. In general, management expects occupancy and equipment expense to increase in the future as we continue to implement our de novo branching strategy to expand our branch office network. However, the Company currently has no plans or commitments to open additional de novo branches during fiscal 2008. Rather, the Company expects to direct significant strategic effort toward achieving and maintaining profitability within each of these three branches while revisiting additional branching opportunities after fiscal 2008. Notwithstanding the expected de novo branching hiatus for fiscal 2008, our current business plan targets the opening of up to three additional de novo branches over approximately the next five years. The costs for land purchases or leases, branch construction costs and ongoing operating costs for additional branches will impact future earnings. The Company also expects occupancy expense to continue to reflect the costs associated with the relocation of the Bank's Bloomfield branch which opened in April 2008. This relocation has significantly upgraded and modernized the Bloomfield branch facility supporting the Company's deposit growth and customer service enhancement objectives. The relocation will also support potential expansion of the administrative and lending office space within the Company's existing headquarters facility, where the branch had previously been located, should such expansion be required to support the Company's business plan. In an effort to reduce ongoing operating expenses, the Company enacted a reduction in workforce during the first quarter of fiscal 2008 resulting in the elimination of five managerial and administrative support positions. Salary and 17 employee benefit expense reductions resulting from this initiative are expected to total approximately $388,000 per year which began during the second quarter of fiscal 2008, equal to annual after-tax earnings of approximately $0.02 per share based upon the Company's outstanding shares at June 30, 2008. This action, in conjunction with other adjustments to staffing, has enabled the Company to reduce the number of full time equivalent employees by nearly 10% during fiscal 2008. The effect of these compensation expense reduction measures during the first nine months of fiscal 2008 was somewhat muted by an offsetting increase in expense attributable to the death of a Director Emeritus of the Company during the second fiscal quarter. Under the terms of the Company's restricted stock and stock option plans, the vesting of the remaining unearned benefits accruing to the director through these plans was automatically accelerated. As such, the Company incurred an acceleration of the remaining pre-tax expenses associated with these benefits totaling approximately $254,000 during that period. Notwithstanding, the Company will continue to monitor its employee staffing levels in relation to the goals and objectives of its business plan and may consider further opportunities to adjust such staffing levels, as appropriate, to support the achievement of those goals and objectives. In total, our annualized return on average assets increased two basis points to 0.12% for the nine months ended June 30, 2008 from 0.10% for all of fiscal 2007, while annualized return on average equity increased 21 basis points to 0.72% from 0.51% for the same comparative periods. Comparison of Financial Condition at June 30, 2008 and September 30, 2007 Our total assets increased by $57.0 million, or 9.9%, to $630.7 million at June 30, 2008 from $573.7 million at September 30, 2007. The increase primarily reflected comparatively higher balances of investment securities and loans receivable, net partially offset by lower balances of cash and cash equivalents and loans held for sale. Cash and cash equivalents decreased by $4.8 million, or 12.8%, to $32.6 million at June 30, 2008 from $37.4 million at September 30, 2007. The net decrease in cash and cash equivalents primarily reflects cash outflows funding share repurchases and growth in loans receivable, net partially offset by cash inflows from investment security maturities and repayments, reductions in the balance of loans held for sale and continued net growth in deposits. The balance of cash and cash equivalents continues to reflect the accumulation of short term, interest-earning investments which resulted from the net cash inflows associated with deposit growth during fiscal 2007 and the first nine months of fiscal 2008. The Company expects to continue reinvesting the proceeds received through its growth in deposits into the loan portfolio over time as lending opportunities arise. To the extent supported by loan demand and origination volume, the Company expects to reinvest deposit proceeds into its commercial loan portfolio. such loans. However, the net addition of residential mortgages to the loan portfolio, including longer term, fixed rate one- to four family mortgages which were historically sold into the secondary market, is expected to continue augmenting the growth in commercial loans as a reinvestment alternative for a portion of the accumulated balance of cash and cash equivalents. (See further discussion in the subsequent section titled "Quantitative and Qualitative Disclosures About Market Risk".) Securities classified as available-for-sale increased $27.0 million, or 46.6%, to $85.1 million at June 30, 2008 from $58.1 million at September 30, 2007 while securities held-to-maturity increased approximately $126,000, or 1.9% to $6.9 million from $6.7 million for those same comparative periods. The net increase in available-for-sale securities was largely attributable to a wholesale growth transaction in March 2008 through which the Company purchased approximately $50.0 million of mortgage-related investment securities 18 funded by an equivalent amount of borrowings. The ongoing net interest income resulting from this transaction continues to augment the Company's earnings to offset a portion of the near term costs associated with executing its business plan. Through this transaction, the Company took advantage of the opportunity presented by recent turmoil in the mortgage securities markets to acquire agency, AAA-rated mortgage-related securities at historically wide interest rate spreads in relation to the cost of wholesale funding sources. The growth in available-for-sale securities associated with this transaction was partially offset by the continued reinvestment of a significant portion of the funds received from maturing debentures and other mortgage-related security repayments into the loan portfolio. The following table compares the composition of the Company's investment securities portfolio by security type as a percentage of total assets at June 30, 2008 with that of September 30, 2007. Amounts reported exclude unrealized gains and losses on the available for sale portfolio.
June 30, 2008 September 30, 2007 ------------- ------------------ Percent of Percent of Type of Securities Amount Total Assets Amount Total Assets - ------------------ ------ ------------ ------ ------------ (Dollars in thousands) -------------------- Fixed rate MBS $ 49,174 7.79% $ 11,454 2.00% ARM MBS 10,127 1.61 14,470 2.52 Fixed rate CMO 31,950 5.07 35,280 6.14 Floating rate CMO 1,846 0.29 2,047 0.36 Fixed rate agency debentures - - 2,000 0.35 ----------------- ------------ ----------- ------- Total $ 93,097 14.76% $ 65,251 11.37% =========== ======= =========== =======
Assuming no change in interest rates, the estimated average life of the investment securities portfolio was 5.27 years and 2.24 years, respectively, at June 30, 2008 and September 30, 2007. Assuming a hypothetical immediate and permanent increase in interest rates of 300 basis points, the estimated average life of the portfolio would have extended to 6.23 years and 2.65 years at June 30, 2008 and September 30, 2007, respectively. Loans receivable, net increased by $33.3 million, or 7.6%, to $471.2 million at June 30, 2008 from $437.9 million at September 30, 2007. The growth was comprised of net increases in commercial loans totaling $32.5 million or 22.9%. Such loans include multi-family, nonresidential real estate, construction and business loans. The increase in loans receivable, net also included net increases in home equity loans and home equity lines of credit totaling $1.8 million and net increases in consumer loans of $247,000. Offsetting the growth in these categories was a $799,000 decrease in the balance of one- to four family first mortgages resulting from diminished loan origination volume stemming from slowing purchase and refinance activity coupled with the Company's reduced strategic emphasis on the origination of such loans. Additionally, the Company reported a net increase to the allowance for loan losses totaling $397,000. One- to four-family mortgage loans are generally grouped by the Bank into one of three categories based upon underwriting criteria: "Prime", "Alt-A" and "Sub-prime" mortgages. Sub-prime loans are generally defined by the Bank as loans to borrowers with deficient credit histories and/or higher debt-to-income ratios. Loans falling within the Alt-A category, as defined by the Bank, include loans to borrowers with blemished credit credentials that are less severe than those characterized by Sub- prime loans but otherwise preclude the loan from being considered Prime. Alt-A loans may also be characterized by other 19 underwriting or documentation exceptions such as reduced or limited loan documentation. Loans without the deficiencies or exceptions characterizing Sub-prime and Alt-A loans are considered Prime and comprise the significant majority of the one- to four family mortgages originated and retained by the Bank. The Bank does not currently offer Sub-prime loan programs. Prior to fiscal 2007, the Bank had offered a limited number of one- to four-family loan programs through which it originated and retained Sub-prime loans to borrowers with deficient credit histories or higher debt-to-income ratios. At June 30, 2008 and September 30, 2007, the remaining balance of these loans was approximately $1.2 million and $1.4 million, respectively, comprising 10 and 11 loans, respectively, at each date. All such loans were performing in accordance with their terms for the periods reported. Through fiscal 2007, the Bank offered an Alt-A stated income loan program by which it originated and retained loans to borrowers whose income was affirmatively stated at the time of application, but not verified by the Bank. The Bank discontinued that program in the first quarter of fiscal 2008. At June 30, 2008 and September 30, 2007, the remaining balance of these loans was approximately $7.8 million and $8.6 million, respectively, comprising 28 and 29 loans, respectively, at each date. Two of these loans, with balances of $421,000 and $371,000 were 30 and 60 days past due, respectively, at June 30, 2008 with the latter being paid in full during July, 2008. The Bank continues to offer a limited Alt-A program through which it originates and sells all such loans to Fannie Mae under its Expanded Approval program on a non-recourse, servicing retained basis. A significant portion of the loans originated under this remaining Alt-A program support the procurement of mortgage financing for first time home buyers. At June 30, 2008 and September 30, 2007, respectively, the balance of one- to four-family mortgage loans included $23.9 million and $22.6 million of thirty year adjustable rate loans with initial fixed interest rate periods of three to five years during which time monthly loan payments comprise interest only. After the initial period, the monthly payments on such loans are adjusted to reflect the collection of both interest and principal over the loan's remaining term to maturity. The following two tables compare the composition of the Company's loan portfolio by loan type as a percentage of total assets at June 30, 2008 with that of September 30, 2007. Amounts reported exclude allowance for loan losses and net deferred origination costs. 20 The table below generally defines loan type by loan maturity and/or repricing characteristics:
June 30, 2008 September 30, 2007 ------------- ------------------ Percent of Percent of Type of Loans Amount Total Assets Amount Total Assets - ------------- ------ ------------ ------ ------------ (Dollars in thousands) -------------------- Construction (1) $ 41,931 6.65% $ 32,592 5.68% Prime-indexed Land 2,232 0.35 - - 1/1 and 3/3 ARMs 7,289 1.16 7,642 1.33 3/1 and 5/1 ARMs 131,982 20.92 142,254 24.80 5/5 and 10/10 ARMs 45,858 7.27 46,017 8.02 7/1 and 10/1 ARMs 4,978 0.79 3,500 0.61 15 year fixed or less 143,473 22.74 129,158 22.52 Greater than 15 year fixed 64,366 10.21 52,012 9.07 Prime-indexed HELOC 21,739 3.45 19,756 3.44 Consumer (2) 902 0.14 655 0.11 Business (3) 8,449 1.34 7,024 1.22 ----------- ------- ----------- ------- Total $ 473,199 75.02% $ 440,610 76.80% =========== ======= =========== =======
(1) Construction loans are generally floating rate with original maturities of two years or less. (2) Consumer loans are generally fixed rate with original maturities of less than five years. (3) Business loans are generally fixed or floating rate with original maturities of five years or less. The table below generally defines loan type by collateral or purpose:
June 30, 2008 September 30, 2007 ------------- ------------------ Percent of Percent of Type of Loans Amount Total Assets Amount Total Assets - ------------- ------ ------------ ------ ------------ (Dollars in thousands) -------------------- Construction (1) $ 41,931 6.65% $ 32,592 5.68% 1-4 family mortgage 275,995 43.75 278,183 48.50 Multifamily (5+) mortgage 33,354 5.29 30,585 5.33 Nonresidential mortgage 85,577 13.57 68,474 11.94 Land 5,252 0.83 3,341 0.58 1-4 family HELOC 21,739 3.45 19,756 3.44 Consumer (2) 902 0.14 655 0.11 Business (3) 8,449 1.34 7,024 1.22 ----------- ------- ----------- ------- Total $ 473,199 75.02% $ 440,610 76.80% =========== ======= =========== =======
(1) Construction loans generally include loans collateralized by land and one- to four family, multifamily and commercial buildings in process of construction. (2) Consumer loans generally include secured account loans and unsecured overdraft protection balances. (3) Business loans generally include secured and unsecured business lines of credit and term notes. 21 Total deposits increased by $22.2 million, or 5.2%, to $450.8 million at June 30, 2008 from $428.6 million at September 30, 2007. This net growth reflected increases in certificates of deposit and noninterest-bearing checking accounts of $36.6 million and $64,000, respectively, offset by reductions in the balance of interest-bearing checking, including money market checking, and savings accounts of $13.7 million and $819,000, respectively. These net changes reflect, in part, the disintermediation of a portion of the non-maturity deposits generated through the three branches opened during fiscal 2007 on which interest rates have been reduced from the higher, promotional levels originally paid. The following table compares the composition of the Company's deposit portfolio by category as a percentage of total assets at June 30, 2008 with that of September 30, 2007.
June 30, 2008 September 30, 2007 ------------- ------------------ Percent of Percent of Deposit category Amount Total Assets Amount Total Assets - ---------------- ------ ------------ ------ ------------ (Dollars in thousands) -------------------- Noninterest bearing checking $ 30,558 4.84% $ 30,494 5.31% Money market checking 75,866 12.03 92,550 16.13 Interest bearing checking 22,262 3.53 19,245 3.35 Money market savings 8,097 1.28 10,263 1.79 Other savings 83,862 13.30 82,515 14.38 Certificates of deposit 230,115 36.49 193,533 33.74 ----------- ------- ----------- ------- Total $ 450,760 71.47% $ 428,600 74.70% =========== ======= =========== =======
The following table compares the composition of the Company's deposit portfolio by branch as a percentage of total assets at June 30, 2008 with that of September 30, 2007.
June 30, 2008 September 30, 2007 ------------- ------------------ Percent of Percent of Branch Amount Total Assets Amount Total Assets - ------ ------ ------------ ------ ------------ (Dollars in thousands) -------------------- Bloomfield $ 229,834 36.45% $ 223,557 38.97% Cedar Grove 113,309 17.96 111,030 19.35 Verona 50,914 8.07 55,193 9.62 Nutley 30,611 4.85 23,534 4.10 Clifton 26,092 4.14 15,286 2.66 ------------- ----------- ------------- --------- Total $ 450,760 71.47% $ 428,600 74.70% ============= =========== ============= =========
The reported reduction in the Verona branch deposit balances largely reflects the outflow of a portion of the deposits generated through this branch during the prior fiscal year on which interest rates have been reduced from the higher, promotional levels originally paid. Borrowings increased $44.0 million, or 116.9%, to $81.6 million at June 30, 2008 from $37.6 million at September 30, 2007. The growth in borrowings was primarily attributable to the additions in FHLB advances and reverse repurchase agreements associated with the $50.0 million wholesale growth transaction noted earlier partially offset by the net repayment of $6.0 million of maturing fixed rate FHLB term advances. 22 The following table compares the composition of the Company's borrowing portfolio by remaining term to maturity as a percentage of total assets at June 30, 2008 with that of September 30, 2007. Scheduled principal payments on amortizing borrowings are reported as maturities.
June 30, 2008 September 30, 2007 ------------- ------------------ Percent of Percent of Remaining Term Amount Total Assets Amount Total Assets - -------------- ------ ------------ ------ ------------ (Dollars in thousands) -------------------- Overnight $ - -% $ - -% One year or less 16,564 2.63 12,065 2.10 Greater than one to two years 16,000 2.54 7,547 1.32 Greater than two to three years 6,000 0.95 6,000 1.05 Greater than three to four years 6,000 0.95 6,000 1.05 Greater than four to five years 2,000 0.32 5,000 0.87 More than five years (1) 35,000 5.54 1,000 0.17 ----------- ------- ----------- ------- Total $ 81,564 12.93% $ 37,612 6.56% =========== ======= =========== =======
(1) Borrowing category includes two reverse repurchase agreements totaling $35.0 million originally drawn in March 2008 and maturing in March 2018 whose terms enable the counterparty, at their option, to require full repayment of the borrowing at par prior to maturity. Early repayment may be required on one $25.0 million borrowing on or after the two year anniversary of its original funding. Similarly, early repayment may be required on the remaining $10.0 million borrowing on or after the four year anniversary of its original funding. Equity decreased $9.7 million, or 9.6% to $90.9 million at June 30, 2008 from $100.6 million at September 30, 2007. The reported decrease in equity was primarily attributable to a $10.5 million increase in Treasury stock resulting from the Company's share repurchases during the first nine months of fiscal 2008 during which time the Company had repurchased a total of 1,002,070 shares at an average price of $10.44 per share. Comparison of Operating Results for the Three Months Ended June 30, 2008 and June 30, 2007 General. The Company recorded net income of $431,000 for the three months ended June 30, 2008, an increase of $281,000, or 187.3% from the three months ended June 30, 2007 when the Company reported net income of $150,000. The increase in net income resulted from increases in net interest income and noninterest income partially offset by increases in noninterest expense, provision for loan losses and provision for income taxes. Interest Income. Total interest income increased 6.1% or $455,000 to $8.0 million for the three months ended June 30, 2008 from $7.5 million for the three months ended June 30, 2007. For those same comparative periods, the average yield on interest-earning assets decreased 26 basis points to 5.43% from 5.69% while the average balance of interest-earning assets increased $59.1 million to $586.4 million from $527.3 million. Interest income on loans increased $385,000 or 6.1%, to $6.7 million for the three months ended June 30, 2008 from $6.3 million for the three months ended June 30, 2007. This increase was due, in part, to a $40.6 million increase in the average balance of loans receivable, including loans held for sale, to $466.2 million for the three months ended June 30, 2008 from $425.6 million for the three months ended June 30, 2007. The impact of the higher average balance was partially offset by a reduction in the average yield on loans which decreased 18 basis points to 5.74% from 5.92% for those same comparative periods. The increase in the average balance on loans receivable was primarily attributable to the Company's strategic emphasis on commercial lending while the reduction in average yield on loans generally reflects the effect of lower market interest rates on the floating rate portion of the portfolio. 23 Interest income on securities increased $433,000 or 62.0% to $1.1 million for the three months ended June 30, 2008 from $699,000 for the three months ended June 30, 2007. The increase was due, in part, to a $33.2 million increase in the average balance of investment securities, excluding the available for sale mark to market adjustment, to $98.1 million for the three months ended June 30, 2008 from $64.8 million for the three months ended June 30, 2007. The impact on interest income attributable to this increase was augmented by a 31 basis point increase in the average yield on securities which grew to 4.62% from 4.31% for the same comparative periods. The increase in yield primarily resulted from the maturity and repayment of lower yielding investment securities coupled with higher yields on newly purchased securities, including those relating to the $50.0 million wholesale growth transaction completed in March 2008. The increase in yield also reflects the repricing of adjustable rate securities in accordance with the general movement of market interest rates between the comparative periods. Interest and dividend income on federal funds sold, other interest-earning deposits and FHLB stock decreased $364,000 to $146,000 for three months ended June 30, 2008 from $510,000 for the three months ended June 30, 2007. This reduction in income was due primarily to a decline in the average yield of these assets which decreased 289 basis points to 2.64% from 5.53% for the same comparative periods reflecting reductions in short term market interest rates. The impact of the decline in yield was exacerbated by a $14.8 million decline in the average balance of these assets to $22.1 million for the three months ended June 30, 2008 from $36.9 million for the three months ended June 30, 2007. The average balances reported and used for yield calculations reflect, where appropriate, the reduction for outstanding checks issued against such accounts. This has the effect of increasing the reported yield on such assets. Interest Expense. Total interest expense decreased by $193,000 or 4.3% to $4.2 million for the three months ended June 30, 2008 from $4.4 million for the three months ended June 30, 2007. For those same comparative periods, the average cost of interest-bearing liabilities decreased 86 basis points from 4.30% to 3.44%, while the average balance of interest-bearing liabilities increased $80.3 million or 19.4% to $493.9 million for the three months ended June 30, 2008 from $413.7 million for the three months ended June 30, 2007. Interest expense on deposits decreased $360,000 or 9.2% to $3.6 million for the three months ended June 30, 2008 from $3.9 million for the three months ended June 30, 2007. This decrease was due largely to a reduction in the Company's overall cost of interest-bearing deposits which decreased 68 basis points to 3.21% for the three months ended June 30, 2008 from 3.89% for the three months ended June 30, 2007. The components of this decrease include a 190 basis point reduction in the average cost of interest-bearing checking accounts to 2.68% from 4.58%, a 62 basis point reduction in the average cost of savings accounts to 2.03% from 2.65% and a 50 basis point reduction in the average cost of certificates of deposit to 4.36% from 4.86%. This decrease in the cost of interest-bearing deposits was primarily attributable to two related factors. First, the Company continued to reduce the interest rates paid on deposits generated through the three full service branches opened during the prior fiscal year on which promotional interest rates had originally been paid. As noted earlier, at June 30, 2008, most deposits acquired through those de novo branches no longer reflect the effects of promotional pricing. Second, reductions in market interest rates enabled the Company to reduce rates paid on many interest-bearing deposit types across all branches. The impact of the decrease in the cost of interest-bearing deposits was partially offset by the growth in the average balance of interest-bearing deposits which grew $39.4 million to $411.7 million for the three months ended June 30, 2008 from $372.3 million for the three months ended June 30, 2007. The reported net growth in average interest-bearing deposits comprised $4.6 million and $44.1 million of growth in the average balance of interest-bearing checking accounts and certificates of deposit, respectively. Offsetting this growth was a net decline in the average balance of savings accounts totaling $9.3 million primarily reflecting the disintermediation of such deposits into higher yielding time deposits. The overall growth in the average balance of interest-bearing 24 deposits for the more recent period was primarily attributable to the Bank's three de novo branches which opened during fiscal 2007. Interest expense on borrowings increased $166,000 to $699,000 for the three months ended June 30, 2008 from $533,000 for the three months ended June 30, 2007. This increase was attributable, in part, to growth in the average balance of borrowings which increased $40.8 million to $82.2 million for the three months ended June 30, 2008 from $41.4 million for the three months ended June 30, 2007. The effects of the higher average balance of borrowings on interest expense were partially offset by a decline in their average cost which decreased 174 basis point to 3.40% for the three months ended June 30, 2008 from 5.14% for the three months ended June 30, 2007. The changes in the average cost and average balance of borrowings between the two comparative periods generally reflects the addition of $50.0 million of comparatively lower costing borrowings relating to the wholesale growth transaction noted earlier, partially offset by the repayment of all other maturing FHLB term advances not related to that transaction since the close of the earlier comparative period. Net Interest Income. Net interest income increased by $649,000 or 21.2%, to $3.7 million for the three months ended June 30, 2008 from $3.1 million for the three months ended June 30, 2007. The Company's net interest rate spread widened 59 basis points to 1.99% from 1.40% for the same comparative periods, while the net interest margin increased 21 basis points to 2.53% from 2.32%. As noted earlier, the change in the Company's net interest margin was significantly impacted by the Company's share repurchase plans. The average balance of the Company's treasury stock increased $16.9 million to $39.6 million for the three months ended June 30, 2008 from $22.8 million for the three months ended June 30, 2007. Based upon that growth in the average balance of the Company's treasury stock account and its average yield on interest-earning assets reported for the earlier comparative period, the Company estimates that the net increase of $649,000 in net interest income was reduced by approximately $240,000 attributable to interest earned during the earlier comparative period on the interest-earning assets that were subsequently utilized to fund share repurchases. Provision for Loan Losses. Using the loan loss allowance methodology described under Critical Accounting Policies found later in this discussion, the provision for loan losses totaled $121,000 for the three months ended June 30, 2008, representing an increase of $44,000 from the $77,000 provision reported for the three months ended June 30, 2007. The provision for loan losses for both comparative periods resulted from the application of historical and environmental loss factors against the net growth in loans in accordance with the Bank's loan loss methodology. In total, the allowance for loan losses as a percentage of gross loans outstanding increased to 0.63% at June 30, 2008 representing an increase of 6 basis points from 0.57% at June 30, 2007. These ratios reflect allowance for loan loss balances of $3.0 million and $2.4 million, respectively, at each date. The overall increase in the ratio of allowance to gross loans reported continues to reflect the changing composition of the portfolio with greater strategic emphasis on loans with higher risk factors. As noted earlier, nonperforming loans decreased to 0.14% of total assets at June 30, 2008 compared with 0.22% at June 30, 2007. The level of the allowance is based on estimates and the ultimate losses may vary from those estimates. Noninterest Income. Noninterest income increased $73,000 to $481,000 for the three months ended June 30, 2008 from $408,000 for the three months ended June 30, 2007. The growth in noninterest income was partly the result of comparative increases in deposit service fees and charges of $79,000. Such increases were attributable, in part, to deposit service fees and charges at the Bank's de novo branches opened during fiscal 2007. However, the reported increase was also due to growth in deposit-related fees and charges within the Bank's other branches. For those same comparative periods, the Company reported an $11,000 increase in income from the cash surrender value of life insurance arising from improved yields on those assets. The Company also reported a $13,000 increase in other noninterest income attributable primarily to increases in loan fees and charges including, but not limited to, increases in prepayment 25 penalties and late charges. The increases in noninterest income were partially offset by a decline of $30,000 in gain on sale of loans resulting from the absence of loan sales in the current period. Noninterest Expense. Noninterest expense increased $214,000 to $3.4 million for the three months ended June 30, 2008 from $3.2 million for the three months ended June 30, 2007. Significant components of this growth in operating costs include comparative increases in several noninterest expense categories including occupancy and equipment expense of $224,000, data processing expense of $16,000, legal expense of $14,000, professional and consulting expense of $15,000 and other noninterest expense of $65,000. Offsetting these increases in noninterest expense was a reduction in salaries and employee benefits of $80,000 and a reduction in advertising and marketing expenses of $40,000. The costs of the two additional branches opened in the latter half of fiscal 2007 was a significant contributor to the reported net increase in occupancy and equipment expense for the three months ended June 30, 2008. However, the reported increase also reflects the ongoing operating costs associated with the Bank's relocated Bloomfield branch which opened in April 2008. Additionally, the increase includes the costs associated with outsourcing a significant portion of the Company's information technology infrastructure support services. The reported increase resulted from the Bank's decision to consolidate the provision of a variety of information technology administration support services under a single outsourced service provider. Such services had previously been rendered by a combination of other outsourced and in-house resources. This decision resulted in the elimination of one managerial position within the Bank's MIS department during the fourth quarter of fiscal 2007. The reported increase in data processing charges was also largely attributable to the two additional branches opened in the latter half of fiscal 2007 including increases to both core processing and item processing expenses. The reported increase in legal expense was primarily attributable to recently completed revisions to benefit plan agreements as required by newly-implemented Internal Revenue Service regulations while the increase in professional and consulting expenses resulted from additional costs associated with disaster recovery and physical security planning and review services utilized during the more recent comparative quarter. Finally, the growth in other noninterest expense includes increases in FDIC insurance expense resulting from both growth in the balance of FDIC-insured deposits plus the expiration of FDIC insurance credits which had reduced the Bank's net cost of FDIC deposit insurance premiums over several prior quarters. Increases in noninterest expense also included increases in corporate insurance and regulatory assessment expenses as well as increases in general and administrative expenses attributable to the two additional branches opened in the latter half of fiscal 2007. The reported net decrease in compensation expense was attributable to several offsetting factors. First, employee wages and salaries, including bonuses and payroll taxes, decreased due largely to accrued compensation expense reductions based on current year bonus projections. This net decrease also reflected the growth in compensation expense relating to the increase in staffing costs associated with the two branches opened in the latter half of fiscal 2007. However, these increases have been substantially offset by the Company's workforce reduction efforts which have reduced the Company's number of full time equivalent employees by nearly 10% during fiscal 2008. The reported net decrease in compensation expense also included net increases to employee healthcare benefit expenses reflecting the growing level of health care costs per employee. Additionally, expenses associated with the Bank's supplemental executive retirement program increased due largely to updated assumptions used in benefit accrual calculations. Offsetting these increases were net reductions in director compensation costs due largely to the absence in the current period of the changes in retirement plan benefit accrual assumptions that had increased the related expenses during the earlier comparative period. Additionally, ESOP expense 26 decreased due to the comparatively lower average price of the Company's shares during the more recent comparative period while personnel procurement expenses declined due to the absence of such costs during the current period. Finally, the reported decrease in advertising and marketing expenses primarily reflected the absence, in the current period, of de novo branch grand opening expenses that were incurred during the earlier comparative period. Provision for Income Taxes. The provision for income taxes increased $181,000 for the three months ended June 30, 2008 compared with the three months ended June 30, 2007. For the more recent period, the Company's effective income tax rate was 33.9% compared with an effective income tax rate of 21.5% for the earlier comparative period. The tax expense in the current and prior period reflects the comparative levels of pre-tax income coupled with the level of "tax favored" income reported by the Company during each period. "Tax favored" income arises from revenue sources on which the Company pays income taxes at a comparatively lower effective tax rate than it generally pays on other sources of income. Specifically, the Company's effective tax rate is influenced by the level of interest income on investment securities held by the Bank's investment subsidiary, American Savings Investment Corporation ("ASIC"). ASIC is a wholly owned New Jersey investment subsidiary formed in August 2004 by American Bank of New Jersey. The purpose of this subsidiary is to invest in stocks, bonds, notes and all types of equity, mortgages, debentures and other investment securities. Interest income from this subsidiary is taxed by the state of New Jersey at an effective rate lower than the statutory corporate state income tax rate. Additionally, the Company also recognizes tax exempt income from the cash surrender value of bank owned life insurance. The Company recognized income from these two "tax favored" sources during both comparative quarters. However, the comparatively lower pretax net income reported for the earlier quarter resulted in the items discussed above having a proportionally greater net beneficial impact on the Company's reported effective tax rate in the earlier comparative period. Comparison of Operating Results for the Nine Months Ended June 30, 2008 and June 30, 2007 General. The Company recorded net income of $512,000 for the nine months ended June 30, 2008, a decrease of $116,000, or 18.5% from the nine months ended June 30, 2007 when the Company reported net income of $628,000. The decrease in net income resulted from increases in noninterest expense and provision for loan losses partially offset by increases in net interest income and noninterest income and a decrease in the provision for income taxes. Interest Income. Total interest income increased $2.0 million or 9.4% to $23.4 million for the nine months ended June 30, 2008 from $21.4 million for the nine months ended June 30, 2007. For those same comparative periods, the average yield on interest-earning assets increased 2 basis points to 5.63% from 5.61% while the average balance of interest-earning assets increased $45.6 million to $554.1 million from $508.4 million. Interest income on loans increased $1.9 million or 10.4%, to $20.1 million for the nine months ended June 30, 2008 from $18.2 million for the nine months ended June 30, 2007. This increase was due, in part, to a $40.2 million increase in the average balance of loans receivable, including loans held for sale, to $455.0 million for the nine months ended June 30, 2008 from $414.8 million for the nine months ended June 30, 2007. The impact of the higher average balance was augmented by an increase in the average yield on loans which increased 4 basis points to 5.89% from 5.85% for those same comparative periods. The increase in the average balance and yield on loans receivable was primarily attributable to the Company's strategic emphasis on commercial lending. 27 Interest income on securities increased $155,000 or 6.7% to $2.5 million for the nine months ended June 30, 2008 from $2.3 million for the nine months ended June 30, 2007. The increase was due, in part, to a 40 basis point increase in the yield on investment securities which grew to 4.56% for the nine months ended June 30, 2008 from 4.16% for the nine months ended June 30, 2007. The increase in yield primarily resulted from the maturity and repayment of lower yielding investment securities coupled with higher yields on newly purchased securities, including those relating to the $50.0 million wholesale growth transaction completed in March 2008. The increase in yield also reflects the repricing of adjustable rate securities in accordance with the general movement of market interest rates between the comparative periods. The impact on interest income attributable to the increase in the yield was partially offset by a $1.9 million decline in the average balance of investment securities, excluding the available for sale mark to market adjustment, to $72.0 million for the nine months ended June 30, 2008 from $73.9 million for the nine months ended June 30, 2007. Interest and dividend income on federal funds sold, other interest-earning deposits and FHLB stock decreased $45,000 to $818,000 for the nine months ended June 30, 2008 from $863,000 for the nine months ended June 30, 2007. This decrease in income was due primarily to a decline in the average yield on these assets which decreased 180 basis points to 4.04% from 5.84% for the same comparative periods reflecting reductions in short term market interest rates. The impact of the decline in yield was partially offset by a $7.3 million increase in the average balance of these assets to $27.0 million for the nine months ended June 30, 2008 from $19.7 million for the nine months ended June 30, 2007. The average balances reported and used for yield calculations reflect, where appropriate, the reduction for outstanding checks issued against such accounts. This has the effect of increasing the reported yield on such assets. Interest Expense. Total interest expense increased by $1.3 million or 10.6% to $13.4 million for the nine months ended June 30, 2008 from $12.1 million for the nine months ended March 31, 2007. For those same comparative periods, the average cost of interest-bearing liabilities decreased 27 basis points from 4.15% to 3.88%, while the average balance of interest-bearing liabilities increased $70.5 million or 18.2% to $458.8 million for the nine months ended June 30, 2008 from $388.3 million for the nine months ended June 30, 2007. Interest expense on deposits increased $1.3 million or 12.9% to $11.7 million for the nine months ended June 30, 2008 from $10.3 million for the nine months ended June 30, 2007. This increase was due largely to growth in the average balance of interest-bearing deposits which grew $61.8 million to $403.9 million for the nine months ended June 30, 2008 from $342.1 million for the nine months ended June 30, 2007. The reported net growth in average interest-bearing deposits comprised $37.5 million and $36.2 million of growth in the average balance of interest-bearing checking accounts and certificates of deposit, respectively. Offsetting this growth was a net decline in the average balance of savings accounts totaling $11.9 million primarily reflecting the disintermediation of such deposits into higher yielding time deposits. The overall growth in the average balance of interest-bearing deposits for the more recent period was primarily attributable to the Bank's three de novo branches which opened during fiscal 2007. The growth in deposits at these branches contributed significantly to the reported increase in deposit interest expense. The impact on interest expense attributable to the growth in the average balance of interest-bearing deposits was partially offset by a reduction in the cost of such deposits. Specifically, the Company's overall cost of interest-bearing deposits decreased 17 basis points to 3.85% for the nine months ended June 30, 2008 from 4.02% for the nine months ended June 30, 2007. The components of this decrease include a 72 basis point reduction in the average cost of interest-bearing checking accounts to 3.58% from 4.30%, a 35 basis point reduction in the average cost of savings accounts to 2.32% from 2.67% and an 8 basis point reduction in the cost of certificates of deposit to 4.64% from 4.72%. As noted in the prior section discussing the comparative three month 28 periods, the decrease in the cost of interest-bearing deposits was primarily attributable to two related factors. First, the Company has reduced the interest rates paid on deposits generated through the three full service branches opened during the prior fiscal year on which promotional interest rates had originally been paid. As noted earlier, at June 30, 2008, most deposits acquired through those de novo branches no longer reflect the effects of promotional pricing. Second, reductions in market interest rates enabled the Company to reduce rates paid on many interest-bearing deposit types across all branches. Interest expense on borrowings decreased $53,000 to $1.7 million for the nine months ended June 30, 2008 from $1.8 million for the nine months ended June 30, 2007. This decrease was due, in part, to a 95 basis point decrease in the cost of borrowings to 4.16% for the nine months ended June 30, 2008 from 5.11% for the nine months ended June 30, 2007. The impact on interest expense attributable to this decrease in cost was partially offset by an increase in the average balance of borrowings which increased $8.8 million to $54.9 million for the nine months ended June 30, 2008 from $46.1 million for the nine months ended June 30, 2007. The changes in the average cost and average balance of borrowings between the two comparative periods generally reflects the addition of $50.0 million of comparatively lower costing borrowings relating to the wholesale growth transaction noted earlier, partially offset by the repayment of all other maturing FHLB term advances not related to that transaction since the close of the earlier comparative period. Net Interest Income. Net interest income increased by $731,000 or 7.9%, to $10.0 million for the nine months ended June 30, 2008 from $9.3 million for the nine months ended June 30, 2007. For those same comparative periods, the Company's net interest rate spread widened 28 basis points to 1.74% from 1.46% while the net interest margin decreased 3 basis points to 2.41% from 2.44%. As noted earlier, the change in the Company's net interest margin was significantly impacted by the Company's share repurchase plans. The average balance of the Company's treasury stock increased $19.0 million to $36.0 million for the nine months ended June 30, 2008 from $17.0 million for the nine months ended June 30, 2007. Based upon that growth in the average balance of the Company's treasury stock account and its average yield on interest-earning assets reported for the earlier comparative period, the Company estimates that the net increase of $731,000 in net interest income was reduced by approximately $799,000 attributable to interest earned during the earlier comparative period on the interest-earning assets that were subsequently utilized to fund share repurchases. Provision for Loan Losses. Using the loan loss allowance methodology described under Critical Accounting Policies found later in this discussion, the provision for loan losses totaled $431,000 for the nine months ended June 30, 2008, representing an increase of $111,000 from the nine months ended June 30, 2007. The expense in the current nine month period reflected a provision of $34,000 attributable to one impaired construction loan, that portion of which was deemed uncollectible by management during its asset quality review conducted at March 31, 2008 and therefore charged off. By contrast, the expense in the earlier comparative period reflected a reversal of an $86,000 impairment reserve that was no longer required. Excluding these adjustments, the provision for loan losses for both comparative periods resulted from the application of historical and environmental loss factors against the net growth in loans in accordance with the Bank's loan loss methodology. In total, the allowance for loan losses as a percentage of gross loans outstanding increased to 0.63% at June 30, 2008 representing an increase of 6 basis points from 0.57% at June 30, 2007. These ratios reflect allowance for loan loss balances of $3.0 million and $2.4 million, respectively. The overall increase in the ratio of allowance to gross loans reported continues to reflect the changing composition of the portfolio with greater strategic emphasis on loans with higher risk factors. As noted earlier, nonperforming loans decreased to 0.14% of total assets at June 30, 2008 compared with 0.22% at June 30, 2007. The level of the allowance is based on estimates and the ultimate losses may vary from those estimates. 29 Noninterest Income. Noninterest income increased $263,000 to $1.3 million for the nine months ended June 30, 2008 from $1.1 million for the nine months ended June 30, 2007. The growth in noninterest income was partly the result of comparative increases in deposit service fees and charges of $186,000. Such increases were attributable, in part, to deposit service fees and charges at the Bank's de novo branches opened during fiscal 2007. However, the reported increase was also due to growth in deposit-related fees and charges within the Bank's other branches. The Company also reported a $68,000 increase in income from the cash surrender value of life insurance attributable to a combination of higher average balances and improved yields on those assets. The Company also reported a $37,000 increase in other noninterest income attributable primarily to increases in loan fees and charges including, but not limited to, increases in prepayment penalties and late charges. The increases in noninterest income were partially offset by a decline of $33,000 in gain on sale of loans resulting from fewer loans sold during the more recent comparative period Noninterest Expense. Noninterest expense increased $1.1 million to $10.3 million for the nine months ended June 30, 2008 from $9.1 million for the nine months ended June 30, 2007. Significant components of this growth in operating costs include comparative increases in several noninterest expense categories including salaries and employee benefits expense of $384,000, occupancy and equipment expense of $670,000, data processing expense of $41,000, legal expense of $50,000 and other noninterest expense of $64,000. Offsetting these increases in noninterest expense was a reduction in advertising and marketing expenses of $73,000. The net increase in salaries and employee benefits for the comparative periods was significantly impacted by of the death of a director emeritus of the Company, during the quarter ended March 31, 2008. Under the terms of the Company's restricted stock and stock option plans, the vesting of the remaining unearned benefits accruing to the former director through these plans was automatically accelerated. As such, the Company incurred an acceleration of the remaining pre-tax expenses associated with these benefits totaling approximately $254,000 during the quarter ended March 31, 2008 resulting in an increase in such expenses of approximately $210,000 between the comparative nine month periods. The remaining increase in compensation expense was attributable to several other offsetting factors. First, a portion of the growth in compensation expense relates to the increase in staffing costs associated with the two branches opened in the latter half of fiscal 2007. However, these increases have been partially offset by the Company's workforce reduction efforts which have reduced the Company's number of full time equivalent employees by nearly 10% during fiscal 2008. Increased branch staffing costs have also been partially offset by accrued compensation expense reductions based on current year bonus projections. The reported increase in compensation expense also included net increases to employee healthcare benefit expenses reflecting the growing level of health care costs per employee. Additionally, expenses associated with the Bank's supplemental executive retirement program increased due largely to updated assumptions used in benefit accrual calculations. Offsetting these increases were net reductions in director compensation costs due largely to the absence in the current period of the changes in retirement plan benefit accrual assumptions that had increased the related expenses during the earlier comparative period. Additionally, ESOP expense decreased due to the comparatively lower average price of the Company's shares during the more recent comparative period while personnel procurement expenses declined due to the absence of such costs during the current period. The costs of the two additional branches opened in the latter half of fiscal 2007 was a significant contributor to the reported net increase in occupancy and equipment expense for the nine months ended June 30, 2008. However, the reported increase also reflects the ongoing operating costs associated with the Bank's relocated Bloomfield branch which opened in April 2008. Additionally, the increase includes the costs associated with outsourcing 30 a significant portion of the Company's information technology infrastructure support services. The reported increase resulted from the Bank's decision to consolidate the provision of a variety of information technology administration support services under a single outsourced service provider. Such services had previously been rendered by a combination of other outsourced and in-house resources. This decision resulted in the elimination of one managerial position within the Bank's MIS department during the fourth quarter of fiscal 2007. The reported increase in data processing charges was also partly attributable to the associated costs of the two additional branches opened in the latter half of fiscal 2007 including increases to both core processing and item processing expenses. However, the increase also included "one time" expenses associated with converting the Bank's official check processing to an in-house system during the quarter and implementing additional commercial deposit services on its core processing system. The reported increase in legal expense was attributable to several matters including, but not limited to, services associated with expanded SEC disclosure requirements regarding the Company's annual meeting proxy material, recently completed revisions to benefit plan agreements as required by newly-implemented Internal Revenue Service regulations and various other human resource-related matters. The growth in other noninterest expense includes increases in FDIC insurance expense resulting from both growth in the balance of FDIC-insured deposits plus the expiration of FDIC insurance credits which had reduced the Bank's net cost of FDIC deposit insurance premiums over several prior quarters. Increases in noninterest expense also included increases in corporate insurance and regulatory assessment expenses as well as increases in general and administrative expenses attributable to the two additional branches opened in the latter half of fiscal 2007. Finally, the comparative decrease in advertising and marketing expenses primarily reflected the absence of de novo branch grand opening expenses during the more recent period that were incurred during the earlier comparative period. Provision for Income Taxes. The provision for income taxes decreased $263,000 for the nine months ended June 30, 2008 compared with the nine months ended June 30, 2007. For the more recent period, the Company's effective income tax rate was 20.1% compared with an effective income tax rate of 30.5% for the earlier comparative period. The tax expense in the current and prior period, respectively, reflects the comparative levels of pre-tax income coupled with the level of "tax favored" income reported by the Company during each period. "Tax favored" income arises from revenue sources on which the Company pays income taxes at a comparatively lower effective tax rate than it generally pays on other sources of income. Specifically, the Company's effective tax rate is influenced by the level of interest income on investment securities held by the Bank's investment subsidiary, American Savings Investment Corporation ("ASIC"). ASIC is a wholly owned New Jersey investment subsidiary formed in August 2004 by American Bank of New Jersey. The purpose of this subsidiary is to invest in stocks, bonds, notes and all types of equity, mortgages, debentures and other investment securities. Interest income from this subsidiary is taxed by the state of New Jersey at an effective rate lower than the statutory corporate state income tax rate. Additionally, the Company also recognizes tax exempt income from the cash surrender value of bank owned life insurance. The Company recognized income from these two "tax favored" sources during both comparative periods. However, the comparatively lower pretax net income reported for the current nine month period resulted in the items discussed above having a proportionally greater net beneficial impact on the Company's reported effective tax rate in the current period. 31 Critical Accounting Policies Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. The following is a description of our critical accounting policy and an explanation of the methods and assumptions underlying its application. Allowance for Loan Losses. Our policy with respect to the methodologies used to determine the allowance for loan losses is our most critical accounting policy. This policy is important to the presentation of our financial condition and results of operations, and it involves a higher degree of complexity and requires management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could result in material differences in our results of operations or financial condition. In evaluating the level of the allowance for loan losses, management considers the Company's historical loss experience as well as various "environmental factors" including the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, industry condition information, and prevailing economic conditions. Large groups of smaller balance homogeneous loans, such as residential real estate and home equity and consumer loans, are evaluated in the aggregate using historical loss factors adjusted for current economic conditions. Large balance and/or more complex loans, such as multi-family, nonresidential real estate and construction loans, are evaluated individually for impairment. 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 assesses the allowance for loan losses quarterly. While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require the Bank to recognize additional provisions based on their judgment of information available to them at the time of their examination. The allowance for loan losses in the periods presented was maintained at a level that represented management's best estimate of losses in the loan portfolio to the extent they were both probable and reasonable to estimate. Application of the Bank's loan loss methodology outlined above results, in part, in historical and environmental loss factors being applied to the outstanding balance of homogeneous groups of loans to estimate probable credit losses. Both historical and environmental loss factors are reviewed and updated quarterly, where appropriate, as part of management's assessment of the allowance for loan losses. A limited number of loss factors used in the Bank's loss provision calculations were updated during the nine months ended June 30, 2008 to reflect changes general market and economic conditions, their effect on the value of real estate collateralizing the Bank's loans and the resulting tightening of the Bank's loan underwriting standards. Management generally expects provisions for loan losses to continue to increase as a result of the net growth in loans called for in the Company's business plan. Specifically, our business strategy calls for increased strategic emphasis in commercial lending. The loss factors used in the Bank's allowance for loan loss calculations are generally higher for such loans compared with those applied to one- to four family mortgage loans. Consequently, management expects the net growth in commercial loans called for in the Company's strategic business plan to result in required loss provisions that exceed those recorded in prior years when comparatively greater strategic emphasis had been placed on growth in one- to four family mortgage loans. 32 Liquidity and Commitments We are required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure a safe and sound operation. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans. Historically, we have maintained liquid assets above levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows. Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained. The Bank's short term liquidity, represented by cash and cash equivalents, is a product of its operating, investing and financing activities. The Bank's primary sources of funds are deposits, amortization, prepayments and maturities of outstanding loans and mortgage-backed securities, maturities of investment securities and other short-term investments and funds provided from operations. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by the level of market interest rates, economic conditions, and competition. In addition, the Bank invests excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements. The Bank also generates cash through borrowings. The Bank utilizes Federal Home Loan Bank advances and reverse repurchase agreements to leverage its capital base by providing funds for its lending and investing activities, to enhance its earnings and to assist in the management of interest rate risk. Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as overnight deposits or U.S. Agency securities. On a longer-term basis, the Bank maintains a strategy of investing in various loan products and in securities collateralized by loans. The Bank uses its sources of funds primarily to meet its ongoing commitments, to pay maturing certificates of deposit and savings withdrawals, to fund loan commitments and to maintain its portfolio of mortgage-backed securities and investment securities. At June 30, 2008, the total approved loan origination commitments outstanding amounted to $25.0 million. At the same date, unused lines of credit were $29.8 million and undisbursed loans in process were $23.0 million. Certificates of deposit scheduled to mature in one year or less at June 30, 2008, totaled $204.0 million. Notwithstanding promotional deposit pricing strategies relating to the Bank's de novo branches, management's general policy is to maintain deposit rates at levels that are competitive with other local financial institutions. Based on the competitive rates and on historical experience, management believes that a significant portion of maturing certificates of deposit will remain with the Bank. Additionally, at June 30, 2008 the Bank had $16.6 million of borrowings maturing in less than one year, all of which were advances from the FHLB. Repayment of FHLB advances increases the Bank's unused borrowing capacity from that source which totaled $111.0 million at June 30, 2008. In calculating our borrowing capacity, the Bank utilizes the FHLB's guideline, which generally limits advances secured by residential mortgage collateral to 25% of the Bank's total assets. 33 The following tables disclose our contractual obligations and commercial commitments as of June 30, 2008. Scheduled principal payments on amortizing borrowings are reported as maturities.
Less Than After Total 1 Year 1-3 Years 4-5 Years 5 Years ----- ------ --------- --------- ------- (In thousands) Time Deposits $ 230,115 $ 203,980 $ 12,643 $ 3,852 $ 9,640 Borrowings(1) 81,564 16,564 22,000 8,000 35,000 ----------- -------- ----------- ----------- ----------- Total $ 311,679 $ 220,544 $ 34,643 $ 11,852 $ 44,640 =========== ========== =========== =========== =========== (1) At June 30, 2008, borrowings include FHLB advances of $46.6 million and reverse repurchase agreements of $35.0 million. The total collateralized borrowing limit at the FHLB was $157.6 million at June 30, 2008 of which the $46.6 million of advances were outstanding. Total Amounts Less Than Over Committed 1 Year 1-3 Years 4-5 Years 5 Years --------- ------ --------- --------- ------- (In thousands) Lines of credit(1) $ 29,821 $ 1,848 $ 1,908 $ 783 $ 25,282 Land lease - Bloomfield 2,307 120 277 290 1,620 Building lease - Nutley 1,431 84 184 188 975 Loans in process(1) 23,003 16,394 6,609 - - Other commitments to extend credit(1) 25,033 25,033 - - - ----------- ----------- --------- --------- ---------- Total $ 81,595 $ 43,479 $ 8,978 $ 1,261 $ 27,977 =========== =========== ========= ========= ==========
(1) Represents amounts committed to customers. In addition to the commitment included in the table above, the Bank has one outstanding standby letter of credit totaling $247,320. The standby letter of credit, which represents a contingent liability to the Bank, expires in June 2009. Regulatory Capital Consistent with its goals to operate a sound and profitable financial organization, American Bank of New Jersey actively seeks to maintain its classification as a "well capitalized" institution in accordance with regulatory standards. The Bank's total equity was $78.9 million at June 30, 2008, or 12.51% of total assets on that date. As of June 30, 2008, the Bank exceeded all capital requirements of the Office of Thrift Supervision. The Bank's regulatory capital ratios at June 30, 2008 were as follows: Core capital, 12.60%; Tier I risk-based capital, 19.97%; and total risk-based capital, 20.72%. The regulatory capital requirements to be considered well capitalized are 5.0%, 6.0% and 10.0%, respectively. 34 Impact of Inflation The consolidated financial statements presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America. These principles require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Our primary assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates, however, do not necessarily move in the same direction or with the same magnitude as the price of goods and services, since such prices are affected by inflation. In a period of rapidly rising interest rates, the liquidity and maturity structure of our assets and liabilities are critical to the maintenance of acceptable performance levels. The principal effect of inflation, as distinct from levels of interest rates, on earnings is in the area of noninterest expense. Such expense items as employee compensation, employee benefits and occupancy and equipment costs may be subject to increases as a result of inflation. An additional effect of inflation is the possible increase in the dollar value of the collateral securing loans that we have made. We are unable to determine the extent, if any, to which properties securing our loans have appreciated in dollar value due to inflation. Recent Accounting Pronouncements See Note 4 - Recent Accounting Pronouncements within the Notes to Unaudited Financial Statements included in this report. 35 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Qualitative Analysis. Because the income on the majority of our assets and the cost of the majority of our liabilities are sensitive to changes in interest rates, a significant form of market risk for us is interest rate risk. Changes in interest rates may have a significant, adverse impact on our net interest income. Our ability to make a profit largely depends on our net interest income, which could be negatively affected by changes in interest rates. Net interest income is the difference between: o The interest income we earn on our interest-earning assets such as loans and securities; and o The interest expense we pay on our interest-bearing liabilities such as deposits and amounts we borrow. The rates we earn on our assets and the rates we pay on our liabilities are generally fixed for a contractual period of time. We, like many savings institutions, have liabilities that generally have shorter contractual maturities than our assets. This imbalance can create significant earnings volatility, because market interest rates change over time. In a period of rising interest rates, the interest income earned on our assets may not increase as rapidly as the interest paid on our liabilities. In a period of declining interest rates the interest income earned on our assets may decrease more rapidly, due to accelerated prepayments, than the interest paid on our liabilities. The prepayment characteristics of our loans and mortgage-backed and related securities are greatly influenced by movements in market interest rates. For example, a reduction in interest rates results in increased prepayments of loans and mortgage-backed and related securities, as borrowers refinance their debt in order to reduce their borrowing cost. This causes reinvestment risk, because we are generally not able to reinvest prepayment proceeds at rates that are comparable to the rates we previously earned on the prepaid loans or securities. By contrast, increases in interest rates reduce the incentive for borrowers to refinance their debt. In such cases, prepayments on loans and mortgage-backed and related securities may decrease thereby extending the average lives of such assets and reducing the cash flows that are available to be reinvested by the Company at higher interest rates. Tables presenting the composition and allocation of the Company's interest-earning assets and interest-bearing liabilities from an interest rate risk perspective are set forth in the preceding section of this report titled "Comparison of Financial Condition at June 30, 2008 and September 30, 2007." These tables present the Company's investment securities, loans, deposits, and borrowings by categories that reflect certain characteristics of the underlying assets or liabilities that impact the Company's interest rate risk. Shown as a percentage of total assets, the comparative data presents changes in the composition and allocation of those interest-earning assets and interest-bearing liabilities that have influenced the level of interest rate risk embedded within the Company's balance sheet. Our net interest margin may be adversely affected throughout several possible interest rate environments. For example, during fiscal 2007, the continued inversion of the yield curve, by which shorter term market interest rates exceed those of longer term rates, triggered further increases in the Bank's cost of interest-bearing liabilities that outpaced our increase in yield on earning assets causing further net interest rate spread compression. Such compression resulted in a 0.36% reduction in our net interest rate spread to 1.44% for fiscal 2007 from 1.80% for the fiscal year ended September 30, 2006. As noted in the Executive Summary discussion earlier, that trend was reversed during fiscal 2008 when the Company's net interest rate spread increased 30 basis points to 1.74% in comparison to 1.44% for fiscal 2007 as the Company substantially maintained its yield on earning assets while decreasing its cost of interest-bearing liabilities. In large part, the improvements in net 36 interest rate spread for the nine months ended June 30, 2008 resulted from the Company's ability to support its yield on loans through its commercial lending strategies while it decreased its cost of retail deposits. The reduction in retail deposit interest costs reflects the overall reduction in market interest rates coupled with the downward adjustment of interest rates paid on deposits acquired through the de novo branches opened during fiscal 2007 on which the Company originally paid higher, promotional interest rates. Notwithstanding the reported improvement in the net interest rate spread reported for the first nine months of fiscal 2008, our earnings may be impacted by an "earnings squeeze" in the future resulting from further movements in market interest rates. For example, we are vulnerable to an increase in interest rates because the majority of our loan portfolio consists of longer-term, fixed rate loans and adjustable rate mortgages, most of which are fixed rate for an initial period of time. At June 30, 2008, excluding allowance for loan losses and net deferred origination costs and including loans held for sale, loans totaled $473.2 million comprising 75.02% of total assets. As presented in the loan-related tables in the preceding section of this report titled "Comparison of Financial Condition at June 30, 2008 and September 30, 2007", loans reported as fixed rate mortgages totaled $207.8 million or 32.9% of total assets while adjustable rate mortgages ("ARMs") totaled $190.1 million or 30.1% of total assets. In a rising rate environment, our cost of funds may increase more rapidly than the interest earned on our loan portfolio and investment securities portfolio because our primary source of funds is deposits with substantially greater repricing sensitivity than that of our loans and investment securities. Having interest-bearing liabilities that reprice more frequently than interest-earning assets is detrimental during periods of rising interest rates and could cause our net interest rate spread to shrink because the increase in the rates we would earn on our securities and loan portfolios would be less than the increase in the rates we would pay on deposits and borrowings. Notwithstanding the risks presented by the flat to inverted yield curve that was prevalent during fiscal 2007, or those resulting from increases to short term interest rates, a significant decrease in market interest rates could, by contrast, trigger a new wave of loan refinancing that could result in the margin compression experienced in prior years when rates fell to their historical lows. The Bank also faces the risk of continued disintermediation of our deposits into higher cost accounts as well as the risk of some amount of additional deposit outflows. Specifically, we were successful in growing non-maturity deposits during fiscal 2007 due, in part, to higher promotional interest rates paid at the Bank's three newest branches. Our ability to retain these deposits as rates on such accounts were incrementally adjusted to "non-promotional" levels was rigorously tested during the current year. As evidenced through the first nine months of fiscal 2008, a portion of recently acquired deposits may be subject to further disintermediation into higher yielding deposit accounts, such as certificates of deposit, while the most "price sensitive" of those deposits may be withdrawn. Moreover, recent volatility in the financial institutions marketplace may result in upward pressure on retail deposit pricing and/or additional deposit outflows as certain institutions seek to attract liquidity at comparatively higher interest rates. A portion of the Bank's balance of short term liquid assets is attributable to managing the contingency of that latter risk. 37 Quantitative Aspects of Market Risk. The following table presents American Bank of New Jersey's net portfolio value as of March 31, 2007 - the latest date for which information is available. The net portfolio value was calculated by the Office of Thrift Supervision, based on information provided by the Bank.
Net Portfolio Value as % of Board Net Portfolio Value Present Value of Assets Established Limits ------------------- ----------------------- ------------------ Net Net Portfolio Basis Portfolio Basis Changes in Value Point Value Point Rates $ Amount $ Change % Change Ratio Change Ratio Change ----- -------- -------- -------- ----- ------ ----- ------ (Dollars in thousands) +300 bp 70,325 -21,251 -23% 11.45% -272bp 5.00% -450bp +200 bp 79,039 -12,537 -14% 12.63% -155bp 6.00% -300bp +100 bp 86,690 -4,886 -5% 13.61% -57bp 7.00% -150bp 0 bp 91,576 14.17% 8.00% -100 bp 92,994 1,418 +2% 14.25% +8bp 7.00% -150bp
Future interest rates or their effect on net portfolio value or net interest income are not predictable. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, prepayments, and deposit run-offs, and should not be relied upon as indicative of actual results. Certain shortcomings are inherent in this type of computation. Although certain assets and liabilities may have similar maturity or periods of repricing, they may react at different times and in different degrees to changes in the market interest rates. The interest rate on certain types of assets and liabilities such as demand deposits and savings accounts, may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets such as adjustable rate mortgages generally have features, which restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayments and early withdrawal levels could deviate significantly from those assumed in making calculations set forth above. Additionally, an increased credit risk may result as the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. Strategies for the Management of Interest Rate Risk and Market Risk. The Board of Directors has established an Asset/Liability Management Committee which is responsible for monitoring interest rate risk. The committee comprises the Bank's Chief Executive Officer, the Bank's President and Chief Operating Officer, the Bank's Senior Vice President and Chief Financial Officer, the Bank's Senior Vice President and Chief Lending Officer, the Bank's Senior Vice President Commercial Real Estate, the Bank's VP Branch Administration and the Bank's Vice President and Controller. Management conducts regular, informal meetings, generally on a weekly basis, to address the day-to-day management of the assets and liabilities of the Bank, including review of the Bank's short term liquidity position; loan and deposit pricing and production volumes and alternative funding sources; current investments; average lives, durations and repricing frequencies of loans and securities; and a variety of other asset and liability management topics. The committee generally meets quarterly to formally review such matters. The results of the committee's quarterly review are reported to the full Board, which makes adjustments to the Bank's interest rate risk policy and strategies, as it considers necessary and appropriate. The qualitative and quantitative interest rate analysis presented above indicate that various foreseeable movements in market interest rates may have an adverse effect on our net interest margin and earnings. The growth and diversification strategies outlined in the Company's current business plan are 38 designed not only to enhance earnings, but also to better support the resiliency of those earnings throughout various movements in interest rates. Toward that end, implementation of the Company's business plan over time is expected to result in a better matching of the repricing characteristics of its interest-earning assets and interest-bearing liabilities. Specific business plan strategies to achieve this objective include: (1) Open up to three de novo branches over the next five years with an emphasis on growth in non-maturity deposits; (2) Attract and retain lower cost business transaction accounts by expanding and enhancing business deposit services including online cash management and remote deposit capture services; (3) Attract and retain lower cost personal checking and savings accounts through expanded and enhanced cross selling efforts; (4) Originate and retain commercial loans with terms that increase overall loan portfolio repricing frequency and cash flows while reducing call risk through prepayment compensation provisions; (5) Originate and retain one- to four family home equity loans and variable rate lines of credit to increase loan portfolio repricing frequency and cash flows; (6) Originate both fixed and adjustable rate one- to four family first mortgage loans eligible for sale in the secondary market and, if warranted, sell such loans on either a servicing retained or servicing released basis. The strategy reduces the balance of longer duration and/or non-prepayment protected loans while enhancing non interest income. At June 30, 2008, the Bank did not have any outstanding contracts to sell mortgage loans into the secondary market. In general, the Bank intends to continue retaining most one- to four family mortgage loan originations for a period of time to augment the growth in commercial loans through which the Bank will reinvest a portion of the balances of cash and cash equivalents accumulated during fiscal 2007. As discussed in the preceding section titled "Comparison of Financial Condition at June 30, 2008 and September 30, 2007", such balances resulted from significant growth in deposits acquired through the Bank's de novo branches opened during the prior fiscal year. The Bank continues to offer a limited Alt-A program through which it originates and sells all such loans to Fannie Mae under its Expanded Approval program on a non-recourse, servicing retained basis. The Bank will carefully monitor the earnings, liquidity, and balance sheet allocation impact of these strategies and make interim adjustments, as necessary, to support achievement of the Company's business plan goals and objectives. In addition to the strategies noted above, we may utilize other strategies aimed at improving the matching of interest-earning asset maturities to interest-bearing liability maturities. Such strategies may include: (1) Purchase short to intermediate term securities and maintain a securities portfolio that provides a stable cash flow, thereby providing investable funds in varying interest rate cycles; (2) Lengthen the maturities of our liabilities through utilization of FHLB advances and other wholesale funding alternatives. The Bank will also selectively consider certain strategies to enhance net interest income as opportunities arise to do so in a manner that supports the goals and objectives of the Company's business plan. Notwithstanding the discussion above, the implementation of these strategies may result in an acceptable and manageable increase to the level of interest rate risk within the balance sheet. Such an opportunity arose during the second quarter of fiscal 39 2008 when the Company completed a wholesale growth transaction through which the Company purchased approximately $50.0 million of mortgage-related investment securities funded by an equivalent amount of borrowings. Through this transaction, the Company took advantage of the opportunity presented by recent turmoil in the mortgage securities markets to acquire agency, AAA-rated mortgage-related securities at historically wide interest rate spreads in relation to the cost of wholesale funding sources. The ongoing net interest income resulting from this transaction is intended to augment the Company's earnings as it continues to incur the near term costs associated with executing its business plan. However, the characteristics of the specific investment securities and borrowings underlying the transaction have added a measurable and manageable degree of interest rate risk to the Company's balance sheet. This additional risk primarily arises from the potential "mismatch" between the repricing of investment security cash flows and that of the related borrowings. For example, mortgage-related security cash flows are largely determined by market interest rates and their effect on loan prepayments. Similarly, market interest rates will largely determine the likelihood that certain borrowings underlying the transaction may require full repayment at par prior to maturity - an option granted to the reverse repurchase agreement counterparty in a portion of the borrowings utilized in the transaction. The Company carefully evaluated the impact of the transaction on the Company's overall interest rate risk profile from both an earnings and net portfolio value perspective. Through this evaluation, the Company confirmed that movements in market interest rates may significantly impact the relative market value of the financial instruments underlying this transaction and the amount of additional net interest income earned by the Company resulting from it. However, the Company concluded that the additional interest rate risk, as measured and evaluated, was both manageable and appropriate given the additional net interest income that is expected to be earned by the Company throughout the various market interest rate scenarios modeled. 40 ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures: An evaluation of the Company's disclosure controls and procedures (as defined in Section 13(a)-15(e) of the Securities Exchange Act of 1934 ("the Act") was carried out under the supervision and with the participation of the Company's Chief Executive Officer, Chief Financial Officer and several other members of the Company's senior management. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures in effect as of the end of the period covered by this quarterly report are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. (b) Changes in internal controls: In the last fiscal quarter, there was no change in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 41 PART II - - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS At June 30, 2008, the Company and its subsidiaries were not involved in any pending proceedings other than the legal proceedings occurring in the ordinary course of business. Such legal proceedings in the aggregate are believed by management to be immaterial to the Company's financial condition and results of operations. ITEM 1A. RISK FACTORS There have been no material changes to the factors disclosed in Item 1A., Risk Factors, in our Annual Report on Form 10-K for the year ended September 30, 2007. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The following table summarizes our share repurchase activity during the three months ended June 30, 2008 and additional information regarding our share repurchase program.
(c) Total Number of Shares (or (d) Maximum Number (a) Total Units) Purchased (or Approximate Dollar Number (b) as Part Of Value) of Shares (or Of Shares Average Price Publicly Units) that May Yet Be Period Units) Paid per Share Announced Plans Purchased Under Purchased (or Unit) or Programs Plans or Programs (1) --------- --------- ----------- --------------------- Repurchases for the Month April 1 - April 30, 2008 - - - 204,104 May 1 - May 31, 2008 134,971 $10.51 134,971 69,133 June 1 - June 30, 2008 59,244 $10.92 59,244 9,889 Total repurchases 194,215 $10.63 194,215
(1) The shares reported were repurchased under a share repurchase plan announced by the Company on January 2, 2008 through which five percent, or approximately 575,000, of the Company's outstanding shares would be repurchased through open market or privately negotiated transactions. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS None ITEM 5. OTHER INFORMATION None 42 ITEM 6. EXHIBITS (a) Exhibits 10.1 Executive Salary Contination Agreement by and between American Bank of New Jersey and Fred G. Kowal, dated June 17, 2008. 10.2 Employment Agreement by and between American Bank of New Jersey and Catherine Bringuier, dated June 17, 2008. 10.3 Employment Agreement by and between American Bank of New Jersey and Eric B. Heyer, dated June 17, 2008. 10.4 Employment Agreement by and between American Bank of New Jersey and Joseph Kliminski, dated June 17, 2008. 10.5 Employment Agreement by and between American Bank of New Jersey and Fred G. Kowal, dated June 17, 2008. 10.6 Amended and Restated Executive Salary Continuation Agreement by and between American Bank of New Jersey and Catherine Bringuier, dated June 17, 2008. 10.7 Amended and Restated Executive Salary Continuation Agreement by and between American Bank of New Jersey and Eric B. Heyer, dated June 17, 2008. 10.8 Amended and Restated Executive Salary Continuation Agreement by and between American Bank of New Jersey and Joseph Kliminiski, dated June 17, 2008. 10.9 American Bank of New Jersey Director Consultation and Retirement Plan as Amended and Restated, Amended as of June 28, 2005, Further Amended June 17, 2008. 31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14a and 15d-14a. 31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14a and 15d-14a. 32 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 43 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. American Bancorp of New Jersey, Inc. (Registrant) Date: August 11, 2008 /s/ Joseph Kliminiski -------------------------------------- Joseph Kliminski Chief Executive Officer Date: August 11, 2008 /s/ Eric B. Heyer -------------------------------------- Eric B. Heyer Senior Vice President and Chief Financial Officer 44 EX-31.2 2 ex312_080808.txt CERTIFICATION OF CFO Exhibit 31.2 CERTIFICATION I, Eric B. Heyer, Senior Vice President, Treasurer and Chief Financial Officer of American Bancorp of New Jersey, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of American Bancorp of New Jersey, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 11, 2008 /s/ Eric B. Heyer -------------------------------------------- Eric B. Heyer Senior Vice President, Treasurer and Chief Financial Officer EX-31.1 3 exh311_080808.txt CERTIFICATION OF CEO Exhibit 31.1 CERTIFICATION I, Joseph Kliminski, Chief Executive Officer of American Bancorp of New Jersey, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of American Bancorp of New Jersey, Inc; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 11, 2008 /s/ Joseph Kliminiski -------------------------------------------- Joseph Kliminski Chief Executive Officer EX-10.9 4 exh109_080808.txt DIRECTOR CONSULTATION AND RETIREMENT PLAN Exhibit 10.9 AMENDED AND RESTATED EXECUTIVE SALARY CONTINUATION AGREEMENT THIS AMENDED AND RESTATED AGREEMENT, made and entered into this 17th day of June, 2008, by and between American Bank of New Jersey, a savings bank organized and existing under the laws of the United States (hereinafter referred to as the "Bank"), and Joseph Kliminski, an Executive of the Bank (hereinafter referred to as the "Executive"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Executive and the Bank have previously entered into an Executive Salary Continuation Agreement; and WHEREAS, since the execution of the original agreement, certain changes to Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), have been enacted; and WHEREAS, it is necessary to revise the original agreement to reflect these changes to the Code; ACCORDINGLY, it is the desire of the Bank and the Executive to enter into this agreement (sometimes referred to herein as the "Executive Plan") under which the Bank will agree to make certain payments to the Executive at retirement or the Executive's beneficiary(ies) in the event of the Executive's death pursuant to this agreement; FURTHERMORE, it is the intent of the parties hereto that this Executive Plan be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Executive, and be considered a non-qualified benefit plan for purposes of the Employee Retirement Security Act of 1974, as amended ("ERISA"). The Executive is fully advised of the Bank's financial status and has had substantial input in the design and operation of this benefit plan; and NOW, THEREFORE, in consideration of services to be performed in the future as well as of the mutual promises and covenants herein contained it is agreed as follows: I. EMPLOYMENT The Bank agrees to employ the Executive in such capacity as the Bank may from time to time determine. The Executive will continue in the employ of the Bank in such capacity and with such duties and responsibilities as may be assigned to him, and with such compensation as may be determined from time to time by the Board of Directors of the Bank. II. FRINGE BENEFITS The salary continuation benefits provided by this agreement are granted by the Bank as a fringe benefit to the Executive and are not part of any salary reduction plan or an arrangement deferring a bonus or a salary increase. The Executive has no option to take any current payment or bonus 1 in lieu of these salary continuation benefits except as set forth hereinafter. III. NORMAL RETIREMENT AGE Normal Retirement Age shall mean the date on which the Executive attains age sixty-five (65). IV. RETIREMENT BENEFIT Provided said retirement constitutes a Separation from Service (as that phrase is defined under Section 409A of the Code and the regulations and guidance of general applicability issued thereunder (referred to herein as "Section 409A")), the Bank, commencing with the first day of the month following the later of the date the Executive actually retires or the date the Executive attains his Normal Retirement Age, shall pay Executive an annual benefit equal to fifty percent (50%) of the Executive's average base salary (with each year's base salary determined on an annualized basis, taking into account any base salary adjustments occurring during the applicable year) based upon the average of the highest three (3) out of the last five (5) years of employment (including the year in which the Separation from Service occurs). Said benefit shall be paid in equal monthly installments (1/12 of the annual benefit) until the death of the Executive. Notwithstanding the foregoing, if the Executive is, as of the date of his Separation from Service, a "Specified Employee" (as defined in Section 409A), then the retirement benefits described in this Section IV shall commence to be paid on the first day of the month that next follows the six-month anniversary of the date the Executive experiences a Separation from Service, or his death, if earlier, with the first payment including all monthly retirement benefits that would have been previously paid but for this sentence. V. DEATH OF THE EXECUTIVE In the event of the death of the Executive, this agreement shall terminate and, if applicable, the Executive's beneficiary(ies) shall be paid a death benefit under the terms of the Endorsement Method Split Dollar Agreement between the Executive and the Bank and not this agreement. VI. BENEFIT ACCOUNTING The Bank shall account for this benefit using GAAP accounting principles. The Bank shall establish an accrued liability retirement account for the Executive into which appropriate reserves shall be accrued. VII. VESTING The Executive shall be one hundred percent (100%) vested in the benefits provided herein. 2 VIII. OTHER TERMINATION OF EMPLOYMENT AND DISABILITY A. Other Termination of Employment: Subject to Subsection VIII.A(i) hereinbelow, in the event that the employment of the Executive shall terminate prior to Normal Retirement Age, as provided in Section III, for reasons other than "disability" (as defined in Section VIII.B) or Change of Control (as defined in Section IX), but including by the Executive's voluntary action or by the Executive's discharge by the Bank without cause, and such termination of employment constitutes a Separation of Service (as defined in Section IV), then this agreement shall terminate upon the date of such termination of employment and the Bank shall pay to the Executive as severance compensation an amount of money equal to the accrued balance of the Executive's liability reserve account. This severance compensation shall be paid in a lump sum no later than 2 1/2 months following the date of the Executive's termination of employment. Notwithstanding the foregoing, if the Executive is as of the date of Separation from Service a "Specified Employee" (as herein defined), then payment under this Article VIII shall not be paid earlier than the 183rd day following the date the Executive incurs a Separation from Service, or his death, if earlier. (i) Discharge for Cause: In the event the Executive shall be discharged for cause at any time, all benefits provided herein shall be forfeited. The term "for cause" shall be as defined in the Executive's Employment Agreement between the Executive and the Bank in effect at the time of said termination (or if no such agreement exists, the Employment Agreement most recently in effect between the Bank and the Executive). If a dispute arises as to discharge "for cause," such dispute shall be resolved by arbitration as set forth in this Executive Plan. B. Disability: In the event the Executive becomes disabled prior to his Separation from Service (as defined in Section IV), and the Executive's Separation from Service is on account of such disability, the Executive shall be entitled to receive one hundred percent (100%) of the Executive's accrued liability balance at the time of Separation from Service for said disability. Except as otherwise provided herein, said accrued liability balance at termination shall be paid to the Executive in a lump sum no later than 2 1/2 months following the date of the Executive's Separation from Service. Disability shall be defined in the Executive's Employment Agreement in effect at the time of his Separation from Service or, if no Employment Agreement is then in effect, then as defined in the Bank's long term disability policy in effect at the time of said disability. If neither definition exists at the time of termination and there is a dispute regarding whether the Executive is disabled, such dispute shall be resolved by a physician selected by the Bank, a physician selected by 3 the Executive, and a third physician selected by each of the other two (2) physicians. Such resolution shall be binding upon all parties to this agreement. Notwithstanding the foregoing, if the disability that gives rise to the Executive's Separation from Service does not cause the Executive to be "disabled" within the meaning of Section 409A, and if, as of the date of such Separation from Service, the Executive is a "Specified Employee" (as defined in Section 409A), then his disability benefits payable pursuant to this Section VIII.B shall commence to be paid on the first day of the month that next follows the six-month anniversary of the date the Executive incurs a Separation from Service, or his death, if earlier. IX. CHANGE OF CONTROL Change of Control shall be as defined in the Executive's Employment Agreement between the Executive and the Bank in effect at the time of said Change of Control, or if no such agreement is then in effect, by the regulations of the OTS in 12 CFR ss.574. Upon a Change of Control, if the Executive subsequently suffers an involuntary termination of service, except for cause, and such termination of service constitutes a Separation from Service (as defined in Section IV), or, upon a voluntary termination of service within twelve (12) months after such Change of Control, if any of the following events, which have not been consented to in advance by the Executive in writing, occur: (i) if the Executive would be required to move his personal residence or perform his principal executive functions more than forty (40) miles from the Executive's primary office as of the signing of this agreement, or (ii) if the Bank should fail to maintain Executive's base compensation in effect as of the date of the Change of Control and the existing employee benefits plans, including material fringe and retirement plans, then the Executive shall receive the benefits in Section IV herein upon attaining Normal Retirement Age (as defined in Section III), as if the Executive had been continuously employed by the Bank until the Executive's Normal Retirement Age. Notwithstanding the foregoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder, when aggregated with all other payments to be made to the Executive by the Bank, shall be deemed an "excess parachute payment" in accordance with Section 280G of the code and be subject to the excise tax provided at Section 4999(a) of the Code. Notwithstanding the above, if the Executive is as of the date of his Separation from Service a "Specified Employee" (as herein defined), then payment under this Article IX shall not be paid earlier than the 183rd day following the date the Executive incurs a Separation from Service, or his death, if earlier, with any payments not made on account of this sentence being paid with the Executive's first payment. X. RESTRICTIONS ON FUNDING The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Executive Plan. The Executive, his beneficiary(ies), or any successor in interest shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation. 4 The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by this Executive Plan or to refrain from funding the same and to determine the extent, nature and method of such funding. Should the Bank elect to fund this Executive Plan, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall the Executive be deemed to have any lien, right, title or interest in any specific funding investment or assets of the Bank. No manner of funding shall be permitted that would violate Section 409A. If the Bank elects to invest in a life insurance, disability or annuity policy on the life of the Executive, then the Executive shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance or annuities. XI. MISCELLANEOUS A. Alienability and Assignment Prohibition: --------------------------------------- Neither the Executive, nor the Executive's surviving spouse, nor any other beneficiary(ies) under this Executive Plan shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Executive or the Executive's beneficiary(ies), nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the Executive or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease and terminate. B. Binding Obligation of the Bank and any Successor in Interest: ----------------------------------------------------------- The Bank shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agrees, in writing, to assume and discharge the duties and obligations of the Bank under this Executive Plan. This Executive Plan shall be binding upon the parties hereto, their successors, beneficiaries, heirs and personal representatives. C. Amendment or Revocation: ----------------------- It is agreed by and between the parties hereto that, during the lifetime of the Executive, this Executive Plan may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Executive and the Bank. No amendment shall be permitted that would violate, or cause this agreement to violate, Section 409A. 5 D. Gender: ------ Whenever in this Executive Plan words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. E. Effect on Other Bank Benefit Plans: ---------------------------------- Nothing contained in this Executive Plan shall affect the right of the Executive to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank's existing or future compensation structure. F. Headings: -------- Headings and subheadings in this Executive Plan are inserted for reference and convenience only and shall not be deemed a part of this Executive Plan. G. Applicable Law: -------------- The validity and interpretation of this agreement shall be governed by the laws of the State of New Jersey. H. 12 U.S.C. ss.1828(k): -------------------- Any payments made to the Executive pursuant to this Executive Plan, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. ss.1828(k) or any regulations promulgated thereunder. I. Partial Invalidity: ------------------ If any term, provision, covenant, or condition of this Executive Plan is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant or condition invalid, void, or unenforceable, and the Executive Plan shall remain in full force and effect notwithstanding such partial invalidity. J. Not a Contract of Employment: ---------------------------- This agreement shall not be deemed to constitute a contract of employment between the parties hereto, nor shall any provision hereof restrict the right of the Bank to discharge the Executive, or restrict the right of the Executive to terminate employment. K. Effective Date: -------------- The Effective Date of this agreement shall be the date first above written. 6 XII. ERISA PROVISION A. Named Fiduciary and Plan Administrator: -------------------------------------- The "Named Fiduciary and Plan Administrator" of this Executive Plan shall be American Bank of New Jersey. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Executive Plan. The Named Fiduciary may delegate to others certain aspects of the management and operational responsibilities of the Executive Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals. B. Claims Procedure and Arbitration: -------------------------------- In the event a dispute arises over benefits under this Executive Plan and benefits are not paid to the Executive (or to the Executive's beneficiary(ies) in the case of the Executive's death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Named Fiduciary and Plan Administrator named above within sixty (60) days from the date payments are refused. The Named Fiduciary and Plan Administrator shall review the written claim and if the claim is denied, in whole or in part, it shall provide in writing within sixty (60) days of receipt of such claim the specific reasons for such denial, reference to the provisions of this Executive Plan upon which the denial is based and any additional material or information necessary to perfect the claim. Such written notice shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desired. A claim shall be deemed denied if the Named Fiduciary and Plan Administrator fail to take any action within the aforesaid sixty-day period. If claimants desire a second review they shall notify the Named Fiduciary and Plan Administrator in writing within sixty (60) days of the first claim denial. Claimants may review this Executive Plan or any documents relating thereto and submit any written issues and comments they may feel appropriate. In their sole discretion, the Named Fiduciary and Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of this agreement upon which the decision is based. Any controversy or claim arising out of or relating to this Executive Plan, or breach thereof, shall be settled exclusively by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association ("AAA") nearest to the home office of the Bank, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extent that the parties may otherwise reach a mutual settlement of such issue. The provisions of this Paragraph shall survive the expiration of this Executive Plan. 7 Where a dispute arises as to the Bank's discharge of the Executive "for cause," such dispute shall likewise be submitted to arbitration as above described and the parties hereto agree to be bound by the decision thereunder. XIII. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS Notwithstanding anything herein above to the contrary, the Bank is entering into this Executive Plan upon the assumption that certain existing tax laws, rules and regulations will continue in effect in their current form. If any said assumptions should change and said change has a detrimental effect on this Executive Plan, then the Bank reserves the right to terminate or modify this Executive Plan accordingly. Furthermore, the Board has the right to terminate or modify future accruals if so determined within the Board's business judgment whether or not this Executive Plan has a detrimental effect on the Bank. Upon any said modification or termination of the Executive Plan, any benefits accrued to the Executive's liability retirement account on the date of said modification or termination shall be paid to the Executive in a lump sum, subject to the provisions below. Upon a Change of Control (Section IX), this paragraph shall become null and void effective immediately upon said Change of Control. Notwithstanding the foregoing, no amendment shall be made to this Executive Plan that would violate, or cause the agreement to violate, Section 409A. Further notwithstanding the foregoing, the agreement may not be terminated unless all of the requirements of Section 409A regarding plan terminations are satisfied. Accordingly, unless Section 409A permits otherwise, this agreement may be terminated only if (a) all arrangements sponsored by the Bank and any affiliated entity (within the meaning of Section 414(b) and 414(c)) that are required to be aggregated with this agreement under Section 409A are terminated; (b) no payments other than payments that would be payable under the terms of the Executive Plan or an aggregated plan if the termination had not occurred are made within 12 months of the termination of the arrangements; (c) all payments are made within 24 months of the termination of the Executive Plan and related arrangements; and (d) the Bank does not adopt a new arrangement that would be required to be aggregated with this Executive Plan under Section 409A if the Executive participated in both arrangements, within three years of the termination of the agreement. XIV. CONFIDENTIAL INFORMATION The Executive acknowledges that during his employment he will learn and have access to confidential information regarding the Bank or any affiliate and its customers and businesses ("Confidential Information"). The Executive agrees and covenants not to disclose or use for his own benefit, or the benefit of any other person or entity, any such Confidential Information, unless or until the Bank or any affiliate consents to such disclosure or use or such information becomes common knowledge in the industry or is otherwise legally in the public domain. The Executive shall not knowingly disclose or reveal to any unauthorized person any Confidential Information relating to the Bank or any affiliates, or to any of the businesses operated by them, and the Executive confirms that such information constitutes the exclusive property of the Bank or any affiliate. The Executive shall not otherwise knowingly act or conduct himself (a) to the material detriment of the Bank or its affiliates, or (b) in a manner which is inimical or contrary to the interests of the Bank or 8 any affiliate. Notwithstanding anything herein to the contrary, failure by the Executive to comply with the provisions of this Section may result in the immediate termination of the Executive Plan within the sole discretion of the Bank, disciplinary action against the Executive taken by the Bank and other remedies that may be available in law or in equity. In witness whereof, the parties hereto acknowledge that each has carefully read this Executive Plan and executed the original thereof on the first day set forth hereinabove, and that, upon execution, each has received a conforming copy. AMERICAN BANK OF NEW JERSEY Bloomfield, New Jersey /s/ Kathleen Walsh By: /s/ W. George Parker - -------------------------------- -------------------- Witness Title: Chairman /s/ Kathleen Walsh /s/ Joseph Kliminski - -------------------------------- ---------------------- Witness Joseph Kliminski 9 EX-10.8 5 exh108_080808.txt EXECUTIVE SALARY CONTINUATION AGREEMENT Exhibit 10.8 AMENDED AND RESTATED EXECUTIVE SALARY CONTINUATION AGREEMENT THIS AMENDED AND RESTATED AGREEMENT, made and entered into this 17th day of June, 2008, by and between American Bank of New Jersey, a savings bank organized and existing under the laws of the United States (hereinafter referred to as the "Bank"), and Joseph Kliminski, an Executive of the Bank (hereinafter referred to as the "Executive"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Executive and the Bank have previously entered into an Executive Salary Continuation Agreement; and WHEREAS, since the execution of the original agreement, certain changes to Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), have been enacted; and WHEREAS, it is necessary to revise the original agreement to reflect these changes to the Code; ACCORDINGLY, it is the desire of the Bank and the Executive to enter into this agreement (sometimes referred to herein as the "Executive Plan") under which the Bank will agree to make certain payments to the Executive at retirement or the Executive's beneficiary(ies) in the event of the Executive's death pursuant to this agreement; FURTHERMORE, it is the intent of the parties hereto that this Executive Plan be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Executive, and be considered a non-qualified benefit plan for purposes of the Employee Retirement Security Act of 1974, as amended ("ERISA"). The Executive is fully advised of the Bank's financial status and has had substantial input in the design and operation of this benefit plan; and NOW, THEREFORE, in consideration of services to be performed in the future as well as of the mutual promises and covenants herein contained it is agreed as follows: I. EMPLOYMENT The Bank agrees to employ the Executive in such capacity as the Bank may from time to time determine. The Executive will continue in the employ of the Bank in such capacity and with such duties and responsibilities as may be assigned to him, and with such compensation as may be determined from time to time by the Board of Directors of the Bank. II. FRINGE BENEFITS The salary continuation benefits provided by this agreement are granted by the Bank as a fringe benefit to the Executive and are not part of any salary reduction plan or an arrangement deferring a bonus or a salary increase. The Executive has no option to take any current payment or bonus 1 in lieu of these salary continuation benefits except as set forth hereinafter. III. NORMAL RETIREMENT AGE Normal Retirement Age shall mean the date on which the Executive attains age sixty-five (65). IV. RETIREMENT BENEFIT Provided said retirement constitutes a Separation from Service (as that phrase is defined under Section 409A of the Code and the regulations and guidance of general applicability issued thereunder (referred to herein as "Section 409A")), the Bank, commencing with the first day of the month following the later of the date the Executive actually retires or the date the Executive attains his Normal Retirement Age, shall pay Executive an annual benefit equal to fifty percent (50%) of the Executive's average base salary (with each year's base salary determined on an annualized basis, taking into account any base salary adjustments occurring during the applicable year) based upon the average of the highest three (3) out of the last five (5) years of employment (including the year in which the Separation from Service occurs). Said benefit shall be paid in equal monthly installments (1/12 of the annual benefit) until the death of the Executive. Notwithstanding the foregoing, if the Executive is, as of the date of his Separation from Service, a "Specified Employee" (as defined in Section 409A), then the retirement benefits described in this Section IV shall commence to be paid on the first day of the month that next follows the six-month anniversary of the date the Executive experiences a Separation from Service, or his death, if earlier, with the first payment including all monthly retirement benefits that would have been previously paid but for this sentence. V. DEATH OF THE EXECUTIVE In the event of the death of the Executive, this agreement shall terminate and, if applicable, the Executive's beneficiary(ies) shall be paid a death benefit under the terms of the Endorsement Method Split Dollar Agreement between the Executive and the Bank and not this agreement. VI. BENEFIT ACCOUNTING The Bank shall account for this benefit using GAAP accounting principles. The Bank shall establish an accrued liability retirement account for the Executive into which appropriate reserves shall be accrued. VII. VESTING The Executive shall be one hundred percent (100%) vested in the benefits provided herein. 2 VIII. OTHER TERMINATION OF EMPLOYMENT AND DISABILITY A. Other Termination of Employment: Subject to Subsection VIII.A(i) hereinbelow, in the event that the employment of the Executive shall terminate prior to Normal Retirement Age, as provided in Section III, for reasons other than "disability" (as defined in Section VIII.B) or Change of Control (as defined in Section IX), but including by the Executive's voluntary action or by the Executive's discharge by the Bank without cause, and such termination of employment constitutes a Separation of Service (as defined in Section IV), then this agreement shall terminate upon the date of such termination of employment and the Bank shall pay to the Executive as severance compensation an amount of money equal to the accrued balance of the Executive's liability reserve account. This severance compensation shall be paid in a lump sum no later than 2 1/2 months following the date of the Executive's termination of employment. Notwithstanding the foregoing, if the Executive is as of the date of Separation from Service a "Specified Employee" (as herein defined), then payment under this Article VIII shall not be paid earlier than the 183rd day following the date the Executive incurs a Separation from Service, or his death, if earlier. (i) Discharge for Cause: In the event the Executive shall be discharged for cause at any time, all benefits provided herein shall be forfeited. The term "for cause" shall be as defined in the Executive's Employment Agreement between the Executive and the Bank in effect at the time of said termination (or if no such agreement exists, the Employment Agreement most recently in effect between the Bank and the Executive). If a dispute arises as to discharge "for cause," such dispute shall be resolved by arbitration as set forth in this Executive Plan. B. Disability: In the event the Executive becomes disabled prior to his Separation from Service (as defined in Section IV), and the Executive's Separation from Service is on account of such disability, the Executive shall be entitled to receive one hundred percent (100%) of the Executive's accrued liability balance at the time of Separation from Service for said disability. Except as otherwise provided herein, said accrued liability balance at termination shall be paid to the Executive in a lump sum no later than 2 1/2 months following the date of the Executive's Separation from Service. Disability shall be defined in the Executive's Employment Agreement in effect at the time of his Separation from Service or, if no Employment Agreement is then in effect, then as defined in the Bank's long term disability policy in effect at the time of said disability. If neither definition exists at the time of termination and there is a dispute regarding whether the Executive is disabled, such dispute shall be resolved by a physician selected by the Bank, a physician selected by 3 the Executive, and a third physician selected by each of the other two (2) physicians. Such resolution shall be binding upon all parties to this agreement. Notwithstanding the foregoing, if the disability that gives rise to the Executive's Separation from Service does not cause the Executive to be "disabled" within the meaning of Section 409A, and if, as of the date of such Separation from Service, the Executive is a "Specified Employee" (as defined in Section 409A), then his disability benefits payable pursuant to this Section VIII.B shall commence to be paid on the first day of the month that next follows the six-month anniversary of the date the Executive incurs a Separation from Service, or his death, if earlier. IX. CHANGE OF CONTROL Change of Control shall be as defined in the Executive's Employment Agreement between the Executive and the Bank in effect at the time of said Change of Control, or if no such agreement is then in effect, by the regulations of the OTS in 12 CFR ss.574. Upon a Change of Control, if the Executive subsequently suffers an involuntary termination of service, except for cause, and such termination of service constitutes a Separation from Service (as defined in Section IV), or, upon a voluntary termination of service within twelve (12) months after such Change of Control, if any of the following events, which have not been consented to in advance by the Executive in writing, occur: (i) if the Executive would be required to move his personal residence or perform his principal executive functions more than forty (40) miles from the Executive's primary office as of the signing of this agreement, or (ii) if the Bank should fail to maintain Executive's base compensation in effect as of the date of the Change of Control and the existing employee benefits plans, including material fringe and retirement plans, then the Executive shall receive the benefits in Section IV herein upon attaining Normal Retirement Age (as defined in Section III), as if the Executive had been continuously employed by the Bank until the Executive's Normal Retirement Age. Notwithstanding the foregoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder, when aggregated with all other payments to be made to the Executive by the Bank, shall be deemed an "excess parachute payment" in accordance with Section 280G of the code and be subject to the excise tax provided at Section 4999(a) of the Code. Notwithstanding the above, if the Executive is as of the date of his Separation from Service a "Specified Employee" (as herein defined), then payment under this Article IX shall not be paid earlier than the 183rd day following the date the Executive incurs a Separation from Service, or his death, if earlier, with any payments not made on account of this sentence being paid with the Executive's first payment. X. RESTRICTIONS ON FUNDING The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Executive Plan. The Executive, his beneficiary(ies), or any successor in interest shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation. 4 The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by this Executive Plan or to refrain from funding the same and to determine the extent, nature and method of such funding. Should the Bank elect to fund this Executive Plan, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall the Executive be deemed to have any lien, right, title or interest in any specific funding investment or assets of the Bank. No manner of funding shall be permitted that would violate Section 409A. If the Bank elects to invest in a life insurance, disability or annuity policy on the life of the Executive, then the Executive shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance or annuities. XI. MISCELLANEOUS A. Alienability and Assignment Prohibition: --------------------------------------- Neither the Executive, nor the Executive's surviving spouse, nor any other beneficiary(ies) under this Executive Plan shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Executive or the Executive's beneficiary(ies), nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the Executive or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease and terminate. B. Binding Obligation of the Bank and any Successor in Interest: ----------------------------------------------------------- The Bank shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agrees, in writing, to assume and discharge the duties and obligations of the Bank under this Executive Plan. This Executive Plan shall be binding upon the parties hereto, their successors, beneficiaries, heirs and personal representatives. C. Amendment or Revocation: ----------------------- It is agreed by and between the parties hereto that, during the lifetime of the Executive, this Executive Plan may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Executive and the Bank. No amendment shall be permitted that would violate, or cause this agreement to violate, Section 409A. 5 D. Gender: ------ Whenever in this Executive Plan words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. E. Effect on Other Bank Benefit Plans: ---------------------------------- Nothing contained in this Executive Plan shall affect the right of the Executive to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank's existing or future compensation structure. F. Headings: -------- Headings and subheadings in this Executive Plan are inserted for reference and convenience only and shall not be deemed a part of this Executive Plan. G. Applicable Law: -------------- The validity and interpretation of this agreement shall be governed by the laws of the State of New Jersey. H. 12 U.S.C. ss.1828(k): -------------------- Any payments made to the Executive pursuant to this Executive Plan, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. ss.1828(k) or any regulations promulgated thereunder. I. Partial Invalidity: ------------------ If any term, provision, covenant, or condition of this Executive Plan is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant or condition invalid, void, or unenforceable, and the Executive Plan shall remain in full force and effect notwithstanding such partial invalidity. J. Not a Contract of Employment: ---------------------------- This agreement shall not be deemed to constitute a contract of employment between the parties hereto, nor shall any provision hereof restrict the right of the Bank to discharge the Executive, or restrict the right of the Executive to terminate employment. K. Effective Date: -------------- The Effective Date of this agreement shall be the date first above written. 6 XII. ERISA PROVISION A. Named Fiduciary and Plan Administrator: -------------------------------------- The "Named Fiduciary and Plan Administrator" of this Executive Plan shall be American Bank of New Jersey. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Executive Plan. The Named Fiduciary may delegate to others certain aspects of the management and operational responsibilities of the Executive Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals. B. Claims Procedure and Arbitration: -------------------------------- In the event a dispute arises over benefits under this Executive Plan and benefits are not paid to the Executive (or to the Executive's beneficiary(ies) in the case of the Executive's death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Named Fiduciary and Plan Administrator named above within sixty (60) days from the date payments are refused. The Named Fiduciary and Plan Administrator shall review the written claim and if the claim is denied, in whole or in part, it shall provide in writing within sixty (60) days of receipt of such claim the specific reasons for such denial, reference to the provisions of this Executive Plan upon which the denial is based and any additional material or information necessary to perfect the claim. Such written notice shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desired. A claim shall be deemed denied if the Named Fiduciary and Plan Administrator fail to take any action within the aforesaid sixty-day period. If claimants desire a second review they shall notify the Named Fiduciary and Plan Administrator in writing within sixty (60) days of the first claim denial. Claimants may review this Executive Plan or any documents relating thereto and submit any written issues and comments they may feel appropriate. In their sole discretion, the Named Fiduciary and Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of this agreement upon which the decision is based. Any controversy or claim arising out of or relating to this Executive Plan, or breach thereof, shall be settled exclusively by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association ("AAA") nearest to the home office of the Bank, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extent that the parties may otherwise reach a mutual settlement of such issue. The provisions of this Paragraph shall survive the expiration of this Executive Plan. 7 Where a dispute arises as to the Bank's discharge of the Executive "for cause," such dispute shall likewise be submitted to arbitration as above described and the parties hereto agree to be bound by the decision thereunder. XIII. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS Notwithstanding anything herein above to the contrary, the Bank is entering into this Executive Plan upon the assumption that certain existing tax laws, rules and regulations will continue in effect in their current form. If any said assumptions should change and said change has a detrimental effect on this Executive Plan, then the Bank reserves the right to terminate or modify this Executive Plan accordingly. Furthermore, the Board has the right to terminate or modify future accruals if so determined within the Board's business judgment whether or not this Executive Plan has a detrimental effect on the Bank. Upon any said modification or termination of the Executive Plan, any benefits accrued to the Executive's liability retirement account on the date of said modification or termination shall be paid to the Executive in a lump sum, subject to the provisions below. Upon a Change of Control (Section IX), this paragraph shall become null and void effective immediately upon said Change of Control. Notwithstanding the foregoing, no amendment shall be made to this Executive Plan that would violate, or cause the agreement to violate, Section 409A. Further notwithstanding the foregoing, the agreement may not be terminated unless all of the requirements of Section 409A regarding plan terminations are satisfied. Accordingly, unless Section 409A permits otherwise, this agreement may be terminated only if (a) all arrangements sponsored by the Bank and any affiliated entity (within the meaning of Section 414(b) and 414(c)) that are required to be aggregated with this agreement under Section 409A are terminated; (b) no payments other than payments that would be payable under the terms of the Executive Plan or an aggregated plan if the termination had not occurred are made within 12 months of the termination of the arrangements; (c) all payments are made within 24 months of the termination of the Executive Plan and related arrangements; and (d) the Bank does not adopt a new arrangement that would be required to be aggregated with this Executive Plan under Section 409A if the Executive participated in both arrangements, within three years of the termination of the agreement. XIV. CONFIDENTIAL INFORMATION The Executive acknowledges that during his employment he will learn and have access to confidential information regarding the Bank or any affiliate and its customers and businesses ("Confidential Information"). The Executive agrees and covenants not to disclose or use for his own benefit, or the benefit of any other person or entity, any such Confidential Information, unless or until the Bank or any affiliate consents to such disclosure or use or such information becomes common knowledge in the industry or is otherwise legally in the public domain. The Executive shall not knowingly disclose or reveal to any unauthorized person any Confidential Information relating to the Bank or any affiliates, or to any of the businesses operated by them, and the Executive confirms that such information constitutes the exclusive property of the Bank or any affiliate. The Executive shall not otherwise knowingly act or conduct himself (a) to the material detriment of the Bank or its affiliates, or (b) in a manner which is inimical or contrary to the interests of the Bank or 8 any affiliate. Notwithstanding anything herein to the contrary, failure by the Executive to comply with the provisions of this Section may result in the immediate termination of the Executive Plan within the sole discretion of the Bank, disciplinary action against the Executive taken by the Bank and other remedies that may be available in law or in equity. In witness whereof, the parties hereto acknowledge that each has carefully read this Executive Plan and executed the original thereof on the first day set forth hereinabove, and that, upon execution, each has received a conforming copy. AMERICAN BANK OF NEW JERSEY Bloomfield, New Jersey /s/ Kathleen Walsh By: /s/ W. George Parker - -------------------------------- -------------------- Witness Title: Chairman /s/ Kathleen Walsh /s/ Joseph Kliminski - -------------------------------- ---------------------- Witness Joseph Kliminski 9 EX-10.7 6 exh107_080808.txt HEYER - SALARY CONTINUATION AGREEMENT Exhibit 10.7 AMENDED AND RESTATED EXECUTIVE SALARY CONTINUATION AGREEMENT THIS AMENDED AND RESTATED AGREEMENT, made and entered into this 17th day of June, 2008, by and between American Bank of New Jersey, a savings bank organized and existing under the laws of the United States (hereinafter referred to as the "Bank"), and Richard Bzdek, an Executive of the Bank (hereinafter referred to as the "Executive"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Executive and the Bank have previously entered into an Executive Salary Continuation Agreement; and WHEREAS, since the execution of the original agreement, certain changes to Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), have been enacted; and WHEREAS, it is necessary to revise the original agreement to reflect these changes to the Code; ACCORDINGLY, it is the desire of the Bank and the Executive to enter into this agreement (sometimes referred to herein as the "Executive Plan") under which the Bank will agree to make certain payments to the Executive at retirement or the Executive's beneficiary(ies) in the event of the Executive's death pursuant to this agreement; FURTHERMORE, it is the intent of the parties hereto that this Executive Plan be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Executive, and be considered a non-qualified benefit plan for purposes of the Employee Retirement Security Act of 1974, as amended ("ERISA"). The Executive is fully advised of the Bank's financial status and has had substantial input in the design and operation of this benefit plan; and NOW, THEREFORE, in consideration of services to be performed in the future as well as of the mutual promises and covenants herein contained it is agreed as follows: I. EMPLOYMENT The Bank agrees to employ the Executive in such capacity as the Bank may from time to time determine. The Executive will continue in the employ of the Bank in such capacity and with such duties and responsibilities as may be assigned to him, and with such compensation as may be determined from time to time by the Board of Directors of the Bank. II. FRINGE BENEFITS The salary continuation benefits provided by this agreement are granted by the Bank as a fringe benefit to the Executive and are not part of any salary reduction plan or an arrangement deferring a bonus or a salary increase. The Executive has no option to take any current 1 payment or bonus in lieu of these salary continuation benefits except as set forth hereinafter. III. NORMAL RETIREMENT AGE Normal Retirement Age shall mean the date on which the Executive attains age sixty-five (65). IV. RETIREMENT BENEFIT Provided said retirement constitutes a Separation from Service (as that phrase is defined under Section 409A of the Code and the regulations and guidance of general applicability issued thereunder (referred to herein as "Section 409A")), the Bank, commencing with the first day of the month following the later of the date the Executive actually retires or the date the Executive attains his Normal Retirement Age, shall pay Executive an annual benefit equal to thirty percent (30%) of the Executive's average base salary (with each year's base salary determined on an annualized basis, taking into account any base salary adjustments occurring during the applicable year) based upon the average of the highest three (3) out of the last five (5) years of employment (including the year in which the Separation from Service occurs). Said benefit shall be paid in equal monthly installments (1/12 of the annual benefit) until the death of the Executive. Notwithstanding the foregoing, if the Executive is, as of the date of his Separation from Service, a "Specified Employee" (as defined in Section 409A), then the retirement benefits described in this Section IV shall commence to be paid on the first day of the month that next follows the six-month anniversary of the date the Executive experiences a Separation from Service, or his death, if earlier, with the first payment including all monthly retirement benefits that would have been previously paid but for this sentence. V. DEATH OF THE EXECUTIVE In the event of the death of the Executive, this agreement shall terminate and, if applicable, the Executive's beneficiary(ies) shall be paid a death benefit under the terms of the Endorsement Method Split Dollar Agreement between the Executive and the Bank and not this agreement. VI. BENEFIT ACCOUNTING The Bank shall account for this benefit using GAAP accounting principles. The Bank shall establish an accrued liability retirement account for the Executive into which appropriate reserves shall be accrued. VII. VESTING The Executive shall be one hundred percent (100%) vested in the benefits provided herein. 2 VIII. OTHER TERMINATION OF EMPLOYMENT AND DISABILITY A. Other Termination of Employment: Subject to Subsection VIII.A(i) hereinbelow, in the event that the employment of the Executive shall terminate prior to Normal Retirement Age, as provided in Section III, for reasons other than "disability" (as defined in Section VIII.B) or Change of Control (as defined in Section IX), but including by the Executive's voluntary action or by the Executive's discharge by the Bank without cause, and such termination of employment constitutes a Separation of Service (as defined in Section IV), then this agreement shall terminate upon the date of such termination of employment and the Bank shall pay to the Executive as severance compensation an amount of money equal to the accrued balance of the Executive's liability reserve account. This severance compensation shall be paid in a lump sum no later than 2 1/2 months following the date of the Executive's termination of employment. Notwithstanding the foregoing, if the Executive is as of the date of Separation from Service a "Specified Employee" (as herein defined), then payment under this Article VIII shall not be paid earlier than the 183rd day following the date the Executive incurs a Separation from Service, or his death, if earlier. (i) Discharge for Cause: In the event the Executive shall be discharged for cause at any time, all benefits provided herein shall be forfeited. The term "for cause" shall be as defined in the Executive's Employment Agreement between the Executive and the Bank in effect at the time of said termination (or if no such agreement exists, the Employment Agreement most recently in effect between the Bank and the Executive). If a dispute arises as to discharge "for cause," such dispute shall be resolved by arbitration as set forth in this Executive Plan. B. Disability: In the event the Executive becomes disabled prior to his Separation from Service (as defined in Section IV), and the Executive's Separation from Service is on account of such disability, the Executive shall be entitled to receive one hundred percent (100%) of the Executive's accrued liability balance at the time of said disability. Except as otherwise provided herein, said accrued liability balance at termination shall be paid to the Executive in a lump sum no later than 2 1/2 months following the date of the Executive's Separation from Service. Disability shall be defined in the Executive's Employment Agreement in effect at the time of his Separation from Service or, if no Employment Agreement is then in effect, then as defined in the Bank's long term disability policy in effect at the time of said disability. If neither definition exists at the time of termination and there is a dispute regarding whether the Executive is disabled, such dispute shall be resolved by a physician selected by the Bank, a physician selected by the Executive, and a third physician selected by each of the other two (2) physicians. Such resolution shall be binding upon all parties to this agreement. 3 Notwithstanding the foregoing, if the disability that gives rise to the Executive's Separation from Service does not cause the Executive to be "disabled" within the meaning of Section 409A, and if, as of the date of such Separation from Service, the Executive is a "Specified Employee" (as defined in Section 409A), then his disability benefits payable pursuant to this Section VIII.B shall commence to be paid on the first day of the month that next follows the six-month anniversary of the date the Executive incurs a Separation from Service, or his death, if earlier. IX. CHANGE OF CONTROL Change of Control shall be as defined in the Executive's Employment Agreement between the Executive and the Bank in effect at the time of said Change of Control, or if no such agreement is then in effect, by the regulations of the OTS in 12 CFR ss.574. Upon a Change of Control, if the Executive subsequently suffers an involuntary termination of service, except for cause, and such termination of service constitutes a Separation from Service (as defined in Section IV), or, upon a voluntary termination of service within twelve (12) months after such Change of Control, if any of the following events, which have not been consented to in advance by the Executive in writing, occur: (i) if the Executive would be required to move his personal residence or perform his principal executive functions more than forty (40) miles from the Executive's primary office as of the signing of this agreement, or (ii) if the Bank should fail to maintain Executive's base compensation in effect as of the date of the Change of Control and the existing employee benefits plans, including material fringe and retirement plans, then the Executive shall receive the benefits in Section IV herein upon attaining Normal Retirement Age (as defined in Section III), as if the Executive had been continuously employed by the Bank until the Executive's Normal Retirement Age. Notwithstanding the foregoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder, when aggregated with all other payments to be made to the Executive by the Bank, shall be deemed an "excess parachute payment" in accordance with Section 280G of the code and be subject to the excise tax provided at Section 4999(a) of the Code. Notwithstanding the above, if the Executive is as of the date of his Separation from Service a "Specified Employee" (as herein defined), then payment under this Article IX shall not be paid earlier than the 183rd day following the date the Executive incurs a Separation from Service, or his death, if earlier, with any payments not made on account of this sentence being paid with the Executive's first payment. X. RESTRICTIONS ON FUNDING The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Executive Plan. The Executive, his beneficiary(ies), or any successor in interest shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation. 4 The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by this Executive Plan or to refrain from funding the same and to determine the extent, nature and method of such funding. Should the Bank elect to fund this Executive Plan, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall the Executive be deemed to have any lien, right, title or interest in any specific funding investment or assets of the Bank. No manner of funding shall be permitted that would violate Section 409A. If the Bank elects to invest in a life insurance, disability or annuity policy on the life of the Executive, then the Executive shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance or annuities. XI. MISCELLANEOUS A. Alienability and Assignment Prohibition: Neither the Executive, nor the Executive's surviving spouse, nor any other beneficiary(ies) under this Executive Plan shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Executive or the Executive's beneficiary(ies), nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the Executive or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease and terminate. B. Binding Obligation of the Bank and any Successor in Interest: The Bank shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agrees, in writing, to assume and discharge the duties and obligations of the Bank under this Executive Plan. This Executive Plan shall be binding upon the parties hereto, their successors, beneficiaries, heirs and personal representatives. C. Amendment or Revocation: It is agreed by and between the parties hereto that, during the lifetime of the Executive, this Executive Plan may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Executive and the Bank. No amendment shall be permitted that would violate, or cause this agreement to violate, Section 409A. 5 D. Gender: Whenever in this Executive Plan words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. E. Effect on Other Bank Benefit Plans: Nothing contained in this Executive Plan shall affect the right of the Executive to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank's existing or future compensation structure. F. Headings: Headings and subheadings in this Executive Plan are inserted for reference and convenience only and shall not be deemed a part of this Executive Plan. G. Applicable Law: The validity and interpretation of this agreement shall be governed by the laws of the State of New Jersey. H. 12 U.S.C. ss.1828(k): Any payments made to the Executive pursuant to this Executive Plan, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. ss.1828(k) or any regulations promulgated thereunder. I. Partial Invalidity: If any term, provision, covenant, or condition of this Executive Plan is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant or condition invalid, void, or unenforceable, and the Executive Plan shall remain in full force and effect notwithstanding such partial invalidity. J. Not a Contract of Employment: This agreement shall not be deemed to constitute a contract of employment between the parties hereto, nor shall any provision hereof restrict the right of the Bank to discharge the Executive, or restrict the right of the Executive to terminate employment. K. Effective Date: The Effective Date of this agreement shall be the date first above written. 6 XII. ERISA PROVISION A. Named Fiduciary and Plan Administrator: The "Named Fiduciary and Plan Administrator" of this Executive Plan shall be American Bank of New Jersey. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Executive Plan. The Named Fiduciary may delegate to others certain aspects of the management and operational responsibilities of the Executive Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals. B. Claims Procedure and Arbitration: In the event a dispute arises over benefits under this Executive Plan and benefits are not paid to the Executive (or to the Executive's beneficiary(ies) in the case of the Executive's death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Named Fiduciary and Plan Administrator named above within sixty (60) days from the date payments are refused. The Named Fiduciary and Plan Administrator shall review the written claim and if the claim is denied, in whole or in part, it shall provide in writing within sixty (60) days of receipt of such claim the specific reasons for such denial, reference to the provisions of this Executive Plan upon which the denial is based and any additional material or information necessary to perfect the claim. Such written notice shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desired. A claim shall be deemed denied if the Named Fiduciary and Plan Administrator fail to take any action within the aforesaid sixty-day period. If claimants desire a second review they shall notify the Named Fiduciary and Plan Administrator in writing within sixty (60) days of the first claim denial. Claimants may review this Executive Plan or any documents relating thereto and submit any written issues and comments they may feel appropriate. In their sole discretion, the Named Fiduciary and Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of this agreement upon which the decision is based. Any controversy or claim arising out of or relating to this Executive Plan, or breach thereof, shall be settled exclusively by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association ("AAA") nearest to the home office of the Bank, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extent that the parties may otherwise reach a mutual settlement of such issue. The provisions of this Paragraph shall survive the expiration of this Executive Plan. 7 Where a dispute arises as to the Bank's discharge of the Executive "for cause," such dispute shall likewise be submitted to arbitration as above described and the parties hereto agree to be bound by the decision thereunder. XIII. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS Notwithstanding anything herein above to the contrary, the Bank is entering into this Executive Plan upon the assumption that certain existing tax laws, rules and regulations will continue in effect in their current form. If any said assumptions should change and said change has a detrimental effect on this Executive Plan, then the Bank reserves the right to terminate or modify this Executive Plan accordingly. Furthermore, the Board has the right to terminate or modify future accruals if so determined within the Board's business judgment whether or not this Executive Plan has a detrimental effect on the Bank. Upon any said modification or termination of the Executive Plan, any benefits accrued to the Executive's liability retirement account on the date of said modification or termination shall be paid to the Executive in a lump sum, subject to the provisions below. Upon a Change of Control (Section IX), this paragraph shall become null and void effective immediately upon said Change of Control. Notwithstanding the foregoing, no amendment shall be made to this Executive Plan that would violate, or cause the agreement to violate, Section 409A. Further notwithstanding the foregoing, the agreement may not be terminated unless all of the requirements of Section 409A regarding plan terminations are satisfied. Accordingly, unless Section 409A permits otherwise, this agreement may be terminated only if (a) all arrangements sponsored by the Bank and any affiliated entity (within the meaning of Section 414(b) and 414(c)) that are required to be aggregated with this agreement under Section 409A are terminated; (b) no payments other than payments that would be payable under the terms of the Executive Plan or an aggregated plan if the termination had not occurred are made within 12 months of the termination of the arrangements; (c) all payments are made within 24 months of the termination of the Executive Plan and related arrangements; and (d) the Bank does not adopt a new arrangement that would be required to be aggregated with this Executive Plan under Section 409A if the Executive participated in both arrangements, within three years of the termination of the agreement. XIV. CONFIDENTIAL INFORMATION The Executive acknowledges that during his employment he will learn and have access to confidential information regarding the Bank or any affiliate and its customers and businesses ("Confidential Information"). The Executive agrees and covenants not to disclose or use for his own benefit, or the benefit of any other person or entity, any such Confidential Information, unless or until the Bank or any affiliate consents to such disclosure or use or such information becomes common knowledge in the industry or is otherwise legally in the public domain. The Executive shall not knowingly disclose or reveal to any unauthorized person any Confidential Information relating to the Bank or any affiliates, or to any of the businesses operated by them, and the Executive confirms that such information constitutes the exclusive property of the Bank or any affiliate. The Executive shall not otherwise knowingly act or conduct himself (a) to the material detriment of the Bank or its affiliates, or (b) in a manner which is inimical or contrary to the interests of the Bank or 8 any affiliate. Notwithstanding anything herein to the contrary, failure by the Executive to comply with the provisions of this Section may result in the immediate termination of the Executive Plan within the sole discretion of the Bank, disciplinary action against the Executive taken by the Bank and other remedies that may be available in law or in equity. In witness whereof, the parties hereto acknowledge that each has carefully read this Executive Plan and executed the original thereof on the first day set forth hereinabove, and that, upon execution, each has received a conforming copy. AMERICAN BANK OF NEW JERSEY Bloomfield, New Jersey /s/ Kathleen Walsh By: /s/ W. George Parker - -------------------------------- -------------------- Witness Title: Chairman /s/ Kathleen Walsh /s/ Richard Bzdek - -------------------------------- --------------------- Witness Richard Bzdek EX-10.7 7 exh106_080808.txt BRINGUIER SALARY CONTINUATION AGREEMENT Exhibit 10.6 AMENDED AND RESTATED EXECUTIVE SALARY CONTINUATION AGREEMENT THIS AMENDED AND RESTATED AGREEMENT, made and entered into this 17th day of June, 2008, by and between American Bank of New Jersey, a savings bank organized and existing under the laws of the United States (hereinafter referred to as the "Bank"), and Catherine Bringuier, an Executive of the Bank (hereinafter referred to as the "Executive"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Executive and the Bank have previously entered into an Executive Salary Continuation Agreement; and WHEREAS, since the execution of the original agreement, certain changes to Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), have been enacted; and WHEREAS, it is necessary to revise the original agreement to reflect these changes to the Code; ACCORDINGLY, it is the desire of the Bank and the Executive to enter into this agreement (sometimes referred to herein as the "Executive Plan") under which the Bank will agree to make certain payments to the Executive at retirement or the Executive's beneficiary(ies) in the event of the Executive's death pursuant to this agreement; FURTHERMORE, it is the intent of the parties hereto that this Executive Plan be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Executive, and be considered a non-qualified benefit plan for purposes of the Employee Retirement Security Act of 1974, as amended ("ERISA"). The Executive is fully advised of the Bank's financial status and has had substantial input in the design and operation of this benefit plan; and NOW, THEREFORE, in consideration of services to be performed in the future as well as of the mutual promises and covenants herein contained it is agreed as follows: I. EMPLOYMENT The Bank agrees to employ the Executive in such capacity as the Bank may from time to time determine. The Executive will continue in the employ of the Bank in such capacity and with such duties and responsibilities as may be assigned to her, and with such compensation as may be determined from time to time by the Board of Directors of the Bank. II. FRINGE BENEFITS The salary continuation benefits provided by this agreement are granted by the Bank as a fringe benefit to the Executive and are not part of any salary reduction plan or an arrangement deferring a bonus or a salary increase. The Executive has no option to take any current 1 payment or bonus in lieu of these salary continuation benefits except as set forth hereinafter. III. NORMAL RETIREMENT AGE Normal Retirement Age shall mean the date on which the Executive attains age sixty-five (65). IV. RETIREMENT BENEFIT Provided said retirement constitutes a Separation from Service (as that phrase is defined under Section 409A of the Code and the regulations and guidance of general applicability issued thereunder (referred to herein as "Section 409A")), the Bank, commencing with the first day of the month following the later of the date the Executive actually retires or the date the Executive attains her Normal Retirement Age, shall pay Executive an annual benefit equal to thirty percent (30%) of the Executive's average base salary (with each year's base salary determined on an annualized basis, taking into account any base salary adjustments occurring during the applicable year) based upon the average of the highest three (3) out of the last five (5) years of employment (including the year in which the Separation from Service occurs). Said benefit shall be paid in equal monthly installments (1/12 of the annual benefit) until the death of the Executive. Notwithstanding the foregoing, if the Executive is, as of the date of her Separation from Service, a "Specified Employee" (as defined in Section 409A), then the retirement benefits described in this Section IV shall commence to be paid on the first day of the month that next follows the six-month anniversary of the date the Executive experiences a Separation from Service, or her death, if earlier, with the first payment including all monthly retirement benefits that would have been previously paid but for this sentence. V. DEATH OF THE EXECUTIVE In the event of the death of the Executive, this agreement shall terminate and, if applicable, the Executive's beneficiary(ies) shall be paid a death benefit under the terms of the Endorsement Method Split Dollar Agreement between the Executive and the Bank and not this agreement. VI. BENEFIT ACCOUNTING The Bank shall account for this benefit using GAAP accounting principles. The Bank shall establish an accrued liability retirement account for the Executive into which appropriate reserves shall be accrued. VII. VESTING The Executive shall be one hundred percent (100%) vested in the benefits provided herein. 2 VIII. OTHER TERMINATION OF EMPLOYMENT AND DISABILITY A. Other Termination of Employment: Subject to Subsection VIII.A(i) hereinbelow, in the event that the employment of the Executive shall terminate prior to Normal Retirement Age, as provided in Section III, for reasons other than "disability" (as defined in Section VIII.B) or Change of Control (as defined in Section IX), but including by the Executive's voluntary action or by the Executive's discharge by the Bank without cause, and such termination of employment constitutes a Separation of Service (as defined in Section IV), then this agreement shall terminate upon the date of such termination of employment and the Bank shall pay to the Executive as severance compensation an amount of money equal to the accrued balance of the Executive's liability reserve account. This severance compensation shall be paid in a lump sum no later than 2 1/2 months following the date of the Executive's termination of employment. Notwithstanding the foregoing, if the Executive is as of the date of Separation from Service a "Specified Employee" (as herein defined), then payment under this Article VIII shall not be paid earlier than the 183rd day following the date the Executive incurs a Separation from Service, or her death, if earlier. (i) Discharge for Cause: In the event the Executive shall be discharged for cause at any time, all benefits provided herein shall be forfeited. The term "for cause" shall be as defined in the Executive's Employment Agreement between the Executive and the Bank in effect at the time of said termination (or if no such agreement exists, the Employment Agreement most recently in effect between the Bank and the Executive). If a dispute arises as to discharge "for cause," such dispute shall be resolved by arbitration as set forth in this Executive Plan. B. Disability: In the event the Executive becomes disabled prior to her Separation from Service (as defined in Section IV), and the Executive's Separation from Service is on account of such disability, the Executive shall be entitled to receive one hundred percent (100%) of the Executive's accrued liability balance at the time of Separation from Service for said disability. Except as otherwise provided herein, said accrued liability balance at termination shall be paid to the Executive in a lump sum no later than 2 1/2 months following the date of the Executive's Separation from Service. Disability shall be defined in the Executive's Employment Agreement in effect at the time of her Separation from Service or, if no Employment Agreement is then in effect, then as defined in the Bank's long term disability policy in effect at the time of said disability. If neither definition exists at the time of termination and there is a dispute regarding whether the Executive is disabled, such dispute shall be resolved by a physician selected by the Bank, a physician selected by the 3 Executive, and a third physician selected by each of the other two (2) physicians. Such resolution shall be binding upon all parties to this agreement. Notwithstanding the foregoing, if the disability that gives rise to the Executive's Separation from Service does not cause the Executive to be "disabled" within the meaning of Section 409A, and if, as of the date of such Separation from Service, the Executive is a "Specified Employee" (as defined in Section 409A), then her disability benefits payable pursuant to this Section VIII.B shall commence to be paid on the first day of the month that next follows the six-month anniversary of the date the Executive incurs a Separation from Service, or her death, if earlier. IX. CHANGE OF CONTROL Change of Control shall be as defined in the Executive's Employment Agreement between the Executive and the Bank in effect at the time of said Change of Control, or if no such agreement is then in effect, by the regulations of the OTS in 12 CFR ss.574. Upon a Change of Control, if the Executive subsequently suffers an involuntary termination of service, except for cause, and such termination of service constitutes a Separation from Service (as defined in Section IV), or, upon a voluntary termination of service within twelve (12) months after such Change of Control, if any of the following events, which have not been consented to in advance by the Executive in writing, occur: (i) if the Executive would be required to move her personal residence or perform her principal executive functions more than forty (40) miles from the Executive's primary office as of the signing of this agreement, or (ii) if the Bank should fail to maintain Executive's base compensation in effect as of the date of the Change of Control and the existing employee benefits plans, including material fringe and retirement plans, then the Executive shall receive the benefits in Section IV herein upon attaining Normal Retirement Age (as defined in Section III), as if the Executive had been continuously employed by the Bank until the Executive's Normal Retirement Age. Notwithstanding the foregoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder, when aggregated with all other payments to be made to the Executive by the Bank, shall be deemed an "excess parachute payment" in accordance with Section 280G of the code and be subject to the excise tax provided at Section 4999(a) of the Code. Notwithstanding the above, if the Executive is as of the date of her Separation from Service a "Specified Employee" (as herein defined), then payment under this Article IX shall not be paid earlier than the 183rd day following the date the Executive incurs a Separation from Service, or her death, if earlier, with any payments not made on account of this sentence being paid with the Executive's first payment. X. RESTRICTIONS ON FUNDING The shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Executive Plan. The Executive, her beneficiary(ies), or any successor in interest shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation. 4 The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by this Executive Plan or to refrain from funding the same and to determine the extent, nature and method of such funding. Should the Bank elect to fund this Executive Plan, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall the Executive be deemed to have any lien, right, title or interest in any specific funding investment or assets of the Bank. No manner of funding shall be permitted that would violate Section 409A. If the Bank elects to invest in a life insurance, disability or annuity policy on the life of the Executive, then the Executive shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance or annuities. XI. MISCELLANEOUS A. Alienability and Assignment Prohibition: Neither the Executive, nor the Executive's surviving spouse, nor any other beneficiary(ies) under this Executive Plan shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Executive or the Executive's beneficiary(ies), nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the Executive or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease and terminate. B. Binding Obligation of the Bank and any Successor in Interest: The Bank shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agrees, in writing, to assume and discharge the duties and obligations of the Bank under this Executive Plan. This Executive Plan shall be binding upon the parties hereto, their successors, beneficiaries, heirs and personal representatives. C. Amendment or Revocation: It is agreed by and between the parties hereto that, during the lifetime of the Executive, this Executive Plan may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Executive and the Bank. No amendment shall be permitted that would violate, or cause this agreement to violate, Section 409A. 5 D. Gender: Whenever in this Executive Plan words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. E. Effect on Other Bank Benefit Plans: Nothing contained in this Executive Plan shall affect the right of the Executive to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank's existing or future compensation structure. F. Headings: Headings and subheadings in this Executive Plan are inserted for reference and convenience only and shall not be deemed a part of this Executive Plan. G. Applicable Law: The validity and interpretation of this agreement shall be governed by the laws of the State of New Jersey. H. 12 U.S.C. ss.1828(k): Any payments made to the Executive pursuant to this Executive Plan, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. ss.1828(k) or any regulations promulgated thereunder. I. Partial Invalidity: If any term, provision, covenant, or condition of this Executive Plan is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant or condition invalid, void, or unenforceable, and the Executive Plan shall remain in full force and effect notwithstanding such partial invalidity. J. Not a Contract of Employment: This agreement shall not be deemed to constitute a contract of employment between the parties hereto, nor shall any provision hereof restrict the right of the Bank to discharge the Executive, or restrict the right of the Executive to terminate employment. K. Effective Date: The Effective Date of this agreement shall be the date first above written. 6 XII. ERISA PROVISION A. Named Fiduciary and Plan Administrator: The "Named Fiduciary and Plan Administrator" of this Executive Plan shall be American Bank of New Jersey. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Executive Plan. The Named Fiduciary may delegate to others certain aspects of the management and operational responsibilities of the Executive Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals. B. Claims Procedure and Arbitration: In the event a dispute arises over benefits under this Executive Plan and benefits are not paid to the Executive (or to the Executive's beneficiary(ies) in the case of the Executive's death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Named Fiduciary and Plan Administrator named above within sixty (60) days from the date payments are refused. The Named Fiduciary and Plan Administrator shall review the written claim and if the claim is denied, in whole or in part, it shall provide in writing within sixty (60) days of receipt of such claim the specific reasons for such denial, reference to the provisions of this Executive Plan upon which the denial is based and any additional material or information necessary to perfect the claim. Such written notice shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desired. A claim shall be deemed denied if the Named Fiduciary and Plan Administrator fail to take any action within the aforesaid sixty-day period. If claimants desire a second review they shall notify the Named Fiduciary and Plan Administrator in writing within sixty (60) days of the first claim denial. Claimants may review this Executive Plan or any documents relating thereto and submit any written issues and comments they may feel appropriate. In their sole discretion, the Named Fiduciary and Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of this agreement upon which the decision is based. Any controversy or claim arising out of or relating to this Executive Plan, or breach thereof, shall be settled exclusively by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association ("AAA") nearest to the home office of the Bank, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extent that the parties may otherwise reach a mutual settlement of such issue. The provisions of this Paragraph shall survive the expiration of this Executive Plan. 7 Where a dispute arises as to the Bank's discharge of the Executive "for cause," such dispute shall likewise be submitted to arbitration as above described and the parties hereto agree to be bound by the decision thereunder. XIII. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS Notwithstanding anything herein above to the contrary, the Bank is entering into this Executive Plan upon the assumption that certain existing tax laws, rules and regulations will continue in effect in their current form. If any said assumptions should change and said change has a detrimental effect on this Executive Plan, then the Bank reserves the right to terminate or modify this Executive Plan accordingly. Furthermore, the Board has the right to terminate or modify future accruals if so determined within the Board's business judgment whether or not this Executive Plan has a detrimental effect on the Bank. Upon any said modification or termination of the Executive Plan, any benefits accrued to the Executive's liability retirement account on the date of said modification or termination shall be paid to the Executive in a lump sum, subject to the provisions below. Upon a Change of Control (Section IX), this paragraph shall become null and void effective immediately upon said Change of Control. Notwithstanding the foregoing, no amendment shall be made to this Executive Plan that would violate, or cause the agreement to violate, Section 409A. Further notwithstanding the foregoing, the agreement may not be terminated unless all of the requirements of Section 409A regarding plan terminations are satisfied. Accordingly, unless Section 409A permits otherwise, this agreement may be terminated only if (a) all arrangements sponsored by the Bank and any affiliated entity (within the meaning of Section 414(b) and 414(c)) that are required to be aggregated with this agreement under Section 409A are terminated; (b) no payments other than payments that would be payable under the terms of the Executive Plan or an aggregated plan if the termination had not occurred are made within 12 months of the termination of the arrangements; (c) all payments are made within 24 months of the termination of the Executive Plan and related arrangements; and (d) the Bank does not adopt a new arrangement that would be required to be aggregated with this Executive Plan under Section 409A if the Executive participated in both arrangements, within three years of the termination of the agreement. XIV. CONFIDENTIAL INFORMATION The Executive acknowledges that during her employment she will learn and have access to confidential information regarding the Bank or any affiliate and its customers and businesses ("Confidential Information"). The Executive agrees and covenants not to disclose or use for her own benefit, or the benefit of any other person or entity, any such Confidential Information, unless or until the Bank or any affiliate consents to such disclosure or use or such information becomes common knowledge in the industry or is otherwise legally in the public domain. The Executive shall not knowingly disclose or reveal to any unauthorized person any Confidential Information relating to the Bank or any affiliates, or to any of the businesses operated by them, and the Executive confirms that such information constitutes the exclusive property of the Bank or any affiliate. The Executive shall not otherwise knowingly act or conduct herself (a) to the material detriment of the Bank or its affiliates, or (b) in a manner which is inimical or contrary to the interests of the Bank or any affiliate. 8 Notwithstanding anything herein to the contrary, failure by the Executive to comply with the provisions of this Section may result in the immediate termination of the Executive Plan within the sole discretion of the Bank, disciplinary action against the Executive taken by the Bank and other remedies that may be available in law or in equity. In witness whereof, the parties hereto acknowledge that each has carefully read this Executive Plan and executed the original thereof on the first day set forth hereinabove, and that, upon execution, each has received a conforming copy. AMERICAN BANK OF NEW JERSEY Bloomfield, New Jersey /s/ Kathleen Walsh By: /s/ W. George Parker - -------------------------------------------- -------------------- Witness Title: Chairman /s/ Kathleen Walsh /s/ Catherine Bringuier - -------------------------------------------- ----------------------- Witness Catherine Bringuier 9 EX-10.5 8 exh105_080808.txt KOWAL EMPLOYMENT AGREEMENT Exhibit 10.5 EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT is entered into this 17th day of June 2008, but shall be effective as of January 1, 2008 (hereinafter the "Effective Date") by and between American Bank of New Jersey, Bloomfield, New Jersey (the "Bank") and Fred G. Kowal (hereinafter the "Executive"). WITNESSETH WHEREAS, the Executive has accepted employment with the Bank as the President and Chief Operating Officer and is experienced in all phases of the business of the Bank; and WHEREAS, the Bank desires to be ensured of the Executive's continued active participation in the business of the Bank; and WHEREAS, this Agreement is intended to replace the previous employment agreement between the Executive and the Bank and to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), and to reflect such additional changes as the Bank deems appropriate; NOW THEREFORE, in consideration of the mutual covenants and agreements between the parties, as herein contained, the parties, intending to be legally bound, do hereby agree as follows: 1._______Employment. The Bank hereby employs the Executive in the capacity of President and Chief Operating Officer. The Executive hereby accepts said employment and agrees to render such administrative and management services to (the Company") as are currently rendered and as are customarily performed (the Company") as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. The Executive shall promote the business of the Bank and the Company. The Executive's other duties shall be such as the Chief Executive Officer ("CEO") of the Bank or the Board of Directors for the Bank (the "Board of Directors" or "Board") may from time to time reasonably direct, including normal duties as an officer of the Bank. 2. Term of Employment. The term of employment of Executive under this Agreement shall be for the period commencing on the Effective Date and ending thirty-six (36) months thereafter (hereinafter the "Term"). Additionally, on or before each annual anniversary date from the Effective Date, the Term of employment under this Agreement shall be extended for an additional year beyond the then effective expiration date upon a determination and resolution of the Board of Directors that the performance of the Executive has met the 1 requirements and standards of the Board, so that the contract, when extended, will be for a new thirty-six (36) month term. References herein to the Term of this Agreement shall refer both to the initial term and successive terms. 3. Compensation, Benefits and Expenses. (a) Base Salary. The Bank shall compensate and pay the Executive during the Term of this Agreement a minimum base salary at the rate of $258,750 per annum (hereinafter the "Base Salary"), payable in cash not less frequently than monthly; provided, that the rate of such salary shall be reviewed by the Board of Directors not less often than annually, and the Executive shall be entitled to receive increases at such percentages or in such amounts as determined by the Board of Directors. The Base Salary may not be decreased without the Executive's express written consent. (b) Discretionary Bonus. The Executive shall be entitled to participate in an equitable manner with all other senior management employees of the Bank in discretionary bonuses that may be authorized and declared by the Board of Directors to its senior management executives from time to time, and any management incentive plan that may be authorized. No other compensation provided for in this Agreement shall be deemed a substitute for the Executive's right to participate in such discretionary bonuses when and as declared by the Board. Any discretionary bonus shall be paid no later than 2 1/2 months after the end of the year in which the Executive obtains a legally binding right to the bonus. If the discretionary bonus cannot be paid by that date, then it shall be paid on the next following April 15, or such other date during the year as permitted by Section 409A of the Code and the regulations thereunder (Section 409A). (c) Participation in Benefit and Retirement Plans. The Executive shall be entitled to participate in and receive the benefits of any plan of the Bank which may be or may become applicable to senior management relating to pension or other retirement benefit plans, profit-sharing, stock options or incentive plans, or other plans, benefits and privileges given to employees and executives of the Bank, to the extent commensurate with his then duties and responsibilities, as fixed by the Board of Directors of the Bank. (d) Participation in Medical Plans and Insurance Policies. The Executive shall be entitled to participate in and receive the benefits of any plan or policy of the Bank which may be or may become applicable to senior management relating to life insurance, short-term and long-term disability, medical, dental, vision-care, prescription drugs or medical reimbursement plans. During the term of the Executive's employment with the Bank, the Executive's dependent family may participate in such programs, with the cost of premiums paid in part by the Bank and by the Executive in accordance with policies established by the Board of Directors. (e) Vacations and Sick Leave. The Executive shall be entitled to paid annual vacation leave in accordance with the policies as established from time to time by the Board of Directors, which shall in no event be less than four (4) weeks per annum. The Executive shall also be entitled to an annual sick leave benefit as established by the Board for senior management employees of the Bank. 2 (f) Expenses. The Bank shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of, or in connection with the business of the Bank, including, but not by way of limitation, use of a Bank leased automobile and related traveling expenses, and all reasonable entertainment expenses, subject to such reasonable documentation and other limitations as may be established by the Board of Directors of the Bank. If such expenses are paid, in the first instance, by the Executive, the Bank shall reimburse the Executive therefor. (g) Changes in Benefits. The Bank shall not make any changes in such plans, benefits or privileges previously described in Section 3(c), (d) and (e) which would adversely affect the Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Bank and does not result in a proportionately greater adverse change in the rights of, or benefits to, the Executive as compared with any other executive officer of the Bank. Nothing paid to Executive under any plan or arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to Executive pursuant to Section 3(a) hereof. 4. Loyalty; Non-competition. (a) The Executive shall devote his full time and attention to the performance of his employment under this Agreement. During the term of the Executive's employment under this Agreement, the Executive shall not engage in any business or activity contrary to the business affairs or interests of the Bank or the Company. (b) Nothing contained in this Section 4 shall be deemed to prevent or limit the right of Executive to invest in the capital stock or other securities of any business dissimilar from that of the Bank or the Company , or, solely as a passive or minority investor, in any business. 5. Standards. During the term of this Agreement, the Executive shall perform his duties in accordance with such reasonable standards expected of executives with comparable positions in comparable organizations and as may be established from time to time by the Board of Directors. 6. Termination and Termination Pay. The Executive's employment under this Agreement shall be terminated upon any of the following occurrences: (a) The death of the Executive during the term of this Agreement, in which event the Executive's estate shall be entitled to receive the compensation due the Executive for at least one calendar month after the date of the Executive's death. (b) The Board of Directors may terminate the Executive's employment at any time, but any termination by the Board of Directors other than termination for Just Cause, shall not prejudice the Executive's right to compensation or other benefits under this Agreement. The Executive shall have no right to receive compensation or other benefits for any period after termination for "Just Cause". The Board may, within its sole discretion and acting in good faith, terminate the Executive for Just Cause and shall notify such Executive 3 accordingly. Termination for Just Cause shall be defined as termination because of the Executive's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. (c) Except as provided pursuant to Section 9 hereof, in the event Executive's employment under this Agreement is terminated by the Board of Directors without Just Cause, the Bank shall be obligated to continue to pay the Executive the salary provided pursuant to Section 3(a) herein, through the remaining term of this Agreement, but in no event for a period of less than one year, and the cost of Executive obtaining all health, life, disability, and other benefits which the Executive would be eligible to participate in through such date based upon benefit levels substantially equal to those being provided Executive at the date of termination of employment. No payment shall be made under this Section 6(c) unless the Executive's termination of employment qualifies as a Separation from Service (as that phrase is defined in Section 409A taking into account all rules and presumptions provided for in the Section 409A regulations). If the Executive is a Specified Employee (as defined in Section 409A) at the time of his Separation from Service, then payments under this Section 6(c) which constitute deferred compensation under Section 409A shall not be paid until the 185th day following the Executive's Separation from Service, or his earlier death (the Delayed Distribution Date). To the extent permitted by Section 409A, amounts payable under this Section 6(c) which are considered deferred compensation shall be treated as payable after amounts which are not considered deferred compensation. (d) The voluntary termination by the Executive during the term of this Agreement with the delivery of no less than 60 days written notice to the Board of Directors, other than pursuant to Section 9(b), in which case the Executive shall be entitled to receive only the compensation, vested rights, and all employee benefits up to the date of such termination. 7. Regulatory Exclusions. (a) If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may in its discretion (i) pay the Executive all or part of the compensation withheld while its contract obligations were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended. (b) If the Executive is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement shall terminate, as of the effective date of the order, but the vested rights of the contracting parties shall not be affected. 4 (c) If the Bank is in default (as defined in Section 3(x)(1) of Federal Deposit Insurance Act), all obligations under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties. (d) All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank: (i) by the Director of the Office of Thrift Supervision (hereinafter the "Director of OTS"), or his or her designee, at the time that the Federal Deposit Insurance Corporation (hereinafter the "FDIC") enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of Federal Deposit Insurance Act; or (ii) by the Director of the OTS, or his or her designee, at the time that the Director of the OTS, or his or her designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director of the OTS to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action. (e) Notwithstanding anything herein to the contrary, any payments made to the Executive pursuant to the Agreement, or otherwise, shall be subject to and conditioned upon compliance with 12 USC 1828(k) and FDIC Regulation 12 CFR Part 359, Golden Parachute Indemnification Payments promulgated thereunder. (f) Payments under the Agreement that are suspended under this Section 7, but are later determined by the applicable regulatory authority to be payable, shall be paid on the earliest date practicable thereafter. 8. Disability. If the Executive shall become disabled or incapacitated to the extent that he is unable to perform his duties hereunder, by reason of medically determinable physical or mental impairment ("Disability"), as determined by a doctor engaged by the Board of Directors, the Bank will pay the Executive, as disability pay, a weekly payment equal to one hundred percent (100%) of the Executive's weekly rate of Base Salary for a period of up to one year and a weekly payment equal to sixty-five percent of the Executive's weekly rate of Base Salary for the remaining Term of such Agreement. These Disability payments shall commence on the effective date of the determination of such Disability and will end on the earlier of (i) the date Executive returns to full-time employment with the Bank in an executive capacity; (ii) Executive commences full-time employment with another employer; (iii) Executive's death; or (iv) the expiration of the Term of this Agreement. Such benefits noted herein shall be reduced by any benefits otherwise provided to the Executive during such period under the provisions of any disability insurance coverage of the Bank in effect for the Executive. Thereafter, if such Disability continues, Executive shall be eligible to receive benefits provided by the Bank, if any, under the provisions of disability insurance coverage in effect for Bank employees. Upon returning to active full-time employment, the Executive's full compensation as set forth in this Agreement shall be reinstated as of the date of commencement of such activities. In the event that the Executive returns to active employment on other than a full-time basis, then his compensation (as set forth in Section 3(a) of this Agreement) shall be reduced in proportion to the time spent in said employment, or as shall otherwise be agreed to by the parties. 5 9. Change in Control. (a) Notwithstanding any provision herein to the contrary, in the event of the involuntary termination of Executive's employment during the term of this Agreement following any Change in Control of the Bank, or within 24 months thereafter of such Change in Control, absent Just Cause, the Executive shall be paid an amount equal to the product of 2.999 times the Executive's "base amount" as defined in Section 280G(b)(3) of the Code and regulations promulgated thereunder. Said sum shall be paid in one (1) lump sum not later than the date of such termination of service, and such payments shall be in lieu of any other future payments that the Executive would be otherwise entitled to receive under Section 6 of this Agreement. Notwithstanding the foregoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder, when aggregated with all other payments to be made to the Executive by the Bank or the Company, shall be deemed an "excess parachute payment" in accordance with Section 280G of the Code and be subject to the excise tax provided at Section 4999(a) of the Code. Further, the Executive and his dependents shall be eligible to continue participation in the medical and dental reimbursement programs available to continuing employees of the Bank or its successor entity with the cost of such participation to be paid by the Executive. Any successor or assignee of the Bank following a Change in Control of the Bank or the Company shall be required to maintain in place any life insurance on the life of the Executive that was acquired by the Bank in connection with the Executive Life Insurance Agreement or Endorsement Method Split Dollar Agreement then in effect between Executive and the Bank. The term "Change in Control" shall refer to (i) the sale of all, or a material portion, of the assets of the Bank or the Company; (ii) the merger or recapitalization of the Bank or the Company whereby the Bank or the Company is not the surviving entity; (iii) a change in control of the Bank or the Company, as otherwise defined or determined by the Office of Thrift Supervision ("OTS") or regulations promulgated by it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five percent (25%) or more of the outstanding voting securities of the Bank or the Company by any person, trust, entity or group. This limitation shall not apply to the purchase of shares of up to 25% of any class of securities of the Bank or the Company by a tax-qualified employee stock benefit plan which is exempt from the approval requirements set forth under 12 C.F.R. ss.574.3(c)(1)(vii) as now in effect or as may hereafter be amended. The term "person" refers to an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. The provisions of this Section 9(a) shall survive the expiration of this Agreement occurring after a Change in Control. (b) Notwithstanding any other provision of this Agreement to the contrary, Executive may voluntarily terminate his employment during the term of this Agreement following a Change in Control of the Bank or the Company, or within twenty-four (24) months following such Change in Control, and Executive shall thereupon be entitled to receive the payment described in Section 9(a) of this Agreement, upon the occurrence, or within 120 days thereafter, of any of the following events, which have not been consented to in advance by the Executive 6 in writing: (i) if Executive would be required to move his personal residence or perform his principal executive functions more than thirty-five (35) miles from the Executive's primary office as of the signing of this Agreement; (ii) if in the organizational structure of the Bank, Executive would be required to report to a person or persons other than the CEO or the Board of Directors of the Bank; (iii) if the Bank should fail to maintain Executive's base compensation in effect as of the date of the Change in Control and the existing employee benefit plans, including material fringe benefit, stock option, retirement and insurance plans; (iv) if Executive would be assigned duties and responsibilities other than those normally associated with his position as referenced at Section 1 herein; (v) if Executive's responsibilities or authority have been materially diminished or reduced; or (vi) if Executive would not be reelected to the Board of Directors of the Bank and the Company. The provisions of this Section 9(b) shall survive the expiration of this Agreement occurring after a Change in Control. (c) Notwithstanding anything in this Section 9 to the contrary: (1) no payment shall be permitted under this Section 9 unless the Executive's termination of employment qualifies as a Separation from Service; and (2) if at the time of the Executive's Separation from Service, the Executive is a Specified Employee as defined in Section 409A, then the payment due to the Executive under this Section 9 shall be paid to him (or his beneficiary) on the Delayed Distribution Date. Defined terms in this Section 9(c) shall have the same meaning as in Section 6(c) hereof. 10. Source of Payments. All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Bank. The Bank unconditionally guarantees payment and provision of all amounts and benefits due hereunder to Executive. 11. Withholding. All payments required to be made by the Bank hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Bank may reasonably determine should be withheld pursuant to any applicable law or regulation. 12. Payment of Costs and Legal Fees. All reasonable costs and legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Bank if Executive is successful pursuant to a legal judgment, arbitration or settlement. 13. Successors and Assigns. (a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank or the Company which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank or the Company. (b) The Bank shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Bank, expressly and unconditionally to assume and agree to perform the Bank's obligations under this 7 Agreement, in the same manner and to the same extent that the Bank would be required to perform if no such succession or assignment had taken place. (c) Since the Bank is contracting for the unique and personal skills of the Executive, the Executive shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Bank. 14. Indemnification. The Bank shall provide Executive (including his heirs, executors and administrators) with coverage under a standard directors' and officers' liability insurance policy at its expense, and shall indemnify Executive (and his heirs, executors and administrators) as permitted under federal law against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Bank (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs, and attorneys' fees and the cost of reasonable settlements. 15. Amendment; Waiver. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by the Executive and such officer or officers as may be specifically designated by the Board of Directors of the Bank to sign on its behalf. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 16. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of New Jersey. 17. Nature of Obligations. Nothing contained herein shall create or require the Bank to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Bank hereunder, such right shall be no greater than the right of any unsecured general creditor of the Bank. 18. Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 19. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of the other provisions of this Agreement, which shall remain in full force and effect. 8 20. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association ("AAA") nearest to the home office of the Bank, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extent that the parties may otherwise reach a mutual settlement of such issue. Further, the settlement of the dispute to be approved by the Board of the Bank may include a provision for the reimbursement by the Bank to the Executive for all reasonable costs and expenses, including reasonable attorneys' fees, arising from such dispute, proceedings or actions, or the Board of the Bank may authorize such reimbursement of such reasonable costs and expenses by separate action upon a written action and determination of the Board following settlement of the dispute. Such reimbursement shall be paid within ten (10) days of Executive furnishing to the Bank evidence, which may be in the form, among other things, of a canceled check or receipt, of any costs or expenses incurred by Executive. The provisions of this Section 20 shall survive the expiration of this Agreement. 21. Confidential Information. The Executive acknowledges that during his employment he will learn and have access to confidential information regarding the Bank and the Company and their customers and businesses (hereinafter the "Confidential Information"). The Executive agrees and covenants not to disclose or use for his own benefit, or the benefit of any other person or entity, any such Confidential Information, unless or until the Bank or the Company consents to such disclosure or use or such information becomes common knowledge in the industry or is otherwise legally in the public domain. The Executive shall not knowingly disclose or reveal to any unauthorized person any Confidential Information relating to the Bank, the Company, or any subsidiaries or affiliates, or to any of the businesses operated by them, and the Executive confirms that such information constitutes the exclusive property of the Bank and the Company. The Executive shall not otherwise knowingly act or conduct himself (a) to the material detriment of the Bank or the Company, or any subsidiaries or affiliates, or (b) in a manner which is inimical or contrary to the interests of the Bank or the Company. Notwithstanding anything herein to the contrary, failure by the Executive to comply with the provisions of this Section may result in the immediate termination of the Agreement within the sole discretion of the Bank, disciplinary action against the Executive taken by the Bank, including but not limited to the termination of employment of the Executive for breach of the Agreement and the provisions of this Section and other remedies that may be available in law or in equity. 9 22. Entire Agreement. This Agreement, together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first hereinabove written. American Bank of New Jersey ATTEST: By: /s/ W. George Parker -------------------- /s/ Kathleen Walsh Chairman - --------------------------- ATTEST: /s/ Kathleen Walsh /s/ Fred G. Kowal ------------------------- Fred G. Kowal, Executive EX-10.4 9 exh104_080808.txt KLIMINSKI EMPLOYMENT AGREEMENT Exhibit 10.4 EMPLOYMENT AGREEMENT THIS AGREEMENT is entered into this 17th day of June 2008, but shall be effective as of January 1, 2008 (hereinafter the "Effective Date") by and between American Bank of New Jersey, Bloomfield, New Jersey (hereinafter the "Bank") and Joseph Kliminski (hereinafter the "Executive"). WITNESSETH WHEREAS, the Executive has heretofore been employed by the Bank as the Chief Executive Officer and is experienced in all phases of the business of the Bank; and WHEREAS, the Bank desires to be ensured of the Executive's continued active participation in the business of the Bank; and WHEREAS, this Agreement is intended to replace the previous employment agreement between the Executive and the Bank and to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), and to reflect such additional changes as the Bank deems appropriate; NOW THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereby agree as follows: 1. Employment. The Bank hereby employs the Executive in the capacity of Chief Executive Officer. The Executive hereby accepts said employment and agrees to render such administrative and management services to the Bank and to its parent holding company ("Parent") as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. The Executive shall promote the business of the Bank and Parent. The Executive's other duties shall be such as the Board of Directors for the Bank (the "Board of Directors" or "Board") may from time to time reasonably direct, including normal duties as an officer of the Bank. 2. Term of Employment. The term of employment of Executive under this Agreement shall be for the period commencing on the Effective Date and ending thirty-six (36) months thereafter (hereinafter the "Term"). Additionally, on or before each annual anniversary date from the Effective Date, the Term of employment under this Agreement shall be extended for an additional year beyond the then effective expiration date upon a determination and resolution of the Board of Directors that the performance of the Executive has met the requirements and standards of the Board, so that the contract, when extended, will be for a new thirty-six (36) month term. References herein to the Term of this Agreement shall refer both to the initial term and successive terms. 3. Compensation, Benefits and Expenses. ------------------------------------ (a) Base Salary. The Bank shall compensate and pay the Executive during the Term of this Agreement a minimum base salary at the rate of $258,750 per annum (hereinafter the "Base Salary"), payable in cash, not less frequently than monthly; provided, that the rate of such salary shall be reviewed by the Board of Directors not less often than annually, and the Executive shall be entitled to receive increases at such percentages or in such amounts as determined by the Board of Directors. The Base Salary may not be decreased without the Executive's express written consent. (b) Discretionary Bonus. The Executive shall be entitled to participate in an equitable manner with all other senior management employees of the Bank in discretionary bonuses that may be authorized and declared by the Board of Directors to its senior management executives from time to time, and any management incentive plan that may be authorized. No other compensation shall be deemed a substitute for the Executive's right to participate in such discretionary bonuses when and as declared by the Board. Any discretionary bonus shall be paid no later than 2 1/2 months after the end of the year in which the Executive obtains a legally binding right to the bonus. If the discretionary bonus cannot be paid by that date, then it shall be paid on the next following April 15, or such other date during the year as permitted by Section 409A of the Code and the regulations thereunder (Section 409A). (c) Participation in Benefit and Retirement Plans. The Executive shall be entitled to participate in and receive the benefits of any plan of the Bank which may be or may become applicable to senior management relating to pension or other retirement benefit plans, supplementary retirement plan, profit-sharing, stock options or incentive plans, or other plans, benefits and privileges given to employees and executives of the Bank, to the extent commensurate with his then duties and responsibilities, as fixed by the Board of directors of the Bank. (d) Participation in Medical Plans and Insurance Policies. The Executive shall be entitled to participate in and receive the benefits of any plan or policy of the Bank which may be or may become applicable to senior management relating to life insurance, short and long term disability, medical, dental, eye-care, prescription drugs or medical reimbursement plans. During the term of the Executive's employment with the Bank, the Executive's dependent family may participate in such programs, with the cost of premiums paid in part by the Bank and by the Executive in accordance with policies established by the Board of Directors. Additionally, upon termination without cause or as a result of a change of control, Executive's dependent family shall be eligible to participate in medical and dental insurance plans sponsored by the Bank or Parent for the remaining term of this Agreement with the total cost of such premiums paid by the Bank. (e) Vacations and Sick Leave. The Executive shall be entitled to paid annual vacation leave in accordance with the policies as established from time to time by the Board of Directors, which shall, in no event, be less than six (6) weeks per annum. The Executive shall also be entitled to an annual sick leave benefit as established by the Board for senior management employees of the Bank. (f) Expenses. The Bank shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of, or in connection with, the business of the Bank, including, but not by way of limitation, premium country club dues, automobile and traveling expenses, and all reasonable entertainment expenses, subject to such reasonable documentation and other limitations as may be established by the Board of Directors of the Bank. If such expenses are paid, in the first instance, by the Executive, the Bank shall reimburse the Executive therefor. 2 (g) Changes in Benefits. The Bank shall not make any changes in such plans, benefits or privileges previously described in Section 3(c), (d) and (e), which would adversely affect the Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Bank and does not result in a proportionately greater adverse change in the rights of or benefits to the Executive, as compared with any other executive officer of the Bank. Nothing paid to Executive under any plan or arrangement presently in effect or made available in the future, shall be deemed to be in lieu of the salary payable to Executive pursuant to Section 3(a) hereof. 4. Loyalty; Non-competition. ------------------------- (a) The Executive shall devote his full time and attention to the performance of his employment under this Agreement. During the term of the Executive's employment under this Agreement, the Executive shall not engage in any business or activity contrary to the business affairs or interests of the Bank or Parent. (b) Nothing contained in this Section 4 shall be deemed to prevent or limit the right of Executive to invest in the capital stock or other securities of any business dissimilar from that of the Bank or Parent, or, solely as a passive or minority investor, in any business. 5. Standards. During the term of this Agreement, the Executive shall perform his duties in accordance with such reasonable standards expected of executives with comparable positions in comparable organizations and as may be established from time to time by the Board of Directors. 6. Termination and Termination Pay. The Executive's employment under this Agreement shall be terminated upon any of the following occurrences: (a) The death of the Executive during the term of this Agreement, in which event the Executive's estate shall be entitled to receive the compensation due the Executive for at least one calendar month after the date of the Executive's death. (b) The Board of Directors may terminate the Executive's employment at any time, but any termination by the Board of Directors other than termination for Just Cause, shall not prejudice the Executive's right to compensation or other benefits under this Agreement. The Executive shall have no right to receive compensation or other benefits for any period after termination for "Just Cause". The Board may, within its sole discretion and acting in good faith, terminate the Executive for Just Cause and shall notify such Executive accordingly. Termination for Just Cause shall be defined as termination because of the Executive's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. 3 (c) Except as provided pursuant to Section 9 hereof, in the event Executive's employment under this Agreement is terminated by the Board of Directors without Just Cause, the Bank shall be obligated to continue to pay the Executive the salary provided pursuant to Section 3(a) herein, through the remaining Term of this Agreement, but in no event for a period of less than twenty-four (24) months, and the cost of Executive obtaining all health, life, disability and other benefits which the Executive would be eligible to participate in through such date based upon benefit levels substantially equal to those being provided to the Executive at the date of termination of employment. No payment shall be made under this Section 6(c) unless the Executive's termination of employment qualifies as a Separation from Service (as that phrase is defined in Section 409A taking into account all rules and presumptions provided for in the Section 409A regulations). If the Executive is a Specified Employee (as defined in Section 409A) at the time of his Separation from Service, then payments under this Section 6(c) which constitute deferred compensation under Section 409A shall not be paid until the 185th day following the Executive's Separation from Service, or his earlier death (the Delayed Distribution Date). To the extent permitted by Section 409A, amounts payable under this Section 6(c) which are considered deferred compensation shall be treated as payable after amounts which are not considered deferred compensation. (d) The voluntary termination by the Executive during the term of this Agreement with the delivery of no less than sixty (60) days written notice to the Board of Directors, other than pursuant to Section 9(b), in which case the Executive shall be entitled to receive only the compensation, vested rights, and all employee benefits up to the date of such termination. 7. Regulatory Exclusions. ---------------------- (a) If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)) , the Bank's obligations under the Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may, within its discretion (i) pay the Executive all or part of the compensation withheld while its contract obligations were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended. (b) If the Executive is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order, but the vested rights of the parties shall not be affected. (c) If the Bank is in default (as defined in Section 3(x)(1) of FDIA) all obligations under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties. (d) All obligations under this Agreement shall be terminated, except to the extent that it is determined that the continuation of this Agreement is necessary for the continued operation of the Bank: (i) by the Director of the 4 Office of Thrift Supervision (hereinafter "Director of OTS"), or his or her designee, at the time that the Federal Deposit Insurance Corporation (hereinafter "FDIC") enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his or her designee, at the time that the Director of the OTS, or his or her designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director of the OTS to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action. (e) Notwithstanding anything herein to the contrary, any payments made to the Executive pursuant to the Agreement, or otherwise, shall be subject to and conditioned upon compliance with 12 U.S.C. 1828(k) and any regulations promulgated thereunder. (f) Payments under the Agreement that are suspended under this Section 7, but are later determined by the applicable regulatory authority to be payable, shall be paid on the earliest date practicable thereafter. 8. Disability. If the Executive shall become disabled or incapacitated to the extent that he is unable to perform his duties hereunder, by reason of medically determinable physical or mental impairment, as determined by a doctor engaged by the Board of Directors, the Bank will pay Executive, as disability pay, a weekly payment equal to one hundred percent (100%) of Executive's weekly rate of Base Salary, on the effective date of such termination. These disability payments shall commence on the effective date of Executive's termination and will end on the earlier of (i) the date Executive returns to the full-time employment of the Bank in the same capacity as he was employed prior to his termination for Disability and pursuant to an employment agreement between Executive and the Bank; Executive's full-time employment by another employer; Executive's death; or (iv) the expiration of the term of Executive's disability insurance policy at age 65 as currently provided by the Bank. Such benefits noted herein shall be reduced by any benefits otherwise provided to the Executive during such period under the provisions of disability insurance coverage in effect for the Executive. Thereafter, Executive shall be eligible to receive benefits provided by the Bank, if any, under the provisions of disability insurance coverage in effect for Bank employees. Upon returning to active full-time employment, the Executive's full compensation as set forth in this Agreement shall be reinstated as of the date of commencement of such activities. In the event that the Executive returns to active employment on other than a full-time basis, then his compensation (as set forth in Section 3(a) of this Agreement) shall be reduced in proportion to the time spent in said employment, or as shall otherwise be agreed to by the parties. 9. Change in Control. (a) Notwithstanding any provision herein to the contrary, in the event of the involuntary termination of the Executive's employment during the term of this Agreement following any Change in Control of the Bank or Parent, or within twenty-four (24) months thereafter of such Change in Control, absent Just Cause, Executive shall be paid an amount equal to the product of 2.999 times the Executive's "base amount" as defined in Section 280G(b)(3) of the Code and regulations promulgated thereunder. Said sum shall be paid in one (1) lump sum not later than the date of such termination of service, and such payments shall be in lieu of any other future payments which the Executive would be otherwise entitled to receive under Section 6 of this Agreement. Notwithstanding the 5 foregoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder, when aggregated with all other payments to be made to the Executive by the Bank or the Parent, shall be deemed an "excess parachute payment" in accordance with Section 280G of the Code and be subject to the excise tax provided at Section 4999(a) of the Code. Any successor or assignee of the Bank following a Change in Control of the Parent or the Bank shall be required to maintain in place any life insurance on the life of the Executive that was acquired by the Parent or the Bank in connection with the Executive Life Insurance Agreement or Endorsement Method Split Dollar Agreement then in effect between Executive and the Parent or the Bank. The term "Change in Control" shall refer to (i) the sale of all, or a material portion, of the assets of the Parent or the Bank; (ii) the merger or recapitalization of the Parent or the Bank whereby the Parent or the Bank is not the surviving entity; (iii) a change in control of the Parent or the Bank, as otherwise defined or determined by the Office of Thrift Supervision ("OTS") or regulations promulgated by it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five percent (25%) or more of the outstanding voting securities of the Parent or the Bank by any person, trust, entity or group. This limitation shall not apply to the purchase of shares of up to 25% of any class of securities of the Parent or the Bank by a tax-qualified employee stock benefit plan which is exempt from the approval requirements set forth under 12 C.F.R. ss.574.3(c)(1)(vii) as now in effect or as may hereafter be amended. The term "person" refers to an individual or a corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. The provisions of this Section 9(a) shall survive the expiration of this Agreement occurring after a Change in Control. (b) Notwithstanding any other provision of this Agreement to the contrary, Executive may voluntarily terminate his employment during the term of this Agreement following a Change in Control of the Bank or Parent, or within twenty-four (24) months following such Change in Control, and Executive shall thereupon be entitled to receive the payment described in Section 9(a) of this Agreement, upon the occurrence, or within 120 days thereafter, of any of the following events, which have not been consented to in advance by the Executive in writing: (i) if Executive would be required to move his personal residence or perform his principal executive functions more than thirty-five (35) miles from the Executive's primary office as of the signing of this Agreement; (ii) if in the organizational structure of the Bank, Executive would be required to report to a person or persons other than the Board of Directors of the Bank; (iii) if the Bank should fail to maintain Executive's base compensation in effect as of the date of the Change in Control and the existing employee benefit plans, including material fringe benefit, stock option, retirement and insurance plans; (iv) if Executive would be assigned duties and responsibilities other than those normally associated with his position as referenced at Section 1 herein; (v) if Executive's responsibilities or authority have in any way been materially diminished or reduced; or (vi) if Executive would not be reelected to the Board of Directors of the Bank. (c) Notwithstanding anything in this Section 9 to the contrary: (1) no payment shall be permitted under this Section 9 unless the Executive's termination of employment qualifies as a Separation from Service; and (2) if at the time of the Executive's Separation from Service, the Executive is a Specified Employee as defined in Section 409A, then the payment due to the Executive under this Section 9 shall be paid to him (or his beneficiary) on the Delayed Distribution Date. Defined terms in this Section 9(c) shall have the same meaning as in Section 6(c) hereof. 6 10. Source of Payments. All payments provided in this Agreement shall be timely paid in cash or check from the general funds of the Bank. The Bank unconditionally guarantees payment and provision of all amounts and benefits due hereunder to Executive. 11. Withholding. All payments required to be made by the Bank hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Bank may reasonably determine should be withheld pursuant to any applicable law or regulation. 12. Payment of Costs and Legal Fees. All reasonable costs and legal fees paid or incurred by Executive pursuant to any dispute or question of interpretation relating to this Agreement shall be paid or reimbursed by the Bank if Executive is successful pursuant to a legal judgment, arbitration or settlement. 13. Successors and Assigns. ----------------------- (a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank or Parent which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank or Parent. (b) The Bank shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Bank, expressly and unconditionally to assume and agree to perform the Bank's obligations under this Agreement, in the same manner and to the same extent that the Bank would be required to perform if no such succession or assignment had taken place. (c) Since the Bank is contracting for the unique and personal skills of the Executive, the Executive shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Bank. 14. Indemnification. ---------------- (a) The Bank shall provide Executive (including his heirs, executors and administrators) with coverage under a standard directors' and officers' liability insurance policy at its expense, and shall indemnify Executive (and his heirs, executors and administrators) as permitted under federal law against all expenses and liabilities reasonably incurred by him in connection with or arising out of any action, suit or proceeding in which he may be involved by reason of his having been a director or officer of the Parent or the Bank (whether or not he continues to be a director or officer at the time of incurring such expenses or liabilities), such expenses and liabilities to include, but not be limited to, judgments, court costs, and attorneys' fees and the cost of reasonable settlements. (b) Any payments made to Executive pursuant to this Section are subject to and conditioned upon compliance with 12 C.F.R. Section 545.121 and any rules or regulations promulgated thereunder. 7 15. Amendment: Waiver. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by the Executive and such officer or officers as may be specifically designated by the Board of Directors of the Bank to sign on its behalf. No waiver by any party hereto at any time of any breach by any party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 16. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of New Jersey. 17. Nature of Obligations. Nothing contained herein shall create or require the Bank to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Bank hereunder, such right shall be no greater than the right of any unsecured general creditor of the Bank. 18. Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 19. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of the other provisions of this Agreement, which shall remain in full force and effect. 20. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association ("AAA") nearest to the home office of the Bank, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extent that the parties may otherwise reach a mutual settlement of such issue. Furthermore, the settlement of the dispute to be approved by the Board of the Bank may include a provision for the reimbursement by the Bank to the Executive for all reasonable costs and expenses, including reasonable attorneys' fees, arising from such dispute, proceedings or actions, or the Board of the Bank or the Parent may authorize such reimbursement of such reasonable costs and expenses by separate action upon a written action and determination of the Board following settlement of the dispute. Such reimbursement shall be paid within ten (10) days of Executive furnishing to the Bank evidence, which may be in the form, among other things, of a cancelled check or receipt, of any costs or expenses incurred by Executive. 21. Confidential Information. The Executive acknowledges that during his employment he will learn and have access to confidential information regarding the Bank and the Parent and its customers and businesses (hereinafter "Confidential Information"). The Executive agrees and covenants not to disclose or use for his or her own benefit, or the benefit of any other person or entity, any such Confidential Information, unless or until the Bank or the Parent consents to such disclosure or use or such information becomes common knowledge in the industry or is otherwise legally in the public domain. The Executive shall not knowingly disclose or reveal to any unauthorized person any Confidential Information relating to the Bank, the Parent or any subsidiaries or affiliates, or to any of the businesses operated by them, and the Executive confirms that such information constitutes the exclusive property of the Bank and the Parent. The Executive shall not otherwise knowingly act or conduct himself (a) to the material detriment of the Bank or the Parent, or its 9 subsidiaries or affiliates, or (b) in a manner which is inimical or contrary to the interests of the Bank or the Parent. Notwithstanding anything herein to the contrary, failure by the Executive to comply with the provisions of this Section may result in the immediate termination of the Agreement within the sole discretion of the Bank, disciplinary action against the Executive taken by the Bank, including but not limited to the termination of employment of the Executive for breach of the Agreement and the provisions of this Section and other remedies that may be available in law or in equity. 22. Entire Agreement. This Agreement, together with any understanding or modifications thereof, as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first hereinabove written. American Bank of New Jersey ATTEST: By: /s/ W. George Parker ------------------------------ - --------------------------------- Secretary /s/ Richard Bzdek - --------------------- WITNESS: /s/ Kathleen Walsh /s/ Joseph Kliminski - --------------------------------- ---------------------------------- Joseph Kliminski, Executive EX-10.3 10 exh103_080808.txt HEYER EMPLOYMENT AGREEMENT Exhibit 10.3 EMPLOYMENT AGREEMENT THIS AGREEMENT is entered into this 17th day of June, 2008, but shall be effective as of January 1, 2008 ("Effective Date") by and between American Bank of New Jersey (the "Bank") and Eric B. Heyer (the "Executive"). W I T N E S S E T H: WHEREAS, the Executive has heretofore been employed by the Bank as the Senior Vice President and Chief Financial Officer and is experienced in all phases of the business of the Bank; and WHEREAS, the Bank wishes to be assured of the Executive's continued active participation in the business of the Bank; and WHEREAS, this Agreement is intended to replace the previous employment agreement between the Executive and the Bank and to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), and to reflect such additional changes as the Bank deems appropriate; NOW THEREFORE, in consideration of the covenants and the mutual agreements herein contained, the parties hereby agree as follows: 1. Employment. The Bank hereby employs the Executive in the capacity of Senior Vice President and Chief Financial Officer. The Executive hereby accepts said employment and agrees to render such administrative and management services to the Bank and American Bancorp of New Jersey, Inc. the parent holding company of the Bank ("Parent") as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. The Executive shall promote the business of the Bank and Parent. The Executive's other duties shall be such as the Board of Directors for the Bank (the "Board of Directors" or "Board") may from time to time reasonably direct, including normal duties as an officer of the Bank. 2. Term of Agreement. The term of this Agreement shall be for the period commencing on the Effective Date and ending December 31, 2008 thereafter ("Term"). Additionally, on, or before, each annual anniversary date from the Effective Date, the Term of this Agreement shall be extended for an additional year beyond the then effective expiration date upon a determination and resolution of the Board of Directors that the performance of the Executive has met the requirements and standards of the Board. References herein to the Term of this Agreement shall refer both to the initial term and successive terms. 3. Compensation, Benefits and Expenses. ------------------------------------ (a) Base Salary. The Bank shall compensate and pay the Executive during the Term of this Agreement a minimum base salary at the rate of $165,328 per annum ("Base Salary"), payable in cash not less frequently than monthly; provided, that the rate of such salary shall be reviewed by the Board of Directors not less often than annually, and the Executive shall be entitled to receive increases at such percentages or in such amounts as determined by the Board of Directors. (b) Discretionary Bonus. The Executive shall be entitled to participate in an equitable manner with all other senior management employees of the Bank in discretionary bonuses that may be authorized and declared by the Board of Directors to its senior management executives from time to time. No other compensation provided for in this Agreement shall be deemed a substitute for the Executive's right to participate in such discretionary bonuses when and as declared by the Board. Any discretionary bonus shall be paid no later than 2 1/2 months after the end of the year in which the Executive obtains a legally binding right to the bonus. If the discretionary bonus cannot be paid by that date, then it shall be paid on the next following April 15, or such other date during the year as permitted by Section 409A of the Code and the regulations thereunder (Section 409A). (c) Participation in Benefit and Retirement Plans. The Executive shall be entitled to participate in and receive the benefits of any plan of the Bank or its Parent which may be or may become applicable to senior management relating to pension or other retirement benefit plans, profit-sharing, stock options or incentive plans, or other plans, benefits and privileges given to employees and executives of the Bank or its Parent, to the extent commensurate with his then duties and responsibilities, as fixed by the Board of Directors of the Bank or its Parent. (d) Participation in Medical Plans and Insurance Policies. The Executive shall be entitled to participate in and receive the benefits of any plan or policy of the Bank which may be or may become applicable to senior management relating to life insurance, short and long term disability, medical, dental, eye-care, prescription drugs or medical reimbursement plans. Additionally, Executive's dependent family shall be eligible to participate in medical and dental insurance plans sponsored by the Bank or Parent with 70% of the cost of such premiums paid by the Bank. (e) Vacations and Sick Leave. The Executive shall be entitled to paid annual vacation leave in accordance with the policies as established from time to time by the Board of Directors. The Executive shall also be entitled to an annual sick leave benefit as established by the Board for senior management employees of the Bank. The Executive shall not be entitled to receive any additional compensation from the Bank for failure to take a vacation or sick leave, nor shall he be able to accumulate unused vacation or sick leave from one year to the next, except to the extent authorized by the Board of Directors. (f) Expenses. The Bank shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of, or in connection with the business of the Bank or Parent, including, but not by way of limitation, automobile and traveling expenses, and all reasonable entertainment expenses, subject to such reasonable documentation and other limitations as may be established by the Board of Directors of the Bank. If such expenses are paid in the first instance by the Executive, the Bank shall reimburse the Executive therefor. Expenses incurred by Executive on behalf of Parent shall be paid or advanced by Parent or reimbursed by Parent to the Bank. (g) Changes in Benefits. The Bank shall not make any changes in such plans, benefits or privileges previously described in Section 3(c), (d) and (e) which would adversely affect the Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Bank and does not result in a proportionately greater adverse change in the rights of, or benefits to, the Executive as compared with any other executive officer of the Bank. Nothing paid to Executive under any plan or 2 arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to Executive pursuant to Section 3(a) hereof. 4. Loyalty; Non-competition. ------------------------- (a) The Executive shall devote his full time and attention to the performance of his employment under this Agreement. During the term of the Executive's employment under this Agreement, the Executive shall not engage in any business or activity contrary to the business affairs or interests of the Bank or Parent. (b) Nothing contained in this Section 4 shall be deemed to prevent or limit the right of Executive to invest in the capital stock or other securities of any business dissimilar from that of the Bank or Parent, or, solely as a passive or minority investor, in any business. 5. Standards. During the term of this Agreement, the Executive shall perform his duties in accordance with such reasonable standards expected of executives with comparable positions in comparable organizations and as may be established from time to time by the Board of Directors. 6. Termination and Termination Pay. The Executive's employment under this Agreement shall be terminated upon any of the following occurrences: (a) The death of the Executive during the term of this Agreement, in which event the Executive's estate shall be entitled to receive the compensation due the Executive through the last day of the calendar month in which Executive's death shall have occurred. (b) The Bank may terminate the Executive's employment at any time with or without Just Cause within its sole discretion. This Agreement shall not be deemed to give Executive any right to be retained in the employment or service of the Bank, or to interfere with the right of the Bank to terminate the employment of the Executive at any time, but any termination by the Bank other than termination for Just Cause shall not prejudice the Executive's right to compensation or other benefits under the Agreement. The Executive shall have no right to receive compensation or other benefits for any period after termination for Just Cause. The Bank may, within its sole discretion, acting in good faith, terminate the Executive for Just Cause and shall notify such Executive accordingly. Termination for "Just Cause" shall be defined as termination because of the Executive's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. (c) Except as provided pursuant to Section 9 hereof, in the event Executive's employment under this Agreement is terminated by the Bank without Just Cause during the Term of this Agreement (including any renewal Term), the Bank shall be obligated to continue to pay the Executive: i) the salary provided pursuant to Section 3(a) herein, up to the date of termination of the remaining 3 Term of this Agreement, but in no event for a period of less than one year from such date of termination of employment; and ii) for the same minimum one year period, the cost of Executive obtaining all health, life, disability and other benefits which the Executive would be eligible to participate in during such period of payment, based upon benefit levels substantially equal to those being provided Executive at the date of termination of employment. The provisions of this Section 6(c) shall survive the expiration of this Agreement. No payment shall be made under this Section 6(c) unless the Executive's termination of employment qualifies as a Separation from Service (as that phrase is defined in Section 409A taking into account all rules and presumptions provided for in the Section 409A regulations). If the Executive is a Specified Employee (as defined in Section 409A) at the time of his Separation from Service, then payments under this Section 6(c) which constitute deferred compensation under Section 409A shall not be paid until the 185th day following the Executive's Separation from Service, or his earlier death (the Delayed Distribution Date). To the extent permitted by Section 409A, amounts payable under this Section 6(c) which are considered deferred compensation shall be treated as payable after amounts which are not considered deferred compensation. (d) The voluntary termination by the Executive during the term of this Agreement with the delivery of no less than 60 days written notice to the Board of Directors, other than pursuant to Section 9(b), in which case the Executive shall be entitled to receive only the compensation, vested rights, and all employee benefits up to the date of such termination. 7. Regulatory Exclusions. ---------------------- (a) If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may, within its discretion (i) pay the Executive all or part of the compensation withheld while its contract obligations were suspended and (ii) reinstate any of its obligations which were suspended. (b) If the Executive is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement shall terminate, as of the effective date of the order, but the vested rights of the parties shall not be affected. (c) If the Bank is in default (as defined in Section 3(x)(1) of FDIA) all obligations under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties. (d) All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank: (i) by the Director of the Office of Thrift Supervision ("Director of OTS"), or his designee, at the time that the Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his designee, at the time that the Director of the OTS, or his designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director of the OTS to be in an unsafe or unsound condition. Any rights 4 of the parties that have already vested, however, shall not be affected by such action. (e) Notwithstanding anything herein to the contrary, any payments made to the Executive pursuant to the Agreement, or otherwise, shall be subject to and conditioned upon compliance with 12 USC ss.1828(k) and any regulations promulgated thereunder. (f) Payments under the Agreement that are suspended under this Section 7, but are later determined by the applicable regulatory authority to be payable, shall be paid on the earliest date practicable thereafter. 8. Disability. If the Executive shall become disabled or incapacitated to the extent that he is unable to perform his duties hereunder, by reason of medically determinable physical or mental impairment, as determined by a doctor engaged by the Board of Directors, Executive shall receive compensation and benefits in accordance with the terms of any plans or policies of the Bank relating to short and long term disability, rather than pursuant to this Agreement. Upon returning to active full-time employment, the Executive's full compensation as set forth in this Agreement shall be reinstated as of the date of commencement of such activities. In the event that the Executive returns to active employment on other than a full-time basis, then his compensation (as set forth in Section 3(a) of this Agreement) shall be reduced in proportion to the time spent in said employment, or as shall otherwise be agreed to by the parties. 9. Change in Control. ------------------ (a) Notwithstanding any provision herein to the contrary, in the event of the involuntary termination of Executive's employment during the term of this Agreement following any Change in Control of the Bank or Parent, or within twelve (12) months thereafter of such Change in Control, absent Just Cause, Executive shall be paid an amount equal to the product of two (2) times the Executive's "base amount" as defined in Section 280G(b)(3) of the Code and regulations promulgated thereunder. Said sum shall be paid in one (1) lump sum as of the date of such termination of service, and such payments shall be in lieu of any other future payments which the Executive would be otherwise entitled to receive under Section 6 of this Agreement. Notwithstanding the forgoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder, when aggregated with all other payments to be made to the Executive by the Bank or the Parent, shall be deemed an "excess parachute payment" in accordance with Section 280G of the Code and be subject to the excise tax provided at Section 4999(a) of the Code. Any successor or assignee of the Bank following a Change in Control of the Parent or the Bank shall be required to maintain in place any life insurance on the life of the Executive that was acquired by the Parent or the Bank in connection with the Executive Life Insurance Agreement or Endorsement Method Split Dollar Agreement then in effect between Executive and the Parent or the Bank. The term "Change in Control" shall refer to: (i) the sale of all, or a material portion, of the assets of the Bank or the Parent; (ii) the merger or recapitalization of the Bank or the Parent whereby the Bank or the Parent is not the surviving entity; (iii) a change in control of the Bank or the Parent, as otherwise defined or determined by the Office of Thrift Supervision or regulations promulgated by it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five percent (25%) or more of the outstanding voting securities of the Bank or the Parent by any person, trust, entity or group. This limitation shall not apply to the purchase of shares of up to 25% of any class of securities of the Parent or the Bank by a tax-qualified employee stock benefit plan which is exempt from the approval requirements set forth under 12 C.F.R. ss.574.3(c)(1)(vii) as now in effect or as may hereafter be amended. The term "person" means an individual other than the Executive, or a corporation, 5 partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. The provisions of this Section 9(a) shall survive the expiration of this Agreement occurring after a Change in Control. (b) Notwithstanding any other provision of this Agreement to the contrary, Executive may voluntarily terminate his employment during the term of this Agreement following a Change in Control of the Bank or Parent, or within twelve (12) months following such Change in Control, and upon the occurrence, or within 120 days thereafter, of any of the following events, which have not been consented to in advance by the Executive in writing: (i) if Executive would be required to move his personal residence or perform his principal executive functions more than forty (40) miles from the Executive's primary office as of the signing of this Agreement; or (ii) if the Bank should fail to maintain Executive's base compensation in effect as of the date of the Change in Control and the existing employee benefits plans, including material fringe benefit and retirement plans. Upon such voluntary termination of employment by the Executive in accordance with this subsection, Executive shall thereupon be entitled to receive the payments described in Section 9(a) of this Agreement. The provisions of this Section 9(b) shall survive the expiration of this Agreement occurring after a Change in Control. (c) Notwithstanding anything in this Section 9 to the contrary: (1) no payment shall be permitted under this Section 9 unless the Executive's termination of employment qualifies as a Separation from Service; and (2) if at the time of the Executive's Separation from Service, the Executive is a Specified Employee as defined in Section 409A, then the payment due to the Executive under this Section 9 shall be paid to him (or his beneficiary) on the Delayed Distribution Date. Defined terms in this Section 9(c) shall have the same meaning as in Section 6(c) hereof. 10. Withholding. All payments required to be made by the Bank hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Bank may reasonably determine should be withheld pursuant to any applicable law or regulation. 11. Successors and Assigns. ----------------------- (a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank or Parent which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank or Parent. (b) The Bank shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Bank, expressly and unconditionally to assume and agree to perform the Bank's obligations under this Agreement, in the same manner and to the same extent that the Bank would be required to perform if no such succession or assignment had taken place. (c) Since the Bank is contracting for the unique and personal skills of the Executive, the Executive shall be precluded from assigning or delegating his rights or duties hereunder without first obtaining the written consent of the Bank. 6 12. Amendment; Waiver. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by the Executive and such officer or officers as may be specifically designated by the Board of Directors of the Bank to sign on its behalf. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 13. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of New Jersey. 14. Nature of Obligations. Nothing contained herein shall create or require the Bank to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Bank hereunder, such right shall be no greater than the right of any unsecured general creditor of the Bank. 15. Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of the other provisions of this Agreement, which shall remain in full force and effect. 17. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled exclusively by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association nearest to the home office of the Bank, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extent that the parties may otherwise reach a mutual settlement of such issue. The provisions of this Section 17 shall survive the expiration of this Agreement. 18. Confidential Information. The Executive acknowledges that during his employment he will learn and have access to confidential information regarding the Bank and the Parent and its customers and businesses ("Confidential Information"). The Executive agrees and covenants not to disclose or use for his own benefit, or the benefit of any other person or entity, any such Confidential Information, unless or until the Bank or the Parent consents to such disclosure or use or such information becomes common knowledge in the industry or is otherwise legally in the public domain. The Executive shall not knowingly disclose or reveal to any unauthorized person any Confidential Information relating to the Bank, the Parent, or any subsidiaries or affiliates, or to any of the businesses operated by them, and the Executive confirms that such information constitutes the exclusive property of the Bank and the Parent. The Executive shall not otherwise knowingly act or conduct himself (a) to the material detriment of the Bank or the Parent, or its subsidiaries or affiliates, or (b) in a manner which is inimical or contrary to the interests of the Bank or the Parent. Notwithstanding anything herein to the contrary, failure by the Executive to comply with the provisions of this Section may result in the immediate termination of the Agreement within the sole discretion of the Bank, disciplinary action against the Executive taken by the Bank, including but not limited to the termination of employment of the Executive for breach of the Agreement and the provisions of this Section, and other remedies that may be available in law or in equity. 7 19. Entire Agreement. This Agreement, together with any understanding or modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first hereinabove written. AMERICAN BANK OF NEW JERSEY By: /s/ W. George Parker ------------------------------- W. George Parker Chairman ATTEST: /s/ Richard Bzdek - ----------------------------- Secretary /s/ Kathleen Walsh /s/ Eric B. Heyer - ----------------------------- ------------------------------- Witness Eric B. Heyer EX-10.2 11 exh102_080808.txt BRINGUIER EMPLOYMENT AGREEMENT Exhibit 10.2 EMPLOYMENT AGREEMENT THIS AGREEMENT is entered into this 17th day of June, 2008, but shall be effective as of January 1, 2008 ("Effective Date") by and between American Bank of New Jersey (the "Bank") and Catherine Bringuier (the "Executive"). W I T N E S S E T H: WHEREAS, the Executive has heretofore been employed by the Bank as the Senior Vice President and Chief Lending Officer and is experienced in all phases of the business of the Bank; and WHEREAS, the Bank wishes to be assured of the Executive's continued active participation in the business of the Bank; and WHEREAS, this Agreement is intended to replace the previous employment agreement between the Executive and the Bank and to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), and to reflect such additional changes as the Bank deems appropriate; NOW THEREFORE, in consideration of the covenants and the mutual agreements herein contained, the parties hereby agree as follows: 1. Employment. The Bank hereby employs the Executive in the capacity of Senior Vice President and Chief Lending Officer. The Executive hereby accepts said employment and agrees to render such administrative and management services to the Bank and American Bancorp of New Jersey, Inc. the parent holding company of the Bank ("Parent") as are currently rendered and as are customarily performed by persons situated in a similar executive capacity. The Executive shall promote the business of the Bank and Parent. The Executive's other duties shall be such as the Board of Directors for the Bank (the "Board of Directors" or "Board") may from time to time reasonably direct, including normal duties as an officer of the Bank. 2. Term of Agreement. The term of this Agreement shall be for the period commencing on the Effective Date and ending December 31, 2008 thereafter ("Term"). Additionally, on, or before, each annual anniversary date from the Effective Date, the Term of this Agreement shall be extended for an additional year beyond the then effective expiration date upon a determination and resolution of the Board of Directors that the performance of the Executive has met the requirements and standards of the Board. References herein to the Term of this Agreement shall refer both to the initial term and successive terms. 3. Compensation, Benefits and Expenses. ------------------------------------- (a) Base Salary. The Bank shall compensate and pay the Executive during the Term of this Agreement a minimum base salary at the rate of $151,630 per annum ("Base Salary"), payable in cash not less frequently than monthly; provided, that the rate of such salary shall be reviewed by the Board of Directors not less often than annually, and the Executive shall be entitled to receive increases at such percentages or in such amounts as determined by the Board of Directors. 1 (b) Discretionary Bonus. The Executive shall be entitled to participate in an equitable manner with all other senior management employees of the Bank in discretionary bonuses that may be authorized and declared by the Board of Directors to its senior management executives from time to time. No other compensation provided for in this Agreement shall be deemed a substitute for the Executive's right to participate in such discretionary bonuses when and as declared by the Board. Any discretionary bonus shall be paid no later than 2 1/2 months after the end of the year in which the Executive obtains a legally binding right to the bonus. If the discretionary bonus cannot be paid by that date, then it shall be paid on the next following April 15, or such other date during the year as permitted by Section 409A of the Code and the regulations thereunder (Section 409A). (c) Participation in Benefit and Retirement Plans. The Executive shall be entitled to participate in and receive the benefits of any plan of the Bank or its Parent which may be or may become applicable to senior management relating to pension or other retirement benefit plans, profit-sharing, stock options or incentive plans, or other plans, benefits and privileges given to employees and executives of the Bank or its Parent, to the extent commensurate with her then duties and responsibilities, as fixed by the Board of Directors of the Bank or its Parent. (d) Participation in Medical Plans and Insurance Policies. The Executive shall be entitled to participate in and receive the benefits of any plan or policy of the Bank which may be or may become applicable to senior management relating to life insurance, short and long term disability, medical, dental, eye-care, prescription drugs or medical reimbursement plans. Additionally, Executive's dependent family shall be eligible to participate in medical and dental insurance plans sponsored by the Bank or Parent with 70% of the cost of such premiums paid by the Bank. (e) Vacations and Sick Leave. The Executive shall be entitled to paid annual vacation leave in accordance with the policies as established from time to time by the Board of Directors. The Executive shall also be entitled to an annual sick leave benefit as established by the Board for senior management employees of the Bank. The Executive shall not be entitled to receive any additional compensation from the Bank for failure to take a vacation or sick leave, nor shall she be able to accumulate unused vacation or sick leave from one year to the next, except to the extent authorized by the Board of Directors. (f) Expenses. The Bank shall reimburse the Executive or otherwise provide for or pay for all reasonable expenses incurred by the Executive in furtherance of, or in connection with the business of the Bank or Parent, including, but not by way of limitation, automobile and traveling expenses, and all reasonable entertainment expenses, subject to such reasonable documentation and other limitations as may be established by the Board of Directors of the Bank. If such expenses are paid in the first instance by the Executive, the Bank shall reimburse the Executive therefor. Expenses incurred by Executive on behalf of Parent shall be paid or advanced by Parent or reimbursed by Parent to the Bank. (g) Changes in Benefits. The Bank shall not make any changes in such plans, benefits or privileges previously described in Section 3(c), (d) and (e) which would adversely affect the Executive's rights or benefits thereunder, unless such change occurs pursuant to a program applicable to all executive officers of the Bank and does not result in a proportionately greater adverse change in the rights of, or benefits to, the Executive as compared with any other executive officer of the Bank. Nothing paid to Executive under any plan or 2 arrangement presently in effect or made available in the future shall be deemed to be in lieu of the salary payable to Executive pursuant to Section 3(a) hereof. 4. Loyalty; Non-competition. -------------------------- (a) The Executive shall devote her full time and attention to the performance of her employment under this Agreement. During the term of the Executive's employment under this Agreement, the Executive shall not engage in any business or activity contrary to the business affairs or interests of the Bank or Parent. (b) Nothing contained in this Section 4 shall be deemed to prevent or limit the right of Executive to invest in the capital stock or other securities of any business dissimilar from that of the Bank or Parent, or, solely as a passive or minority investor, in any business. 5. Standards. During the term of this Agreement, the Executive shall perform her duties in accordance with such reasonable standards expected of executives with comparable positions in comparable organizations and as may be established from time to time by the Board of Directors. 6. Termination and Termination Pay. The Executive's employment under this Agreement shall be terminated upon any of the following occurrences: (a) The death of the Executive during the term of this Agreement, in which event the Executive's estate shall be entitled to receive the compensation due the Executive through the last day of the calendar month in which Executive's death shall have occurred. (b) The Bank may terminate the Executive's employment at any time with or without Just Cause within its sole discretion. This Agreement shall not be deemed to give Executive any right to be retained in the employment or service of the Bank, or to interfere with the right of the Bank to terminate the employment of the Executive at any time, but any termination by the Bank other than termination for Just Cause shall not prejudice the Executive's right to compensation or other benefits under the Agreement. The Executive shall have no right to receive compensation or other benefits for any period after termination for Just Cause. The Bank may, within its sole discretion, acting in good faith, terminate the Executive for Just Cause and shall notify such Executive accordingly. Termination for "Just Cause" shall be defined as termination because of the Executive's personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease-and-desist order, or material breach of any provision of this Agreement. (c) Except as provided pursuant to Section 9 hereof, in the event Executive's employment under this Agreement is terminated by the Bank without Just Cause during the Term of this Agreement (including any renewal Term), the Bank shall be obligated to continue to pay the Executive: i) the salary provided pursuant to Section 3(a) herein, up to the date of termination of the remaining Term of this Agreement, but in no event for a period of less than one year from such date of termination of employment; and ii) for the same minimum one year 3 period, the cost of Executive obtaining all health, life, disability and other benefits which the Executive would be eligible to participate in during such period of payment, based upon benefit levels substantially equal to those being provided Executive at the date of termination of employment. The provisions of this Section 6(c) shall survive the expiration of this Agreement. No payment shall be made under this Section 6(c) unless the Executive's termination of employment qualifies as a Separation from Service (as that phrase is defined in Section 409A taking into account all rules and presumptions provided for in the Section 409A regulations). If the Executive is a Specified Employee (as defined in Section 409A) at the time of her Separation from Service, then payments under this Section 6(c) which constitute deferred compensation under Section 409A shall not be paid until the 185th day following the Executive's Separation from Service, or her earlier death (the Delayed Distribution Date). To the extent permitted by Section 409A, amounts payable under this Section 6(c) which are considered deferred compensation shall be treated as payable after amounts which are not considered deferred compensation. (d) The voluntary termination by the Executive during the term of this Agreement with the delivery of no less than 60 days written notice to the Board of Directors, other than pursuant to Section 9(b), in which case the Executive shall be entitled to receive only the compensation, vested rights, and all employee benefits up to the date of such termination. 7. Regulatory Exclusions. ---------------------- (a) If the Executive is suspended and/or temporarily prohibited from participating in the conduct of the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank may, within its discretion (i) pay the Executive all or part of the compensation withheld while its contract obligations were suspended and (ii) reinstate any of its obligations which were suspended. (b) If the Executive is removed and/or permanently prohibited from participating in the conduct of the Bank's affairs by an order issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement shall terminate, as of the effective date of the order, but the vested rights of the parties shall not be affected. (c) If the Bank is in default (as defined in Section 3(x)(1) of FDIA) all obligations under this Agreement shall terminate as of the date of default, but this paragraph shall not affect any vested rights of the contracting parties. (d) All obligations under this Agreement shall be terminated, except to the extent determined that continuation of this Agreement is necessary for the continued operation of the Bank: (i) by the Director of the Office of Thrift Supervision ("Director of OTS"), or his designee, at the time that the Federal Deposit Insurance Corporation ("FDIC") enters into an agreement to provide assistance to or on behalf of the Bank under the authority contained in Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his designee, at the time that the Director of the OTS, or his designee approves a supervisory merger to resolve problems related to operation of the Bank or when the Bank is determined by the Director of the OTS to be in an unsafe or unsound condition. Any rights of the parties that have already vested, however, shall not be affected by such action. 4 (e) Notwithstanding anything herein to the contrary, any payments made to the Executive pursuant to the Agreement, or otherwise, shall be subject to and conditioned upon compliance with 12 USC ss.1828(k) and any regulations promulgated thereunder. (f) Payments under the Agreement that are suspended under this Section 7, but are later determined by the applicable regulatory authority to be payable, shall be paid on the earliest date practicable thereafter. 8. Disability. If the Executive shall become disabled or incapacitated to the extent that she is unable to perform her duties hereunder, by reason of medically determinable physical or mental impairment, as determined by a doctor engaged by the Board of Directors, Executive shall receive compensation and benefits in accordance with the terms of any plans or policies of the Bank relating to short and long term disability, rather than pursuant to this Agreement. Upon returning to active full-time employment, the Executive's full compensation as set forth in this Agreement shall be reinstated as of the date of commencement of such activities. In the event that the Executive returns to active employment on other than a full-time basis, then her compensation (as set forth in Section 3(a) of this Agreement) shall be reduced in proportion to the time spent in said employment, or as shall otherwise be agreed to by the parties. 9. Change in Control. ------------------ (a) Notwithstanding any provision herein to the contrary, in the event of the involuntary termination of Executive's employment during the term of this Agreement following any Change in Control of the Bank or Parent, or within twelve (12) months thereafter of such Change in Control, absent Just Cause, Executive shall be paid an amount equal to the product of two (2) times the Executive's "base amount" as defined in Section 280G(b)(3) of the Code and regulations promulgated thereunder. Said sum shall be paid in one (1) lump sum as of the date of such termination of service, and such payments shall be in lieu of any other future payments which the Executive would be otherwise entitled to receive under Section 6 of this Agreement. Notwithstanding the forgoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder, when aggregated with all other payments to be made to the Executive by the Bank or the Parent, shall be deemed an "excess parachute payment" in accordance with Section 280G of the Code and be subject to the excise tax provided at Section 4999(a) of the Code. Any successor or assignee of the Bank following a Change in Control of the Parent or the Bank shall be required to maintain in place any life insurance on the life of the Executive that was acquired by the Parent or the Bank in connection with the Executive Life Insurance Agreement or Endorsement Method Split Dollar Agreement then in effect between Executive and the Parent or the Bank. The term "Change in Control" shall refer to: (i) the sale of all, or a material portion, of the assets of the Bank or the Parent; (ii) the merger or recapitalization of the Bank or the Parent whereby the Bank or the Parent is not the surviving entity; (iii) a change in control of the Bank or the Parent, as otherwise defined or determined by the Office of Thrift Supervision or regulations promulgated by it; or (iv) the acquisition, directly or indirectly, of the beneficial ownership (within the meaning of that term as it is used in Section 13(d) of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder) of twenty-five percent (25%) or more of the outstanding voting securities of the Bank or the Parent by any person, trust, entity or group. This limitation shall not apply to the purchase of shares of up to 25% of any class of securities of the Parent or the Bank by a tax-qualified employee stock benefit plan which is exempt from the approval requirements set forth under 12 C.F.R. ss.574.3(c)(1)(vii) as now in effect or as may hereafter be amended. The term "person" means an individual other than the Executive, or a corporation, 5 partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization or any other form of entity not specifically listed herein. The provisions of this Section 9(a) shall survive the expiration of this Agreement occurring after a Change in Control. (b) Notwithstanding any other provision of this Agreement to the contrary, Executive may voluntarily terminate her employment during the term of this Agreement following a Change in Control of the Bank or Parent, or within twelve (12) months following such Change in Control, and upon the occurrence, or within 120 days thereafter, of any of the following events, which have not been consented to in advance by the Executive in writing: (i) if Executive would be required to move her personal residence or perform her principal executive functions more than forty (40) miles from the Executive's primary office as of the signing of this Agreement; or (ii) if the Bank should fail to maintain Executive's base compensation in effect as of the date of the Change in Control and the existing employee benefits plans, including material fringe benefit and retirement plans. Upon such voluntary termination of employment by the Executive in accordance with this subsection, Executive shall thereupon be entitled to receive the payments described in Section 9(a) of this Agreement. The provisions of this Section 9(b) shall survive the expiration of this Agreement occurring after a Change in Control. (c) Notwithstanding anything in this Section 9 to the contrary: (1) no payment shall be permitted under this Section 9 unless the Executive's termination of employment qualifies as a Separation from Service; and (2) if at the time of the Executive's Separation from Service, the Executive is a Specified Employee as defined in Section 409A, then the payment due to the Executive under this Section 9 shall be paid to her (or her beneficiary) on the Delayed Distribution Date. Defined terms in this Section 9(c) shall have the same meaning as in Section 6(c) hereof. 10. Withholding. All payments required to be made by the Bank hereunder to the Executive shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Bank may reasonably determine should be withheld pursuant to any applicable law or regulation. 11. Successors and Assigns. ----------------------- (a) This Agreement shall inure to the benefit of and be binding upon any corporate or other successor of the Bank or Parent which shall acquire, directly or indirectly, by merger, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank or Parent. (b) The Bank shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Bank, expressly and unconditionally to assume and agree to perform the Bank's obligations under this Agreement, in the same manner and to the same extent that the Bank would be required to perform if no such succession or assignment had taken place. (c) Since the Bank is contracting for the unique and personal skills of the Executive, the Executive shall be precluded from assigning or delegating her rights or duties hereunder without first obtaining the written consent of the Bank. 6 12. Amendment; Waiver. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by the Executive and such officer or officers as may be specifically designated by the Board of Directors of the Bank to sign on its behalf. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 13. Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of New Jersey. 14. Nature of Obligations. Nothing contained herein shall create or require the Bank to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that the Executive acquires a right to receive benefits from the Bank hereunder, such right shall be no greater than the right of any unsecured general creditor of the Bank. 15. Headings. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 16. Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of the other provisions of this Agreement, which shall remain in full force and effect. 17. Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled exclusively by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association nearest to the home office of the Bank, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extent that the parties may otherwise reach a mutual settlement of such issue. The provisions of this Section 17 shall survive the expiration of this Agreement. 18. Confidential Information. The Executive acknowledges that during her employment she will learn and have access to confidential information regarding the Bank and the Parent and its customers and businesses ("Confidential Information"). The Executive agrees and covenants not to disclose or use for her own benefit, or the benefit of any other person or entity, any such Confidential Information, unless or until the Bank or the Parent consents to such disclosure or use or such information becomes common knowledge in the industry or is otherwise legally in the public domain. The Executive shall not knowingly disclose or reveal to any unauthorized person any Confidential Information relating to the Bank, the Parent, or any subsidiaries or affiliates, or to any of the businesses operated by them, and the Executive confirms that such information constitutes the exclusive property of the Bank and the Parent. The Executive shall not otherwise knowingly act or conduct herself (a) to the material detriment of the Bank or the Parent, or its subsidiaries or affiliates, or (b) in a manner which is inimical or contrary to the interests of the Bank or the Parent. Notwithstanding anything herein to the contrary, failure by the Executive to comply with the provisions of this Section may result in the immediate termination of the Agreement within the sole discretion of the Bank, disciplinary action against the Executive taken by the Bank, including but not limited to the termination of employment of the Executive for breach of the Agreement and the provisions of this Section, and other remedies that may be available in law or in equity. 7 19. Entire Agreement. This Agreement, together with any understanding no modifications thereof as agreed to in writing by the parties, shall constitute the entire agreement between the parties hereto. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first hereinabove written. AMERICAN BANK OF NEW JERSEY By: /s/ W. George Parker ------------------------------ W. George Parker Chairman ATTEST: /s/ Richard Bzdek - ---------------------------- Secretary /s/ Kathleen Walsh /s/ Catherine Bringuier - ---------------------------- ------------------------------ Witness Catherine Bringuier Executive 8 EX-10.1 12 exh101_080808.txt KOWAL - EXECUTIVE SALARY CONTINUATION AGREEMENT Exhibit 10.1 EXECUTIVE SALARY CONTINUATION AGREEMENT THIS AGREEMENT, made and entered into this 17th day of June, 2008, by and between American Bank of New Jersey, a savings bank organized and existing under the laws of the United States (hereinafter referred to as the "Bank"), and Fred G. Kowal, an Executive of the Bank (hereinafter referred to as the "Executive"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Executive has been and continues to be a valued Executive of the Bank, and is now serving the Bank; and WHEREAS, the Executive and the Bank have previously entered into an Executive Salary Continuation Agreement; and WHEREAS, since the execution of the original agreement, certain changes to Section 409A of the Internal Revenue Code of 1986, as amended (the "Code"), have been enacted; and WHEREAS, it is necessary to revise the original agreement to reflect these changes to the Code; ACCORDINGLY, it is the desire of the Bank and the Executive to enter into this agreement (sometimes referred to herein as the "Executive Plan") under which the Bank will agree to make certain payments to the Executive at retirement or the Executive's beneficiary(ies) in the event of the Executive's death pursuant to this agreement; FURTHERMORE, it is the intent of the parties hereto that this Executive Plan be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Executive, and be considered a non-qualified benefit plan for purposes of the Employee Retirement Security Act of 1974, as amended ("ERISA"). The Executive is fully advised of the Bank's financial status and has had substantial input in the design and operation of this benefit plan; and NOW, THEREFORE, in consideration of services to be performed in the future as well as of the mutual promises and covenants herein contained it is agreed as follows: I. EMPLOYMENT The Bank agrees to employ the Executive in such capacity as the Bank may from time to time determine. The Executive will continue in the employ of the Bank in such capacity and with such duties and responsibilities as may be assigned to him, and with such compensation as may be determined from time to time by the Board of Directors of the Bank. 1 II. FRINGE BENEFITS The salary continuation benefits provided by this agreement are granted by the Bank as a fringe benefit to the Executive and are not part of any salary reduction plan or an arrangement deferring a bonus or a salary increase. The Executive has no option to take any current payment or bonus in lieu of these salary continuation benefits except as set forth hereinafter. III. NORMAL RETIREMENT AGE Normal Retirement Age shall mean the date on which the Executive attains age sixty-five (65). IV. RETIREMENT BENEFIT Provided said retirement constitutes a Separation from Service (as that phrase is defined under Section 409A of the Code and the regulations and guidance of general applicability issued thereunder (referred to herein as "Section 409A")), the Bank, commencing with the first day of the month following the later of the date the Executive actually retires or the date the Executive attains his Normal Retirement Age, shall pay Executive an annual benefit equal to forty-five percent (45%) of the Executive's average base salary (with each year's base salary determined on an annualized basis, taking into account any base salary adjustments occurring during the applicable year) based upon the average of the highest three (3) out of the last five (5) years of employment (including the year in which the Separation from Service occurs). Said benefit shall be paid in equal monthly installments (1/12 of the annual benefit) until the death of the Executive. Notwithstanding the foregoing, if the Executive is, as of the date of his Separation from Service, a "Specified Employee" (as defined in Section 409A), then the retirement benefits described in this Section IV shall commence to be paid on the first day of the month that next follows the six-month anniversary of the date the Executive experiences a Separation from Service, or his death, if earlier, with the first payment including all monthly retirement benefits that would have been previously paid but for this sentence. V. DEATH OF THE EXECUTIVE In the event of the death of the Executive, this agreement shall terminate and, if applicable, the Executive's beneficiary(ies) shall be paid a death benefit under the terms of the Endorsement Method Split Dollar Agreement between the Executive and the Bank and not this agreement. VI. BENEFIT ACCOUNTING The Bank shall account for this benefit using GAAP accounting principles. The Bank shall establish an accrued liability retirement account for the Executive into which appropriate reserves shall be accrued. 2 VII. VESTING For purposes of Section VIII.A, the Executive's vested interest in the benefits that are the subject of this Agreement shall be determined by multiplying the number of the Executive's "Months of Service" by 1.667 percent (not to exceed 100 percent). For purposes of the preceding sentence, the Executive shall be credited with a "Month of Service" for each calendar month period (determined from the month the Executive commenced employment with the Bank and ending on the month during which a Separation of Service occurs) during which the Executive is continuously employed by the Bank. For all other purposes under the Plan, the Executive shall be 100 percent vested in the benefits provided herein. VIII. OTHER TERMINATION OF EMPLOYMENT AND DISABILITY A. Other Termination of Employment: ------------------------------- Subject to Subsection VIII.A(i) hereinbelow, in the event that the employment of the Executive shall terminate prior to Normal Retirement Age, as provided in Section III, for reasons other than "disability" (as defined in Section VIII.B) or Change of Control (as defined in Section IX), but including by the Executive's voluntary action or by the Executive's discharge by the Bank without cause, and such termination of employment constitutes a Separation of Service (as defined in Section IV), then this agreement shall terminate upon the date of such termination of employment and the Bank shall pay to the Executive as severance compensation an amount of money equal to the accrued balance of the Executive's liability reserve account multiplied by the Executive's vested percentage determined as of his Separation From Service (as defined in Section IV). This severance compensation shall be paid in a lump sum no later than 2 1/2 months following the date of the Executive's termination of employment. Notwithstanding the foregoing, if the Executive is as of the date of Separation from Service a "Specified Employee" (as herein defined), then payment under this Article VIII shall not be paid earlier than the 183rd day following the date the Executive incurs a Separation from Service, or his death, if earlier. (i) Discharge for Cause: In the event the Executive shall be discharged for cause at any time, all benefits provided herein shall be forfeited. The term "for cause" shall be as defined in the Executive's Employment Agreement between the Executive and the Bank in effect at the time of said termination. If a dispute arises as to discharge "for cause," such dispute shall be resolved by arbitration as set forth in this Executive Plan. B. Disability: ---------- In the event the Executive becomes disabled prior to his Separation from Service (as defined in Section IV), and the Executive's Separation from Service is on account of such disability, the Executive shall be entitled to receive one hundred percent (100%) of the Executive's 3 accrued liability balance at the time of Separation from Service for said disability. Except as otherwise provided herein, said accrued liability balance at termination shall be paid to the Executive in a lump sum no later than 2 1/2 months following the date of the Executive's Separation from Service. Disability shall be defined in the Executive's Employment Agreement in effect at the time of his Separation from Service or, if no Employment Agreement is then in effect, then as defined in the Bank's long term disability policy in effect at the time of said disability. If neither definition exists at the time of termination and there is a dispute regarding whether the Executive is disabled, such dispute shall be resolved by a physician selected by the Bank, a physician selected by the Executive, and a third physician selected by each of the other two (2) physicians. Such resolution shall be binding upon all parties to this agreement. Notwithstanding the foregoing, if the disability that gives rise to the Executive's Separation from Service does not cause the Executive to be "disabled" within the meaning of Section 409A, and if, as of the date of such Separation from Service, the Executive is a "Specified Employee" (as defined in Section 409A), then his disability benefits payable pursuant to this Section VIII.B shall commence to be paid on the first day of the month that next follows the six-month anniversary of the date the Executive incurs a Separation from Service, or his death, if earlier. IX. CHANGE OF CONTROL Change of Control shall be as defined in the Executive's Employment Agreement between the Executive and the Bank in effect at the time of said Change of Control. Upon a Change of Control, if the Executive subsequently suffers an involuntary termination of service, except for cause, and such termination of service constitutes a Separation from Service (as defined in Section IV), or, upon a voluntary termination of service within twelve (12) months after such Change of Control, if any of the following events, which have not been consented to in advance by the Executive in writing, occur: (i) if the Executive would be required to move his personal residence or perform his principal executive functions more than forty (40) miles from the Executive's primary office as of the signing of this agreement, or (ii) if the Bank should fail to maintain Executive's base compensation in effect as of the date of the Change of Control and the existing employee benefits plans, including material, fringe and retirement plans, then the Executive shall receive the benefits in Section IV herein upon attaining Normal Retirement Age (as defined in Section III), as if the Executive had been continuously employed by the Bank until the Executive's Normal Retirement Age. Notwithstanding the foregoing, all sums payable hereunder shall be reduced in such manner and to such extent so that no such payments made hereunder, when aggregated with all other payments to be made to the Executive by the Bank, shall be deemed an "excess parachute payment" in accordance with Section 280G of the code and be subject to the excise tax provided at Section 4999(a) of the Code. Notwithstanding the above, if the Executive is as of the date of his Separation from Service a "Specified Employee" (as herein defined), then payment under this Article IX shall not be paid earlier than the 183rd day 4 following the date the Executive incurs a Separation from Service, or his death, if earlier, with any payments not made on account of this sentence being paid with the Executive's first payment. X. RESTRICTIONS ON FUNDING The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Executive Plan. The Executive, his beneficiary(ies), or any successor in interest shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation. The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by this Executive Plan or to refrain from funding the same and to determine the extent, nature and method of such funding. Should the Bank elect to fund this Executive Plan, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall the Executive be deemed to have any lien, right, title or interest in any specific funding investment or assets of the Bank. No manner of funding shall be permitted that would violate Section 409A. If the Bank elects to invest in a life insurance, disability or annuity policy on the life of the Executive, then the Executive shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance or annuities. XI. MISCELLANEOUS A. Alienability and Assignment Prohibition: --------------------------------------- Neither the Executive, nor the Executive's surviving spouse, nor any other beneficiary(ies) under this Executive Plan shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Executive or the Executive's beneficiary(ies), nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the Executive or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease and terminate. B. Binding Obligation of the Bank and any Successor in Interest: ------------------------------------------------------------ The Bank shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agrees, in writing, to assume and discharge the duties and obligations of the Bank under this 5 Executive Plan. This Executive Plan shall be binding upon the parties hereto, their successors, beneficiaries, heirs and personal representatives. C. Amendment or Revocation: ----------------------- It is agreed by and between the parties hereto that, during the lifetime of the Executive, this Executive Plan may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Executive and the Bank. No amendment shall be permitted that would violate, or cause this agreement to violate, Section 409A. D. Gender: ------ Whenever in this Executive Plan words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. E. Effect on Other Bank Benefit Plans: ---------------------------------- Nothing contained in this Executive Plan shall affect the right of the Executive to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank's existing or future compensation structure. F. Headings: -------- Headings and subheadings in this Executive Plan are inserted for reference and convenience only and shall not be deemed a part of this Executive Plan. G. Applicable Law: -------------- The validity and interpretation of this agreement shall be governed by the laws of the State of New Jersey. H. 12 U.S.C. ss.1828(k): -------------------- Any payments made to the Executive pursuant to this Executive Plan, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. ss.1828(k) or any regulations promulgated thereunder. I. Partial Invalidity: ------------------ If any term, provision, covenant, or condition of this Executive Plan is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant or condition invalid, void, or unenforceable, and the Executive Plan shall remain in full force and effect notwithstanding such partial invalidity. 6 J. Not a Contract of Employment: ---------------------------- This agreement shall not be deemed to constitute a contract of employment between the parties hereto, nor shall any provision hereof restrict the right of the Bank to discharge the Executive, or restrict the right of the Executive to terminate employment. K. Effective Date: -------------- The Effective Date of this agreement shall be the date first above written. XII. ERISA PROVISION A. Named Fiduciary and Plan Administrator: -------------------------------------- The "Named Fiduciary and Plan Administrator" of this Executive Plan shall be American Bank of New Jersey. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Executive Plan. The Named Fiduciary may delegate to others certain aspects of the management and operational responsibilities of the Executive Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals. B. Claims Procedure and Arbitration: -------------------------------- In the event a dispute arises over benefits under this Executive Plan and benefits are not paid to the Executive (or to the Executive's beneficiary(ies) in the case of the Executive's death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Named Fiduciary and Plan Administrator named above within sixty (60) days from the date payments are refused. The Named Fiduciary and Plan Administrator shall review the written claim and if the claim is denied, in whole or in part, it shall provide in writing within sixty (60) days of receipt of such claim the specific reasons for such denial, reference to the provisions of this Executive Plan upon which the denial is based and any additional material or information necessary to perfect the claim. Such written notice shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desired. A claim shall be deemed denied if the Named Fiduciary and Plan Administrator fail to take any action within the aforesaid sixty-day period. If claimants desire a second review they shall notify the Named Fiduciary and Plan Administrator in writing within sixty (60) days of the first claim denial. Claimants may review this Executive Plan or any documents relating thereto and submit any written issues and comments they may feel appropriate. In their sole discretion, the Named Fiduciary and Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the 7 decision and shall include reference to specific provisions of this agreement upon which the decision is based. Any controversy or claim arising out of or relating to this Executive Plan, or breach thereof, shall be settled exclusively by arbitration in accordance with the rules then in effect of the district office of the American Arbitration Association ("AAA") nearest to the home office of the Bank, and judgment upon the award rendered may be entered in any court having jurisdiction thereof, except to the extent that the parties may otherwise reach a mutual settlement of such issue. The provisions of this Paragraph shall survive the expiration of this Executive Plan. Where a dispute arises as to the Bank's discharge of the Executive "for cause," such dispute shall likewise be submitted to arbitration as above described and the parties hereto agree to be bound by the decision thereunder. XIII. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS Notwithstanding anything herein above to the contrary, the Bank is entering into this Executive Plan upon the assumption that certain existing tax laws, rules and regulations will continue in effect in their current form. If any said assumptions should change and said change has a detrimental effect on this Executive Plan, then the Bank reserves the right to terminate or modify this Executive Plan accordingly. Furthermore, the Board has the right to terminate or modify future accruals if so determined within the Board's business judgment whether or not this Executive Plan has a detrimental effect on the Bank. Upon any said modification or termination of the Executive Plan, any benefits accrued to the Executive's liability retirement account on the date of said modification or termination shall be paid to the Executive in a lump sum, subject to the provisions below. Upon a Change of Control (Section IX), this paragraph shall become null and void effective immediately upon said Change of Control. Notwithstanding the foregoing, no amendment shall be made to this Executive Plan that would violate, or cause the agreement to violate, Section 409A. Further notwithstanding the foregoing, the agreement may not be terminated unless all of the requirements of Section 409A regarding plan terminations are satisfied. Accordingly, unless Section 409A permits otherwise, this agreement may be terminated only if (a) all arrangements sponsored by the Bank and any affiliated entity (within the meaning of Section 414(b) and 414(c)) that are required to be aggregated with this agreement under Section 409A are terminated; (b) no payments other than payments that would be payable under the terms of the Executive Plan or an aggregated plan if the termination had not occurred are made within 12 months of the termination of the arrangements; (c) all payments are made within 24 months of the termination of the Executive Plan and related arrangements; and (d) the Bank does not adopt a new arrangement that would be required to be aggregated with this Executive Plan under Section 409A if the Executive participated in both arrangements, within three years of the termination of the agreement. 8 XIV. CONFIDENTIAL INFORMATION The Executive acknowledges that during his employment he or she will learn and have access to confidential information regarding the Bank or any affiliate and its customers and businesses ("Confidential Information"). The Executive agrees and covenants not to disclose or use for his own benefit, or the benefit of any other person or entity, any such Confidential Information, unless or until the Bank or any affiliate consents to such disclosure or use or such information becomes common knowledge in the industry or is otherwise legally in the public domain. The Executive shall not knowingly disclose or reveal to any unauthorized person any Confidential Information relating to the Bank or any affiliates, or to any of the businesses operated by them, and the Executive confirms that such information constitutes the exclusive property of the Bank or any affiliate. The Executive shall not otherwise knowingly act or conduct himself (a) to the material detriment of the Bank or its affiliates, or (b) in a manner which is inimical or contrary to the interests of the Bank or any affiliate. Notwithstanding anything herein to the contrary, failure by the Executive to comply with the provisions of this Section may result in the immediate termination of the Executive Plan within the sole discretion of the Bank, disciplinary action against the Executive taken by the Bank and other remedies that may be available in law or in equity. In witness whereof, the parties hereto acknowledge that each has carefully read this Executive Plan and executed the original thereof on the first day set forth hereinabove, and that, upon execution, each has received a conforming copy. [CONTINUED ON NEXT PAGE] 9 AMERICAN BANK OF NEW JERSEY Bloomfield, New Jersey /s/Kathleen Walsh By: /s/ W. George Parker - ------------------------------------ -------------------- Witness Title: Chairman /s/Kathleen Walsh /s/ Fred G. Kowal - ------------------------------------ -------------------- Witness Fred G. Kowal EX-32 13 exh32_080808.txt CERTIFICATION OF CEO AND CFO Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. ss.1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of American Bancorp of New Jersey, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2008 (the "Report") as filed with the Securities and Exchange Commission on the date hereof, we Joseph Kliminski, Chief Executive Officer, and Eric Heyer, Senior Vice President and Chief Financial Officer, certify pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13 (a) of the Securities Exchange Act of 1934; and 2. The information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statements included in such report. Dated: August 11, 2008 /s/ Joseph Kliminski ---------------------------------------- Joseph Kliminski Chief Executive Officer Dated: August 11, 2008 /s/ Eric B. Heyer --------------------------------------- Eric B. Heyer Senior Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----