A New Jersey State-Chartered Bank (In Organization)

Transcription

1 OFFERING CIRCULAR A New Jersey State-Chartered Bank (In Organization) 1,600,000 to 2,000,000 shares of common stock, par value $2.00 per share (Subject to increase to 2,400,000 shares) Offering Price: $10.00 Per Share New Jersey Community Bank (In Organization)(the Bank ) is in the process of being organized as a commercial bank under New Jersey law. The Bank has received the approval of its charter application from the New Jersey Department of Banking and Insurance ( NJDOBI ) and the approval of its deposit insurance application from the Federal Deposit Insurance Corporation ( FDIC ). The Bank is offering to the public up to a maximum of 2,000,000 shares of our common stock, par value $2.00 per share (subject to increase to 2,400,000 shares to cover over-allotments, if any), at an offering price of $10.00 per share. Prior to this offering, there has been no public market for our common stock. In order to complete this offering, the Bank must satisfy certain conditions, including selling a minimum of 1,600,000 shares, receiving a certificate of authority to do business from the NJDOBI, and receiving insurance of our deposit accounts from the FDIC. See Business General Information and Conditions for Opening. In connection with the offering, the Bank s officers and directors will solicit subscriptions for at least 800,000 shares of common stock. Of these shares, the Bank s officers and directors personally intend to subscribe for at least 284,840 shares. Subscription funds solicited by the Bank s officers and directors will he held in an escrow account at Atlantic Central Bankers Bank, as escrow agent, until the completion of the offering. The Bank has authorized Stifel, Nicolaus & Company, Incorporated ( Stifel Nicolaus ), as selling agent, to commence solicitation, on a best efforts basis, of offers to purchase shares of common stock, once subscription funds of at least $8 million are in the escrow account. Except in limited circumstances, the Bank will be required to pay a placement fee of 7.0% on sales made by Stifel Nicolaus or any other broker-dealers participating with Stifel Nicolaus as members of a selling group (the Selling Group ) formed by Stifel Nicolaus. See Plan of Distribution Investment in the common stock involves substantial risks. See Risk Factors on page 7. Offering Price Underwriting Commissions(1) Proceeds to the Bank(2) Total Minimum Offering... $16,000,000 $560,000 $15,440,000 Total Maximum Offering... $20,000,000 $840,000 $19,160,000 (1) Assumes that the Bank s officers and directors will sell 800,000 shares, upon which no placement fee will be paid, and that the remaining shares will be sold to the general public through Stifel Nicolaus, upon which a placement fee of 7.0% will be paid. See Plan of Distribution. (2) The estimated organizational and other offering expenses of approximately $657,000 will be paid out of these proceeds. The Bank has granted Stifel Nicolaus a 30-day option to purchase up to an additional 400,000 shares of common stock, on the same terms set forth above, to cover over-allotments, if any. See Plan of Distribution. These securities are not deposits or other obligations of a bank. These securities are not insured by the FDIC or any other agency and are subject to investment risk, including the possible loss of principal. These securities have not been approved or disapproved by the Securities and Exchange Commission, the New Jersey Department of Banking and Insurance, or the FDIC, nor has any of these agencies passed on the adequacy or accuracy of this offering circular. Any representation to the contrary is unlawful. Stifel Nicolaus The date of this offering circular is November 19, 2007

2 (In Organization) Hunterdon Union Somerset Trenton Mercer Middlesex Monmouth Burlington Ocean Proposed Headquarters and Full Service Branch 3441 U.S. Highway 9 Freehold, NJ 07728

3 SUMMARY The following is a brief summary of certain information contained elsewhere in this offering circular. You should carefully read this offering circular in its entirety, including the section entitled Risk Factors appearing in this offering circular, before you decide to invest in our common stock. Except as otherwise noted, all information contained in this offering circular assumes no exercise of Stifel Nicolaus over-allotment option. In this offering circular, the terms the Bank, us, we and our refer to New Jersey Community Bank (In Organization). The Bank New Jersey Community Bank will be a New Jersey-chartered commercial bank having its principal office located in the Township of Freehold in Monmouth County, New Jersey. The Bank will engage in the general banking business in central New Jersey. We are in the process of organizing the Bank pursuant to the New Jersey Banking Act of We have received approval of our charter application filed with the New Jersey Department of Banking and Insurance, and approval of our application for deposit insurance filed with the Federal Deposit Insurance Corporation. Both of these approvals are subject to certain conditions, including selling at least $16 million of common stock in this offering. See Supervision and Regulation -- Charter and Deposit Insurance Approvals. Initially, the Bank will focus on the small and mid-size businesses located in the Freehold, New Jersey area, which we believe are underserved by existing commercial banks in the area. We will also strive to appeal to those retail customers who prefer highly personal one-on-one service at their bank branch. We believe that having our senior management located in our main branch gives us a competitive advantage over other banks in our market. There are presently three commercial banks headquartered in Monmouth County, none of which are headquartered in or have significant market presence within the Freehold area. Of the two savings banks located in Monmouth County, only one is headquartered in the Freehold area. We believe that the branches of our commercial bank competitors located in the Freehold area are staffed mostly by branch managers and loan officers. Having access to senior management at the branch is appealing to potential customers, and provides a customer benefit that is difficult for our competitors to offer. In addition, our senior management and board of directors live and work in our market area, which provides them with knowledge of and relationships in the market that are beneficial to the Bank. The Bank has raised $2.3 million of at-risk funding from its 11 directors. These funds will be used to pay for the Bank s organizational expenses, which are estimated to be $657,000. In addition, the Bank will use these at-risk funds to pay for capital expenditures incurred in acquiring, renovating and equipping its main branch and administrative facility for banking operations. These fixed asset expenditures will be assets on its balance sheet when the Bank opens for business. The Bank will commence operations with a minimum of $16 million and a maximum of $20 million of capital and surplus (subject to increase to $24 million to cover over-allotments, if any) that will be derived from the proceeds of the initial common stock subscription. The Bank has engaged Stifel Nicolaus as financial advisor and selling agent in the offering on a best efforts basis. Stifel Nicolaus has agreed to commence its efforts as soon as subscriptions for 800,000 shares have been received by the Bank. We anticipate that Stifel Nicolaus will sell between 800,000 and 1,200,000 shares in the offering. Accordingly, the Bank anticipates selling between 1,600,000 and 2,000,000 shares of common stock at a price of $10.00 per share. The Bank has granted Stifel Nicolaus a 30-day option to purchase up to an 1

4 additional 400,000 shares of common stock, on the same terms set forth above, to cover over-allotments, if any. Business Plan Due to the relationships of the Bank s directors with the members of the business community in central New Jersey, and the technological capabilities of today s banking systems, the Bank will have the ability to obtain and serve clients throughout central New Jersey. However, the Bank expects that initially the majority of its customers will be located in Monmouth County. The Bank intends to offer a full range of business banking and related financial services focused primarily towards serving small to medium size businesses and the professional community. The Bank will use funds deposited at the Bank to originate loans to business and retail customers. The Bank will serve the banking needs of its customers through highly professional, personalized product and service delivery methods. The Bank s directors believe that the marketing and delivery of friendly, personalized banking services will enable the Bank to develop meaningful long term customer relationships. The Bank intends to competitively price products to grow its balance sheet, while striving to limit interest rate risk, and to strategically open branches during its first five years of operation. The Bank will attempt to differentiate itself from its competitors by: having a management team with significant experience and retail and commercial relationships in central New Jersey; having a Board of Directors comprised of members with substantial business relationships in the local community who are dedicated to bringing new business to the Bank; allowing customers to have open access to the Bank s decision makers in our main office; and surrounding our management team with a motivated team of experienced banking professionals dedicated to providing customers with the best banking experience available. The Bank s commercial banking operations will focus on small to medium sized businesses. Retail banking will focus on the individual consumer and initially will pay particular attention to those who live or work in Freehold, New Jersey. The Bank will employ advanced accounting and management software, a sophisticated business and consumer Internet platform incorporating full service banking systems, automated bill payment, an on-line teller platform, and ATM network availability. The Bank plans to grow by establishing new branches, and by acquiring branches from other institutions if available. The Bank does plan to open an additional branch during its first year of operations. We are currently evaluating several potential locations for this branch. The Bank also may expand its operations through the acquisition of other community-based financial institutions. As of the date of this Offering Circular, no specific acquisition is planned. 2

5 Directors and Officers Robert D. O Donnell will serve as Chairman of the Board and Chief Executive Officer of the Bank. Mr. O Donnell was the President and Chief Executive Officer for Community Bank of New Jersey from May 1998 until July 2004, when it was acquired by Sun National Bank. Prior to Community Bank of New Jersey, Mr. O Donnell served for 14 years as executive vice president and senior loan officer at Amboy National Bank headquartered in Old Bridge, New Jersey. James A. Kinghorn will serve as President and Chief Operating Officer of the Bank. Mr. Kinghorn has served the central New Jersey banking market for 34 years. Most recently, he served as Senior Vice President/Regional Manager of the Eastern Region Banking Group for Sun National Bank from July 2004 to October From January 2000 until July 2004, he served as Executive Vice President/Senior Loan Officer and Director of Community Bank of New Jersey. From 1995 to 1999, he served as Senior Vice President and Senior Loan Officer at Tinton Falls State Bank, which was acquired by Commerce Bank. Both Mr. O Donnell and Mr. Kinghorn are currently rendering services to the Bank in organization pursuant to consulting agreements and without compensation. Mr. O Donnell will not receive any compensation from the Bank until the Bank opens for business, but Mr. Kinghorn will begin to receive consulting fees of $15,400 per month as of January 1, Prior to commencing operations, the Bank intends to hire a chief financial officer and a chief lending officer. The candidates for chief lending officer all have established customer relationships and a community banking background, which will facilitate loan generation. See Management Employment and Executive Compensation Arrangements. The Bank will initially have 11 members on its Board of Directors with each member responsible for originating and maintaining a level of business to the Bank. Collectively, the Board of Directors will be responsible for setting the strategic direction of the Bank as well as promoting the Bank s image within the community. The following individuals will serve as the initial Board of Directors of the Bank: Robert D. O Donnell James A. Kinghorn Edward M. Brock Kenneth W. Faistl Fredric C. Fray Andrew C. Harris Steven A. Kaye Shelly I. LoCascio Brendan P. O Donnell Rogan M. O Donnell Kenneth L. Pape For a description of the business experience and ages of these individuals, please see Management. 3

6 Location and Market Area The Bank s principal office and corporate headquarters will be in a full-service banking facility located at 3441 U.S. Highway 9, Freehold, New Jersey. U.S. Highway 9, otherwise known as Route 9, is a major road in Freehold, New Jersey. Commercial development in Freehold is concentrated along Route 9, with commercial strip shopping centers to the north and south of the site. The surrounding area is mixed between commercial and residential uses. We believe that the site is visible and accessible to motorists traveling in either direction on Route 9. Certain directors of the Bank own the land on which the Bank s facility is located, and have entered into a ground lease with the Bank for the land. See Management Transactions with Related Persons. The Bank purchased the building at this site from these directors, and is renovating it. The renovations will include the addition of a second floor. The Bank plans to open for business in this facility in January Our facility will house the management and administrative staff of the Bank, as well as the branch operations staff. This facility is intended to contain: Three teller locations and three CSR/teller locations Drive-up ATM Night depository box Over 200 Safe Deposit Boxes Vault Security system Drive-thru lanes The primary deposit market for the Bank consists of a five-minute drive time around the proposed site. We believe that the drive time approach offers the best approximation of the core market area for a new branch in this type of market. The primary deposit market for the proposed branch location falls almost entirely within the Freehold, New Jersey zip code (07728), which had deposits of approximately $2.0 billion as of June 30, The primary loan market for the Bank will consist of Monmouth County, New Jersey. The population of and households in the Bank s primary market area are projected to grow by approximately 7% from 2005 to 2010 as compared to the projected growth trends of Monmouth County of approximately 4%. The demographics of the Bank s primary market area are attractive to the Bank due to the combination of affluence and high level of both commercial density and population density. The Bank s primary market area and economy are comprised of a diverse mix of health services, government, miscellaneous retail and construction companies. The Bank s address is 3441 U.S. Highway 9, Freehold, New Jersey The telephone number for the Bank is (732)

7 The Offering Securities Offered for Sale... A minimum of 1,600,000 and a maximum of 2,000,000 shares of common stock. These amounts do not include up to 400,000 shares of common stock that may be purchased by Stifel Nicolaus from the Bank to cover over-allotments, if any. They also do not include 229,520 shares of common stock reserved for future issuance upon the exercise of warrants to be granted to the directors of the Bank upon the successful completion of this offering. These warrants are being granted in consideration for the at-risk capital advanced by the directors to pay certain of the Bank s organizational expenses. In addition to the shares that will be purchased in the offering with this at-risk capital, certain directors intend to purchase additional shares in the offering. See Proposed Security Ownership of Management. Offering Price... Delivery of Shares.. Market for the Securities..... Dividend Policy... Use of Proceeds... $10.00 per share. Assuming we receive subscriptions for the minimum number of shares of common stock in the offering, we will send the subscribers certificates representing the shares of common stock that they purchased as soon as practicable after completion of the offering. If you arrange for delivery of and payment for your shares of common stock through The Depository Trust Company (known as DTC), DTC will credit the appropriate account for the shares that you purchase. There is no public market for our common stock. Although the shares of common stock will be freely transferable immediately upon issuance, the development of a liquid public market depends on the existence of willing buyers and sellers, the presence of which is not within our control. Stifel Nicolaus has agreed to use its best efforts to maintain a market in the common stock and, if necessary, solicit other broker dealers to make a market in the common stock after the completion of the offering. Stifel Nicolaus will also use its best efforts to cause the common stock to be quoted on the OTC Bulletin Board, which is not a stock exchange. There can be no assurance that an active and liquid trading market will develop for the common stock in the future. See Market for Our Securities. We do not intend to pay cash dividends to our stockholders now or in the foreseeable future. The Bank does intend to declare stock dividends. The amount and frequency of these stock dividends have not been determined. See Dividend Policy. The Bank will use the gross proceeds of this offering to pay the organizational and pre-opening expenses of the Bank, and the expenses associated with the offering and for working capital and general business purposes to expand the business of the Bank, including the establishment of additional branches. See Use of Proceeds. 5

8 Escrow of Subscription Funds Method of Subscription.. Conditions to Closing... Risk Factors... All subscription funds solicited by the Bank s officers and directors, and certain subscriptions solicited by Stifel Nicolaus will be held in escrow accounts at Atlantic Central Bankers Bank, as escrow agent, until the completion of this offering. If less than 1,600,000 shares of common stock (including shares purchased by the Bank s officers and directors) are subscribed for by the expiration date of this offering, no shares will be issued and all of the subscription amounts held in escrow (with interest accrued at a market rate) will be returned promptly to subscribers. Subscriptions solicited by Stifel Nicolaus from its existing customers will be funded at the closing of the offering. Subscriptions for shares of common stock sold by the Bank s officers and directors may be made by completing and signing a Subscription Agreement, and mailing or delivering the Subscription Agreement to the Bank in the pre-addressed envelope provided, together with payment in full for the total purchase price of the shares of common stock according to the instructions set forth in the Subscription Agreement. Subscriptions solicited by Stifel Nicolaus should be made by following the instructions provided by a Stifel Nicolaus representative. The Bank reserves the right to reject any subscriptions, in whole or in part, for any reason, in our sole discretion. See Offering and Method of Subscription. The offering will not close and the shares of common stock will not be issued until the Bank has satisfied the following conditions: subscriptions for 1,600,000 shares of common stock have been received by the Bank; a certificate of authority to commence business from the New Jersey Department of Banking and Insurance has been received by the Bank; and a certificate evidencing the insurance of the Bank s deposit accounts by the FDIC has been received by the Bank. For more information, see Supervision and Regulation - Charter and Deposit Insurance Approvals. Investment in the common stock involves substantial risk. See Risk Factors. 6

9 RISK FACTORS You should review and consider the following risk factors, in addition to your individual investment objectives, before deciding whether to purchase the common stock. Any of the risks described below could result in a significant or material adverse effect on our results of operations or financial condition, and a corresponding decline in the market price of our common stock and the value of your investment. Risks Related to Our Business The Bank has no prior operating history. The Bank has no prior operating history for investors to consider in evaluating its business and prospects, and will not be formed until all regulatory approvals have been obtained. The Bank s proposed operations are subject to the risks inherent in the establishment of a new business, such as lack of initial profitability, lack of an established customer base, greater than usual sensitivity to adverse economic conditions, and the potential inability to raise new capital if needed. Upon commencement of operations, there can be no assurance that the Bank will generate sufficient revenue to operate profitably. Typically, most new banks initially are not profitable, and if they attain profitability, it occurs only after one or more unprofitable years. The Bank will incur losses during its start up period. The Bank expects to operate at a loss during its initial years of operation. The Bank may never generate sufficient revenues to operate profitably. If it does not, investors in this offering will likely lose some or all of their investment. The realization of a profit by the Bank will depend upon, among other things, the skillful execution of the Bank s business plan by the officers of the Bank as well as external factors, including national and local economic conditions, monetary and fiscal policies of the Federal government, and legislative and regulator developments, any of which may adversely affect the banking industry and the operations of the Bank. If the Bank is not able to invest a significant percentage of assets in loans, the Bank s results of operations may be adversely affected. Initially, the Bank s assets will be primarily invested in federal funds sold and investment securities, as our lenders seek to originate loans. Federal funds sold and investment securities are lower yielding investments as compared to loans. The difference or spread between the interest earned on these investments and interest paid by the Bank on deposits generally will be insufficient to cover all of the Bank s operating expenses. The Bank s ability to generate sufficient revenue to cover its operating expenses and thereby generate net income, and the extent of that net income, depends in large part on the extent that the Bank can deploy its assets into loans as opposed to investment securities. Our business plan contemplates that 10% to 20% of our loan portfolio will consist of construction loans, including loans to fund commercial construction or residential development in our market area, loans to developers for the construction of single family homes and loans to fund the acquisition of land for residential and commercial development. Therefore, the recent slow down in the housing industry may adversely affect our ability to generate these loans, which could adversely affect our results of operations. 7

10 If we are unable to generate net income in amounts similar to our peers, the value of our common stock may decrease significantly, and you could lose the entire amount of your investment in our common stock. An inability to generate core deposits will adversely affect our operations. Like most small commercial banks, we will attempt to rely on core deposits to fund our investments in loans and investment securities. However, in our competitive market, we may be unable to generate sufficient core deposits. If so, we will have to rely on other sources of funds such as wholesale deposits solicited through outside services, deposits solicited through brokers and borrowed funds in order to fund our loan growth. The higher rates we would pay on these deposits and borrowings would increase our interest expense and thereby reduce our net interest income. Core deposits are also indicative of a stable customer base to whom the Bank can market its products, and thereby increase the franchise value of the Bank. Therefore, the failure to generate core deposits will have an adverse effect on the results of operations of the Bank. The Bank will depend upon its chairman and president who must assemble a management team and a full staff of support personnel; the loss of our chairman or president or the failure to hire a quality management team could adversely affect us. The Bank s success will depend in part upon the continued service of Robert D. O Donnell, the Bank s Chairman of the Board and Chief Executive Officer, and James A. Kinghorn, the Bank s President and Chief Operating Officer. The Bank s success also will depend in part upon its ability to attract and retain additional highly qualified personnel. Competition to attract highly qualified employees is intense. Once hired, these employees may voluntarily terminate their employment at any time. The inability to attract experienced lenders and additional highly qualified personnel, and once hired, the loss of the services of such key personnel, could have a material adverse effect upon the Bank s business, operating results, and financial condition. See Directors and Executive Officers. Management could effectively control certain situations that may be viewed as contrary to your interests. The extent of control over the Bank by its Board of Directors and executive officers is related to the following factors: The Board of Directors and executive officers of the Bank expect to subscribe for approximately 284,840 shares of the common stock to be issued in the offering, which will represent 17.8% of the Bank s total shares outstanding if the minimum amount of shares are sold, and 14.2% of the total shares outstanding if the maximum amount of shares are sold. Warrants to purchase 229,520 shares of Bank common stock will be granted to the directors of the Bank upon the successful completion of this offering in consideration for the at-risk capital advanced by the directors to pay certain of the Bank s pre-organization expenses. In addition, following the offering, and subject to stockholder approval, the Bank intends to implement a stock option plan pursuant to which the Bank may issue, to directors, officers and key employees of the Bank, options to purchase up to 15% of the number of shares issued in the offering (240,000 shares at the minimum offering and 300,000 shares at the maximum). See Management Stock Option Plan. 8

11 As a result of these factors, the Board of Directors and executive officers of the Bank could acquire, directly or indirectly, a substantial equity interest in the Bank. If the directors and executive officers were to act together as a group, they could have significant influence over the outcome of the election of directors and any other stockholder vote. Therefore, the directors and executive officers might have the power to take actions that non-affiliated investors may deem to be contrary to their best interests. Furthermore, Robert D. O Donnell, the Chairman of the Board and Chief Executive Officer of the Bank, and his two sons, Brendan P. O Donnell and Rogan M. O Donnell, will serve on the Bank s Board of Directors. The O Donnell s expect to subscribe for 155,281 shares of the common stock to be issued in the offering, which will represent 54.5% of the total shares being purchased by the Bank s Board of Directors, or 9.7% of the total shares outstanding if the minimum amount of shares are sold (7.8% if the maximum amount of shares are sold). In addition, upon the completion of the offering they will receive warrants to purchase an additional 150,660 shares (at $10.00 per share) in consideration for the $1.5 million of at-risk capital contributed by them to the Bank s pre-opening expense fund. Further, if the Bank s proposed stock option plan is approved by the Bank s stockholders, Robert D. O Donnell will be granted options to purchase 100,000 shares of the Bank s common stock. If all of the O Donnell s were to act together as a group, they could have an effect on the outcome of the election of directors and any other stockholder vote. In addition, they will have three of the 11 total Boards seats, and if they act together as a group, they could have an effect on the decisions made by the Board of Directors. The Bank will be subject to lending risks, including those caused by our planned focus on commercial and construction loans, and these risks may reduce the Bank s net income and adversely impact its ability to fund its growth strategy. The risk of non-payment of loans is inherent in the banking industry, and such non-payment or delayed or deferred payment, if it occurs, may have a material adverse effect on the Bank s earnings and overall financial condition as well as on the value of the common stock. The Bank s marketing focus on small- to mid-sized businesses may result in the assumption by the Bank of lending risks that are different from and greater than those assumed in making loans to larger businesses. In addition, we anticipate that a substantial portion of our loan portfolio will consist of commercial business, commercial real estate and construction loans, including loans to fund commercial construction or residential development in our market area, loans to developers for the construction of single family homes and loans to fund the acquisition of land for residential and commercial development. Generally, these types of loans involve a higher degree of risk compared to first mortgage loans on one- to four-family, owner-occupied residential properties and home equity lines of credit. This increased credit risk is a result of several factors, including the concentration of principal in a more limited number of loans and borrowers, the mobility of the collateral in the case of commercial business loans, the effects of general economic conditions on businesses and the increased difficulty in evaluating and monitoring these types of loans. In addition, unlike residential mortgage loans, which generally are made on the basis of the borrower s ability to make repayment from his or her employment and other income, commercial loans typically are made on the basis of the borrower s ability to make repayment from the cash flow of the business or property. As a result, the availability of funds for the repayment of commercial loans may be substantially dependent on the success of the business itself and the local economic environment. In addition, commercial loans are typically secured by commercial real estate, which is generally more difficult to resell than one-to-four family residential real estate. The increased risks of construction lending include the potential for cost overruns because of the inherent difficulties in estimating construction costs, and the difficulties and costs associated with monitoring the construction progress. Furthermore, the demand for construction loans and the ability of 9

12 construction loan borrowers to service their debt depends on the state of the economy, including market interest rate levels. Management will attempt to limit the Bank s credit risk exposure by developing appropriate underwriting criteria, and through monitoring procedures with respect to existing loan portfolios, but such procedures may not be effective to limit loan losses. Loan losses can cause insolvency and failure of a financial institution and, in such an event, our stockholders could lose their entire investment. Through periodic evaluation of the quality and size of its loan portfolio, the Bank will establish an allowance for loan losses through charges against earnings. This allowance will be based upon, among other things, historical experience, evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. Based upon such factors, we will make various assumptions and judgments about the ultimate collectability of the loan portfolio and will provide an allowance for loan losses based upon a percentage of the outstanding balances and for specific loans when their collectability is considered questionable. If our assumptions and judgments prove to be incorrect and the allowance for loan losses is insufficient to cover losses, or if the bank regulatory authorities require us to increase the allowance for loan losses as a part of their examination process, the Bank's results of operations and financial condition could be significantly and adversely affected. The charges against earnings used to establish the Bank s allowance for loan losses, which are known as provisions for loan losses, also could materially and adversely affect our results of operations. Our planned emphasis on and investment in commercial real estate, commercial business and construction lending and the risks inherent in such loans may cause us to increase our provision for loan losses, which would decrease our net income. Further, any loan losses will reduce the allowance for loan losses. A reduction in the allowance for loan losses will be restored by an increase in our provision for loan losses. This will cause our earnings to be reduced and reduced earnings may have an adverse effect on the market price of the common stock. The Bank s legal lending limits will be relatively low and will restrict the Bank s ability to compete for larger customers. The amount that the Bank can legally lend to each borrower generally will be 15% of its capital (which initially will equal approximately $2.2 million if the minimum amount of capital is raised and approximately $2.8 million if the maximum amount of capital is raised). Accordingly, the size of loans that the Bank can offer to potential borrowers will be less than the size of loans that many of our competitors are able to offer. The Bank will engage in loan participations with other banks for loans in excess of its legal lending limits. However, there can be no assurance that such participations will be available at all or on terms which are favorable to us and our customers. In the future, we may need to issue additional shares of common stock to raise additional capital. If we are able to sell such shares, they may be issued at a price that is materially less than the then-current market price of the stock or that dilutes the book value of shares outstanding at that time. We anticipate that the Bank s existing capital resources, including the net proceeds of the sale of the common stock offered hereby, will adequately satisfy the capital requirements of the Bank through at least three years of operations. Future capital requirements, however, depend on many factors, including how quickly the Bank grows, the number of branches the Bank has, the Bank s decisions regarding the provision of additional services, and the Bank s regulatory capital requirements. To the extent that the funds generated by the offering are insufficient to fund future operating and regulatory capital 10

13 requirements, it may be necessary to raise additional funds through public or private financing. Any equity financing, if available at all, may be on terms which are not favorable to the Bank and could result in a material reduction of the then-current market price of the common stock or dilution to the percentage ownership interests of the Bank s then-existing stockholders. If adequate capital is not available, the Bank will be subject to limits on its ability to grow and, in some circumstances, increased levels of regulatory supervision. There are 229,520 shares of common stock reserved for future issuance upon the exercise of warrants to be granted to the directors of the Bank upon the successful completion of this offering. These warrants are being granted in consideration for the at-risk capital advanced by the directors to pay certain of the Bank s pre-organization expenses. These warrants have an exercise price of $10.00 per share. Any issuance of common stock upon exercise of these warrants will dilute the percentage ownership interest of the Bank s stockholders and may dilute the book value of the common stock. The Board of Directors of the Bank plans to adopt a stock option plan, subject to the approval by the stockholders of the Bank at the first annual meeting or a special meeting thereof, and the approval of the New Jersey Department of Banking and Insurance. If these approvals are received, shares of common stock in an amount equal to 15% of the number of shares issued in this offering will be reserved for future issuance upon the exercise of stock options to be granted to the officers and directors of the Bank under this plan. These options will be granted at an exercise price equal to the fair market value of the common stock on the date of grant. Upon exercise of these options, any issuance of common stock from authorized but unissued shares will dilute the percentage ownership interest of the Bank s stockholders and may dilute the book value of the common stock. We face substantial competition for customers, and many of our competitors have much greater resources in terms of capital and products. The Bank will face strong competition from many other banks, savings institutions, and other financial organizations, as well as many other companies now offering a broad array of financial services. There are 16 other banks with branches in Freehold, New Jersey, and many residents of the Bank s market area work in other areas of New Jersey and may bank with institutions that are closer to their place of employment. Many of the Bank s competitors have greater financial resources, better name recognition, higher lending limits, a wider array of products and services, greater market presence, and significantly more operating experience than the Bank. Additionally, the Bank initially will only have one operating location in its market area compared to its competitors, many of whom operate much larger networks of offices. The Bank may not be able to gain market acceptance and operate profitably. We expect that competition will intensify in the future. Prior to filing our applications with the FDIC and New Jersey, we engaged an independent third party consultant, FinPro, Inc. to prepare a feasibility study of our proposed site. In this study, FinPro recommended our proposed site because it establishes the Bank in a strong market with the opportunity for future growth. However, FinPro s study also indicated that: The Bank s deposit market has a wide distribution of customers, but higher than average concentrations in the lower affluent and midscale affluent levels and in the 35 to 44 and retired age groups. These customers in general tend to have modestly below average usage rates of most financial products and services. 11

14 This market is considered statistically overbanked when compared to all other banking markets in New Jersey (but statistically underbanked when compared to the other banking markets in Monmouth County). One diminishing factor for the Bank s success is the de novo branching activity in the market, with three new entrants since As such, the effect of what is known as the first in wins theory is diminished in this market, as the recent entrants may have already capitalized on the propensity for customers to switch institutions. We believe that the Bank s ability to compete successfully depends upon a number of factors, including: market presence; customer service and satisfaction; the pricing policies of its competitors; the timing of introductions of new products, services and locations by the Bank and its competitors; the ability of the Bank s Board to generate business for the Bank; and industry and general economic trends. If we are unable to compete successfully, that will have an adverse effect on our results of operations and financial condition. Economic downturns may adversely affect the Bank. Because substantially all of the Bank s loan portfolio will be located in central New Jersey, the success of the Bank will be largely dependent on the local economic conditions of this area. This geographic concentration could have a material adverse effect on the Bank to the extent there is a material deterioration in the local economy and real estate values. Unexpected changes in the national and local economy may adversely affect the ability of the Bank to attract deposits and to originate loans. Management does not expect any one factor to affect the Bank s success or failure. However, a long-term downtrend in several areas, including real estate and consumer spending, could have an adverse impact on the Bank s ability to become or remain profitable. Such risks are beyond the control of management of the Bank and may have a material adverse effect on the Bank s financial condition and the value of the common stock. The Bank s net income is directly affected by changes in monetary policy and interest rates over which it has no control. Changes in governmental economic and monetary policies may affect the ability of the Bank to attract deposits and originate loans. See Business of the Bank - Supervision and Regulation. The operations of the Bank will be substantially dependent on its net interest income, which is the difference between the interest income earned on its interest-earning assets and the interest expense paid on its interest-bearing liabilities. As with most depository institutions, the Bank s results of operations will be affected by changes in monetary policy, market interest rates and other factors beyond its control. If an institution s interest-earning assets have longer effective maturities than its interest-bearing liabilities, the yield on the institution s interest-earning assets generally will adjust more slowly than the cost of its interest-bearing liabilities, and, as a result, the institution s net interest income generally will be adversely affected by material and prolonged increases in interest rates and positively affected by comparable declines in interest rates. Conversely, if interest-bearing liabilities reprice more slowly than interest-earnings assets, net interest income would be adversely affected by declining interest rates, and positively affected by increasing interest rates. At various times, the Bank s interest-earning assets and interest-bearing liabilities will be such that they may be affected differently by any given change in interest rates. As a result, either an increase or a decrease in interest rates could materially reduce the Bank s net interest income. 12

15 While the Bank will seek to manage this risk, the Bank may not be effective in doing so. If the Bank is not effective in managing the impact of changes in interest rates on its net interest income, then the Bank s net income will be adversely impacted which may adversely impact our stock price. We are subject to extensive governmental regulation that could limit our operations. The banking industry is extensively regulated and supervised under both federal and state law. We are subject to the regulation and supervision of the New Jersey Department of Banking and Insurance and the FDIC. These regulations are primarily intended to protect our depositors, not stockholders, and govern a wide array of matters including: use of debt financing; changes in control; maintenance of adequate capital; daily banking activities, including deposit and lending activities; reserves against loans; restrictions on dividends; consumer protection and disclosure; establishment of branches; and, maximum chargeable interest rates. In addition to these banking laws and regulations, if on any January 1 that occurs after the opening of the Bank, the Bank has more than 500 stockholders of record, we would also be subject to the Securities Exchange Act of 1934 and the rules and regulations under that act, as administered by the FDIC. Moreover, we would be subject to the provisions of the Sarbanes-Oxley Act of 2002 (SOX) and its related rules and regulations. These laws and regulations impose, among other things, significant responsibilities on officers, auditors, boards of directors and audit committees. Our expenses related to services rendered by our accountants, legal counsel and consultants would increase in order to ensure compliance with these laws and regulations. Section 404 of SOX requires certain publicly traded companies to conduct a comprehensive review and assessment of the adequacy of their existing systems and controls at each year end, and the companies auditors are required to attest to that assessment. Such requirement results in additional expenses that adversely affect their results of operations, in some cases materially. In a SOX 404 review, companies may uncover deficiencies in existing systems and controls, requiring them to take the necessary steps to correct any deficiencies, which can be costly and may strain management resources. They also would be required to disclose any such deficiencies, which could adversely affect the market price of their common stock. If the Bank becomes subject to the Securities Exchange Act of 1934, it would become subject to the provisions of SOX 404, except that the requirement for auditor attestation of its assessment of the adequacy of its existing systems and controls would not apply until the Bank files its annual report for the year ending December 31,

16 If we are not an Securities Exchange Act reporting company after the offering, our officers, board of directors, audit committee and auditors will not be required to comply with the Securities Exchange Act or SOX, and will not be required to complete the review and confirmation required under SOX 404. We will not undertake to independently complete such review and confirmation due to the material manpower and expense required to do so. Therefore, if there is any deficiency in our financial reporting controls that could be identified through a SOX 404 review, we may not be able to identify and correct it, and that could lead to our financial statements being inaccurate. See Supervision and Regulation. Provisions of the New Jersey Banking Act of 1948 and federal banking laws may make it harder for others to obtain control of the Bank even if such change of control may be favored by our stockholders. Applicable provisions of the New Jersey Banking Act of 1948 and federal banking laws may delay, inhibit or prevent any person or group acting in concert from gaining control of the Bank through a tender offer, business combination, proxy contest or some other method even though our stockholders may believe a change in control is desirable. These provisions include, but are not limited to, the following: the prohibition of cumulative voting in the election of directors; the requirement that 60 days prior notice be given to the FDIC if any person or group acting in concert seeks to acquire 10% or more of our common stock (or 5% in the case of any bank or bank holding company acquiror), and that 60 days prior notice be given to the New Jersey Department of Banking and Insurance if any person or group acting in concert seeks to acquire 25% or more of our common stock (or 5% in the case of any bank or bank holding company acquiror), and the ability of the FDIC and the New Jersey Department of Banking and Insurance to prohibit such acquisition under certain circumstances; the federal Bank Holding Company Act of 1956 provision that bank holding companies are not permitted to acquire 5% or more of any class of voting stock of a bank without obtaining the approval of the Board of Governors of the Federal Reserve System; the New Jersey statutory provision that the Bank s certificate of incorporation can only be amended by an affirmative vote of stockholders entitled to cast at least two-thirds of the votes which all stockholders are entitled to cast; and the New Jersey statutory provision that all mergers or other acquisitions of all of the capital stock of the Bank require the affirmative vote of stockholders entitled to cast at least twothirds of the votes which all stockholders are entitled to cast. These provisions may serve to entrench management and may discourage a takeover attempt that stockholders may consider to be in their best interest or in which they would receive a substantial premium over the current market price for the Bank s common stock. See Description of Our Securities - Certain Restrictions on Acquisition of the Bank. 14

17 Risks Related to this Offering The Bank will have substantial organizational and offering costs that will cause significant book value dilution to the common stock issued in the offering. The Bank has incurred, and will continue to incur, substantial offering and organizational costs and expenses until the Bank commences operations. It is estimated that prior to commencement of operations, the Bank will have incurred aggregate organizational and offering costs of approximately $1.2 million at the minimum offering and $1.5 million at the maximum. The Bank anticipates that it will commence operations in the first quarter of 2008, subject to receipt of regulatory approvals. The organizational expenses likely will be greater if commencement of operations is delayed. See Offering and Method of Subscription. These organizational and offering expenses will be paid out of the gross proceeds of this offering. Therefore, they will cause significant book value dilution to the common stock issued in this offering. See Dilution. Because of the level of the Bank s operating expenses and the time period needed for a new bank to generate significant revenues, it may be some time, if ever, before the book value of the common stock increases to an amount equal to or greater than the purchase price for the common stock in this offering. The Bank has arbitrarily determined the offering price, and our stock price may decline when trading commences. The offering price of $10.00 per share has been set arbitrarily by the directors of the Bank. It is not based on any history of operations, earnings, assets, book value, or any other established criteria of value. The trading price of the common stock will be determined by the marketplace and will be influenced by many factors outside of our control, including prevailing interest rates, investor perceptions and general industry, geopolitical and economic conditions. Publicly traded stocks, including the stock of financial institutions, recently have experienced substantial market price volatility. These market fluctuations might not be related to the operating performance of particular companies whose shares are publicly traded. After the completion of this offering, a subscriber for the common stock may not be able to sell his or her shares of common stock at a price equal to or in excess of the offering price. There is expected to be a limited public trading market for the common stock, which may lower our stock price. We have never issued any common stock. Consequently, there has been no prior public market established for the Bank s common stock. The shares of common stock issued in the offering will not be listed on The Nasdaq Stock Market or any other stock exchange. Stifel Nicolaus has agreed to use its best efforts to maintain a market in the common stock and, if necessary, solicit other broker dealers to make a market in our common stock after the completion of the offering. Stifel Nicolaus has also agreed to use its best efforts to cause the common stock to be quoted on the OTC Bulletin Board. However, there can be no assurance that they will be successful in making a market in our common stock, or in causing the common stock to be quoted on the OTC Bulletin Board. Similarly, there can be no assurance that an active and liquid trading market will develop for the common stock in the future. Before purchasing shares in the offering, you should consider the limited trading market for the common stock and be prepared and able to hold your shares for an indefinite period. If an active trading 15