Exhibit
13





TABLE
OF CONTENTS


Letter
      from the President & Chief Operating Officer
            
            1Financial
      Highlights
            
            3Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            5Management’s
      Report on Internal Control Over Financial Reporting
            
            38Report
      of Independent Registered Public Accounting Firm
            
            39Consolidated
      Statements of Financial Condition
            
            41Consolidated
      Statements of Income
            
            42Consolidated
      Statements of Changes in Stockholders’ Equity
            
            43Consolidated
      Statements of Cash Flows
            
            46Notes
      to Consolidated Financial Statements
            
            48Directors
      and Officers
            
            87Investor
      and Corporate Information
            
            88Office
      Locations
            
            90







LETTER
FROM THE PRESIDENT & CHIEF OPERATING OFFICER




Dear
Fellow Stockholders:




On
behalf of the Board of Directors and employees, I am pleased to present the 2008
Annual Report to Stockholders.




This
was another successful year for American Bank of New Jersey that was highlighted
by a number of strategic accomplishments in the face of a very difficult and
challenging market environment. Our Verona and Nutley branches, opened during
the prior fiscal year, each achieved profitability during fiscal 2008. Our
Clifton branch, which opened in August 2007, continues to grow and is expected
to achieve profitability during fiscal 2009. In total, our three newest branches
grew $21.4 million or 22.7% during fiscal 2008 resulting in an average deposit
balance of $38.5 million per branch at September 30, 2008 for those newest
branches.




A
portion of the increase in our total deposits provided the funding for continued
growth in loans during the same period. Our loans receivable, net increased by
$40.7 million, or 9.3%, from $437.9 million at September 30, 2007 to $478.6
million at September 30, 2008. Our loan growth during fiscal 2008 was
highlighted by a $39.9 million or 28.1% increase in the balance of commercial
loans reflecting our strategic emphasis on the origination of such loans. As a
percentage of loans receivable, net, our commercial loans increased from 32.4%
at September 30, 2007 to 38.0% at September 30, 2008.




The
overall level of market interest rates fell significantly during fiscal 2008
while the yield curve steepened from the inversion that characterized most of
fiscal 2007. The steepening of the yield curve during fiscal 2008, coupled with
the reduction of deposit rates from the prior year’s promotional levels, enabled
us to significantly reduce our funding costs while our yield on earning assets
declined only modestly for the year. As such, our net interest spread increased
from 1.44% for fiscal 2007 to 1.87% for fiscal 2008 while our net interest
margin increased from 2.39% to 2.50% for the same periods.




The
change in the Company’s net interest margin was also significantly impacted by
our capital management strategies. During fiscal 2008, we repurchased an
additional 1.1 million shares, or approximately 9% of the Company’s stock. These
share repurchases utilized approximately $11.4 million of our earning assets
whose foregone interest income partially offset the growth in the Company’s net
interest margin.




While
our business plan strategies are expected to increase shareholder value over
time, their continued execution resulted in an 8.0% or $998,000 increase in
noninterest expense to $13.5 million for fiscal 2008 from $12.5 million for
fiscal 2007. A significant portion of this increase was attributable to the
recognition of a full year’s personnel, occupancy and equipment and
administrative costs during fiscal 2008 associated with those branches opened
during 2007.




In
total, net income increased to $1.2 million for the fiscal year ended September
30, 2008 from $557,000 for fiscal 2007. Much of the increase in our earnings
during fiscal 2008 was recognized during the latter two quarters when the
Company recorded earnings of $431,000 and $716,000, respectively, and basic and
diluted earnings per share of $0.04 and $0.07, respectively. These improvements
in earnings enabled us to increase our quarterly cash dividend to shareholders
from $0.04 to $0.05 per share for the third and fourth quarters of fiscal
2008.


1




We
were particularly pleased that we have successfully grown and improved earnings
in the face of the current economic downturn and unprecedented volatility in the
financial markets. Our commitment to a conservative and disciplined approach to
executing our business plan has enabled us to continue achieving our growth,
diversification and performance goals.




On
behalf of the Board of Directors and the employees, I would like to once again
thank you for your investment and your continued confidence in our people and
our plan. We are genuinely pleased about our vision for American Bancorp of New
Jersey, and are committed to making further progress toward our #1 goal –
enhancing your investment in us.


Sincerely,/s/
      Fred G. KowalFred
      G. KowalPresident
      & Chief Operating Officer


2




FINANCIAL
HIGHLIGHTS




At
      September 30,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004(In
      thousands)SELECTED
      FINANCIAL DATA:Total
      assets
            
            $
            621,633
            
            
            $
            573,738
            
            
            $
            514,319
            
            
            $
            555,860
            
            
            $
            424,944Cash
      and cash equivalents
            
            
            20,375
            
            
            
            37,421
            
            
            
            7,165
            
            
            
            125,773
            
            
            
            8,034Securities
      available-for-sale
            
            
            81,163
            
            
            
            58,093
            
            
            
            74,523
            
            
            
            62,337
            
            
            
            89,495Securities
      held-to-maturity
            
            
            7,509
            
            
            
            6,730
            
            
            
            10,547
            
            
            
            7,824
            
            
            
            2,794Loans
      held for sale
            
            
            —
            
            
            
            1,243
            
            
            
            —
            
            
            
            280
            
            
            
            —Loans
      receivable, net
            
            
            478,574
            
            
            
            437,883
            
            
            
            398,624
            
            
            
            341,006
            
            
            
            308,970Federal
      Home Loan Bank stock
            
            
            2,743
            
            
            
            2,553
            
            
            
            3,356
            
            
            
            3,119
            
            
            
            2,890Cash
      surrender value of life insurance
            
            
            13,761
            
            
            
            13,214
            
            
            
            8,747
            
            
            
            7,512
            
            
            
            6,242Deposits
            
            
            447,687
            
            
            
            428,600
            
            
            
            327,147
            
            
            
            340,925
            
            
            
            322,716Stock
      subscriptions received
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            115,201
            
            
            
            —Borrowings
            
            
            75,547
            
            
            
            37,612
            
            
            
            56,075
            
            
            
            53,734
            
            
            
            57,491Total
      stockholders’ equity
            
            
            90,848
            
            
            
            100,593
            
            
            
            124,861
            
            
            
            39,506
            
            
            
            39,314




Years
      Ended
              September
      30,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004(In
      thousands)SELECTED
      OPERATING DATA:Total
      interest income
            
            $
            31,437
            
            
            $
            29,029
            
            
            $
            25,344
            
            
            $
            20,601
            
            
            $
            18,204Total
      interest expense
            
            
            17,397
            
            
            
            16,731
            
            
            
            11,802
            
            
            
            9,546
            
            
            
            8,105Net
      interest income
            
            
            14,040
            
            
            
            12,298
            
            
            
            13,542
            
            
            
            11,055
            
            
            
            10,099Provision
      for loan losses
            
            
            501
            
            
            
            445
            
            
            
            465
            
            
            
            81
            
            
            
            207Net
      interest income after provision for loan losses
            
            
            13,539
            
            
            
            11,853
            
            
            
            13,077
            
            
            
            10,974
            
            
            
            9,892Noninterest
      income
            
            
            1,791
            
            
            
            1,422
            
            
            
            1,021
            
            
            
            1,196
            
            
            
            1,298Noninterest
      expense
            
            
            13,542
            
            
            
            12,544
            
            
            
            10,657
            
            
            
            8,924
            
            
            
            7,657Income
      before income taxes
            
            
            1,788
            
            
            
            731
            
            
            
            3,441
            
            
            
            3,246
            
            
            
            3,533Income
      tax provision
            
            
            560
            
            
            
            174
            
            
            
            1,308
            
            
            
            1,203
            
            
            
            1,371Net
      income
            
            $
            1,228
            
            
            $
            557
            
            
            $
            2,133
            
            
            $
            2,043
            
            
            $
            2,162


3




At
      or for the year ended
              September
      30,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004SELECTED
      FINANCIAL DATA*:Performance
      Ratios:Return
      on average assets (1)
            
            
            0.21
            %
            
            
            0.10
            %
            
            
            0.42
            %
            
            
            0.46
            %
            
            
            0.54
            %Return
      on average equity (2)
            
            
            1.31
            
            
            
            0.51
            
            
            
            1.68
            
            
            
            5.30
            
            
            
            5.77Net
      interest rate spread (3)
            
            
            1.87
            
            
            
            1.44
            
            
            
            1.80
            
            
            
            2.28
            
            
            
            2.28Net
      interest margin (4)
            
            
            2.50
            
            
            
            2.39
            
            
            
            2.73
            
            
            
            2.60
            
            
            
            2.60Operating
      (noninterest) expense to average total assets
            
            
            2.27
            
            
            
            2.31
            
            
            
            2.08
            
            
            
            2.02
            
            
            
            1.92Efficiency
      ratio (5)
            
            
            85.54
            
            
            
            91.43
            
            
            
            73.18
            
            
            
            72.84
            
            
            
            67.18Average
      interest-earning assets to average interest-bearing
      liabilities
            
            
            120.39
            
            
            
            129.35
            
            
            
            139.21
            
            
            
            114.30
            
            
            
            115.67Capital
      Ratios:Equity
      to total assets at end of period
            
            
            14.61
            
            
            
            17.53
            
            
            
            24.28
            
            
            
            7.11
            
            
            
            9.25Average
      equity to average assets
            
            
            15.65
            
            
            
            20.23
            
            
            
            24.72
            
            
            
            8.74
            
            
            
            9.37Asset
      Quality Ratios:Non-performing
      loans to total loans (6)
            
            
            0.24
            
            
            
            0.28
            
            
            
            0.52
            
            
            
            0.34
            
            
            
            0.17Non-performing
      assets to total assets (6)
            
            
            0.18
            
            
            
            0.22
            
            
            
            0.41
            
            
            
            0.21
            
            
            
            0.12Net
      charge-offs to average loans outstanding
            
            
            0.01
            
            
            
            0.00
            
            
            
            0.00
            
            
            
            0.00
            
            
            
            0.00Allowance
      for loan losses to non-performing loans (6)
            
            
            266.97
            
            
            
            205.56
            
            
            
            101.64
            
            
            
            142.62
            
            
            
            304.05Allowance
      for loan losses to total loans
            
            
            0.63
            
            
            
            0.58
            
            
            
            0.53
            
            
            
            0.48
            
            
            
            0.50PER
      SHARE DATA:Earnings
      per share:Basic
            
            $
            0.12
            
            
            $
            0.05
            
            
            $
            0.16
            
            
            $
            0.15
            
            
            $
            0.16Diluted
            
            $
            0.12
            
            
            $
            0.05
            
            
            $
            0.16
            
            
            $
            0.15
            
            
            $
            0.16Cash
      Dividends Paid (7)
            
            $
            0.18
            
            
            $
            0.16
            
            
            $
            0.16
            
            
            $
            0.36
            
            
            $
            0.00Dividend
      Payout Ratio
            
            
            150.00
            %
            
            
            335.19
            %
            
            
            99.02
            %
            
            
            70.09
            %
            
            
            —
            %







*
            Certain
      ratios were significantly affected by stock subscriptions received pending
      completion of the Company’s first and second public offerings. At
      September 30, 2005, stock subscriptions received relating to the Company’s
      second public offering which closed October 5, 2005 totaled $115.2
      million. At the time of closing, approximately $91.3 million, less
      offering expenses, became capital of the Company with the remainder
      returned on oversubscriptions.(1)
            Net
      income divided by average total assets.(2)
            Net
      income divided by average total equity.(3)
            Difference
      between weighted average yield on interest-earning assets and weighted
      average cost of interest-bearing liabilities.(4)
            Net
      interest income as a percentage of average interest-earning
      assets.(5)
            Noninterest
      expense divided by the sum of net interest income and noninterest
      income.(6)
            Nonperforming
      loans consist of nonaccrual loans and loans greater than 90 days
      delinquent and still accruing.(7)
            Cash
      dividends paid in fiscal 2005 include a special dividend of $0.294 per
      share paid in December 2004 and regular quarterly dividends paid in June
      2005 and September 2005 of $0.035 each. American Savings, MHC waived
      receipt of all dividends in 2005. Consequently, cash dividends were paid
      only to public shareholders during fiscal
2005.


4




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.




Forward
looking statements are subject to numerous assumptions, risks and uncertainties,
which change over time. Forward-looking statements speak only as of the date
they are made. We do not assume any duty and do not undertake to update our
forward-looking statements. Actual results or future events could differ,
possibly materially, from those that we anticipated in our forward-looking
statements, and future results could differ materially from our historical
performance.




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:




•
            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.


5




Having
      opened three full service branches located in Verona, Nutley and Clifton,
      New Jersey during fiscal 2007, the Company did not open additional de novo
      deposit branches during fiscal 2008. Rather, the Company directed
      significant strategic effort during fiscal 2008 toward achieving and
      enhancing profitability 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 remainder of fiscal
      2008. The Bank’s Nutley branch, which opened in May 2007, achieved
      quarterly profitability during the most recent quarter ended September 30,
      2008. The quarterly operating loss for the Clifton branch, which opened in
      August 2007, decreased during the quarter ended September 30, 2008
      compared with prior quarters. The Company expects the Clifton branch to
      achieve profitability during fiscal 2009. While the Company currently has
      no commitments to open additional de novo deposit branches during the next
      fiscal year, the Company would consider additional branching projects
      during fiscal 2009 if appropriate opportunities were to
    arise.•
            Increase
      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, 2008, our commercial loans, including
      multi-family, nonresidential real estate, construction and business loans,
      increased $39.9 million, or 28.1%, from $141.9 million to $181.8 million.
      This increase has resulted in commercial loans growing from 32.4% to 38.0%
      of loans receivable, net over that same twelve month period. We expect to
      continue our strategic emphasis on commercial lending during fiscal 2009
      and thereafter.•
            Continue
      to implement or enhance alternative delivery channels for the origination
      and servicing of loan and deposit products.In
      support of this objective, we previously completed a significant overhaul
      of our Internet website which serves as a portal through which our
      customers access a growing menu of online services. Having enhanced our
      online services for retail customers, we are currently 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.•
            Broaden
      and strengthen customer relationships by bolstering cross marketing
      strategies and tactics 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.


6




•
            Utilize
      capital markets tools to effectively manage capital and enhance
      shareholder value.Toward
      that end, the Company completed two previous share repurchase plans during
      fiscal 2007 through which it repurchased ten percent and five percent,
      respectively, of its outstanding shares. During fiscal 2008, the Company
      completed its third and fourth share repurchase programs through each of
      which it repurchased an additional five percent of its outstanding shares.
      A fifth share repurchase plan for an additional five percent of its
      outstanding shares was announced in August 2008 and remains ongoing at
      September 30, 2008. Additionally, the Company increased its regular
      quarterly cash dividend paid to shareholders from $0.04 per share to $0.05
      per share during the quarter ended June 30, 2008 and continued paying a
      quarterly dividend of $0.05 per share during the quarter ended September
      30, 2008.




A
number of the strategies outlined above have historically 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
first half of fiscal 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 September 30, 2008,
most deposits acquired through those de novo branches no longer reflected the
effects of grand opening promotional pricing. However, the Company did continue
to offer highly competitive certificate of deposit rates on select products at
its Nutley and Clifton branches to achieve its branch growth and profitability
objectives.




In
general, we expect that the reductions in market interest rates and steepening
of the yield curve during fiscal 2008 may continue to have a beneficial impact
on earnings during the coming fiscal year. 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 - cannot be assured.
In particular, recent volatility in the financial markets has resulted in
competitors seeking to attract and/or retain liquidity through their retail
deposit product offerings. Such strategies have resulted in significant upward
pressure on retail deposit rates in relation to the general level of market
interest rates.




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 but may also include
U.S. Agency debentures and U.S. Government debentures and mortgage-related
securities. 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.


7




During
fiscal 2008, the Company’s net interest rate spread increased 43 basis points to
1.87% in comparison to 1.44% during fiscal 2007. The increase in net interest
rate spread resulted primarily from a reduction in the Company’s cost of
interest-bearing liabilities of 48 basis points to 3.73% 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 5 basis
points to 5.59% 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.




The
improvements in net interest rate spread for the year ended September 30, 2008
resulted primarily 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 significantly 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 11 basis points to 2.50% for the year ended September 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 year ended September 30, 2008, the Company recorded a net loan loss
provision of $501,000. The provision for loan losses for the year ended
September 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 fiscal 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 fiscal 2008 for
nonperforming loans which decreased as a percentage of total assets to 0.18% at
September 30, 2008 from 0.22% at September 30, 2007. Net loan loss provision
expense, reflected as a percentage of average earning assets, was reported as
0.09% for both fiscal 2008 and fiscal 2007.


8




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. Noninterest income as a percentage of average assets increased four
basis points to 0.30% for fiscal 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 as well as growth in deposit-related
fees and charges within the Bank’s other branches.




Gains
and losses on sale of assets, included in noninterest income, 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 historically fluctuated with market conditions. Additionally,
changes to the Company’s asset/liability management strategy - such as those
implemented during fiscal 2008 by which all loans originated were added to the
portfolio - will also cause fluctuations in gains and losses on sale of loans.
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 year
ended September 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 year ended
September 30, 2008 totaled 2.27% representing a decrease of four basis points
from 2.31% reported for all of fiscal 2007.




The
noninterest expense reported above for 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. As noted earlier, while the Company currently has no
commitments to open additional de novo deposit branches during the next fiscal
year, the Company would consider additional branching projects during fiscal
2009 if appropriate opportunities were to arise. 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.


9




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
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 September 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 fiscal 2008 was
lessened 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 fiscal 2008.




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 return on average assets increased 11 basis points to 0.21% for the
year ended September 30, 2008 from 0.10% for all of fiscal 2007, while return on
average equity increased 80 basis points to 1.31% from 0.51% for the same
comparative periods. Included in these fiscal 2008 performance ratios are the
earnings of the most recent quarter ended September 30, 2008 when our annualized
return on average assets and return on average equity increased to 0.46% and
3.19%, respectively.




Comparison
of Financial Condition at September 30, 2008 and September 30, 2007




Our
total assets increased by $47.9 million, or 8.3%, to $621.6 million at September
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 $17.0 million, or 45.6%, to $20.4 million at
September 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, growth in loans receivable, net and repayment of maturing and
amortizing borrowings 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.


10




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. 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 the
Company’s commercial loans. (See further discussion in the subsequent section
titled “Quantitative and Qualitative Disclosures About Market
Risk”.)




Securities
classified as available-for-sale increased $23.1 million, or 39.7%, to $81.2
million at September 30, 2008 from $58.1 million at September 30, 2007 while
securities held-to-maturity increased approximately $779,000, or 11.6% to $7.5
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 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 September 30, 2008
with that of September 30, 2007. Amounts reported exclude unrealized gains and
losses on the available for sale portfolio.




September
      30, 2008
            
            
            September
      30, 2007Type
      of Securities
            
            Amount
            
            
            Percent
      of
              Total
      Assets
            
            
            Amount
            
            
            
            Percent
      of
              Total
              Assets(Dollars
      in thousands)Fixed
      rate MBS
            
            $
            48,669
            
            
            
            7.83
            %
            
            $
            11,454
            
            
            
            2.00
            %ARM
      MBS
            
            
            9,454
            
            
            
            1.52
            
            
            
            14,470
            
            
            
            2.52Fixed
      rate CMO
            
            
            29,699
            
            
            
            4.78
            
            
            
            35,280
            
            
            
            6.14Floating
      rate CMO
            
            
            1,750
            
            
            
            0.28
            
            
            
            2,047
            
            
            
            0.36Fixed
      rate agency debentures
            
            
            —
            
            
            
            —
            
            
            
            2,000
            
            
            
            0.35Total
            
            $
            89,572
            
            
            
            14.41
            %
            
            $
            65,251
            
            
            
            11.37
            %


11




Assuming
no change in interest rates, the estimated average life of the investment
securities portfolio was 4.42 years and 2.24 years, respectively, at September
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 6.03 years and 2.65 years at September 30,
2008 and September 30, 2007, respectively.




Loans
receivable, net increased by $40.7 million, or 9.3%, to $478.6 million at
September 30, 2008 from $437.9 million at September 30, 2007. The growth was
comprised of net increases in commercial loans totaling $39.9 million or 28.1%.
Such loans include multi-family, nonresidential real estate, construction and
business loans. The increase in loans receivable, net also included net
increases in one- to four-family first mortgages of $297,000, net increases in
home equity loans and home equity lines of credit totaling $486,000 and net
increases in consumer loans of $504,000. Offsetting the growth in these
categories was a net increase to the allowance for loan losses totaling $467,000
due to overall growth in the loan portfolio.




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
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 over 97% of the one-
to four-family mortgages within the Bank’s loan portfolio.




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 September 30, 2008 and
September 30, 2007, the remaining balance of these loans was approximately $1.2
million and $1.4 million, respectively, comprising 9 and 11 loans, respectively,
at each date. One Sub-prime loan with a balance of $142,700 was 30 days past due
at September 30, 2008. The remaining eight 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 September 30, 2008 and
September 30, 2007, the remaining balance of these loans was approximately $6.7
million and $8.6 million, respectively, comprising 25 and 29 loans,
respectively, at each date. Two of these loans, with balances of $418,000 and
$80,000 were 30 days or less past due at September 30, 2008. The remaining 23
loans were performing in accordance with their terms for the periods
reported.


12




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
September 30, 2008 and September 30, 2007, respectively, the balance of one- to
four-family mortgage loans included $22.5 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 September 30, 2008 with that of
September 30, 2007. Amounts reported exclude allowance for loan losses and net
deferred origination costs.




The
table below generally defines loan type by loan maturity and/or repricing
characteristics:




September
      30, 2008
            
            
            September
      30, 2007Type of
      Loans
            
            Amount
            
            
            Percent
      of
              TotalAssets
            
            
            Amount
            
            
            Percent
      of
              Total
              Assets(Dollars
      in thousands)Construction (1)
            
            $
            40,119
            
            
            
            6.45
            %
            
            $
            32,592
            
            
            
            5.68
            %Prime-indexed
      Land
            
            
            3,666
            
            
            
            0.59
            
            
            
            —
            
            
            
            —1/1
      and 3/3 ARMs
            
            
            7,275
            
            
            
            1.17
            
            
            
            7,642
            
            
            
            1.333/1
      and 5/1 ARMs
            
            
            128,984
            
            
            
            20.75
            
            
            
            142,254
            
            
            
            24.805/5
      and 10/10 ARMs
            
            
            46,565
            
            
            
            7.49
            
            
            
            46,017
            
            
            
            8.027/1
      and 10/1 ARMs
            
            
            5,489
            
            
            
            0.88
            
            
            
            3,500
            
            
            
            0.6115
      year fixed or less
            
            
            150,117
            
            
            
            24.15
            
            
            
            129,158
            
            
            
            22.52Greater
      than 15 year fixed
            
            
            68,850
            
            
            
            11.08
            
            
            
            52,012
            
            
            
            9.07Prime-indexed
      HELOC
            
            
            20,836
            
            
            
            3.35
            
            
            
            19,756
            
            
            
            3.44Consumer (2)
            
            
            1,159
            
            
            
            0.19
            
            
            
            655
            
            
            
            0.11Business (3)
            
            
            7,543
            
            
            
            1.21
            
            
            
            7,024
            
            
            
            1.22Total
            
            $
            480,603
            
            
            
            77.31
            %
            
            $
            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.


13




The
table below generally defines loan type by collateral or purpose:




September
      30, 2008
            
            
            September
      30, 2007Type
      of Loans
            
            Amount
            
            
            Percent
      of
              Total
      Assets
            
            
            Amount
            
            
            Percent
      of
              Total
      Assets(Dollars
      in thousands)Construction (1)
            
            $
            40,119
            
            
            
            6.45
            %
            
            $
            32,592
            
            
            
            5.68
            %1-4
      family mortgage
            
            
            276,690
            
            
            
            44.51
            
            
            
            278,183
            
            
            
            48.50Multifamily
      (5+) mortgage
            
            
            36,869
            
            
            
            5.93
            
            
            
            30,585
            
            
            
            5.33Nonresidential
      mortgage
            
            
            90,704
            
            
            
            14.59
            
            
            
            68,474
            
            
            
            11.94Land
            
            
            6,683
            
            
            
            1.08
            
            
            
            3,341
            
            
            
            0.581-4
      family HELOC
            
            
            20,836
            
            
            
            3.35
            
            
            
            19,756
            
            
            
            3.44Consumer (2)
            
            
            1,159
            
            
            
            0.19
            
            
            
            655
            
            
            
            0.11Business (3)
            
            
            7,543
            
            
            
            1.21
            
            
            
            7,024
            
            
            
            1.22Total
            
            $
            480,603
            
            
            
            77.31
            %
            
            $
            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.




Total
deposits increased by $19.1 million, or 4.5%, to $447.7 million at September 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 $62.3 million and $953,000, respectively, offset by reductions in the balance
of interest-bearing checking, including money market checking, and savings
accounts of $36.5 million and $7.7 million, 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.


14




The
following table compares the composition of the Company’s deposit portfolio by
category as a percentage of total assets at September 30, 2008 with that of
September 30, 2007.




September
      30, 2008
            
            
            September
      30, 2007Deposit
      category
            
            Amount
            
            
            Percent ofTotal
    Assets
            
            
            Amount
            
            
            Percent
      of
              Total
              Assets(Dollars
      in thousands)Noninterest
      bearing checking
            
            $
            31,447
            
            
            
            5.06
            %
            
            $
            30,494
            
            
            
            5.31
            %Money
      market checking
            
            
            60,580
            
            
            
            9.75
            
            
            
            92,550
            
            
            
            16.13Interest
      bearing checking
            
            
            14,727
            
            
            
            2.37
            
            
            
            19,245
            
            
            
            3.35Money
      market savings
            
            
            8,355
            
            
            
            1.34
            
            
            
            10,263
            
            
            
            1.79Other
      savings
            
            
            76,737
            
            
            
            12.34
            
            
            
            82,515
            
            
            
            14.38Certificates
      of deposit
            
            
            255,841
            
            
            
            41.16
            
            
            
            193,533
            
            
            
            33.74Total
            
            $
            447,687
            
            
            
            72.02
            %
            
            $
            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 September 30, 2008 with that of
September 30, 2007.




September
      30, 2008
            
            
            September
      30, 2007Branch
            
            Amount
            
            
            Percent
      of
              Total
      Assets
            
            
            Amount
            
            
            Percent
      of
              Total
              Assets(Dollars
      in thousands)Bloomfield
            
            $
            220,421
            
            
            
            35.45
            %
            
            $
            223,557
            
            
            
            38.97
            %Cedar
      Grove
            
            
            111,876
            
            
            
            18.00
            
            
            
            111,030
            
            
            
            19.35Verona
            
            
            46,298
            
            
            
            7.45
            
            
            
            55,193
            
            
            
            9.62Nutley
            
            
            37,789
            
            
            
            6.08
            
            
            
            23,534
            
            
            
            4.10Clifton
            
            
            31,303
            
            
            
            5.04
            
            
            
            15,286
            
            
            
            2.66Total
            
            $
            447,687
            
            
            
            72.02
            %
            
            $
            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 $37.9 million, or 100.9%, to $75.5 million at September 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 $12.1 million of maturing and
amortizing fixed rate FHLB term advances.


15




The
following table compares the composition of the Company’s borrowing portfolio by
remaining term to maturity as a percentage of total assets at September 30, 2008
with that of September 30, 2007. Scheduled principal payments on amortizing
borrowings are reported as maturities.




September
      30, 2008
            
            
            September
      30, 2007Remaining
      Term
            
            Amount
            
            
            Percent
      of
              Total
      Assets
            
            
            Amount
            
            
            Percent
      of
              Total
      Assets(Dollars in thousands)Overnight
            
            $
            —
            
            
            
            —
            %
            
            $
            —
            
            
            
            —
            %One
      year or less
            
            
            12,547
            
            
            
            2.02
            
            
            
            12,065
            
            
            
            2.10Greater
      than one to two years
            
            
            16,000
            
            
            
            2.57
            
            
            
            7,547
            
            
            
            1.32Greater
      than two to three years
            
            
            6,000
            
            
            
            0.97
            
            
            
            6,000
            
            
            
            1.05Greater
      than three to four years
            
            
            5,000
            
            
            
            0.80
            
            
            
            6,000
            
            
            
            1.05Greater
      than four to five years
            
            
            1,000
            
            
            
            0.16
            
            
            
            5,000
            
            
            
            0.87More than five
      years(1)
            
            
            35,000
            
            
            
            5.63
            
            
            
            1,000
            
            
            
            0.17Total
            
            $
            75,547
            
            
            
            12.15
            %
            
            $
            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 9.7% to $90.8 million at September 30, 2008 from
$100.6 million at September 30, 2007. The reported decrease in equity was
primarily attributable to a $11.4 million increase in Treasury stock resulting
from the Company’s share repurchases during fiscal 2008 during which time the
Company had repurchased a total of 1,090,664 shares at an average price of
$10.43 per share.




Comparison
of Operating Results for the Years Ended September 30, 2008 and
2007




General.
The Company recorded net income of $1.2 million for the year ended September 30,
2008, an increase $671,000, or 120.5% from the year ended September 30, 2007
when the Company reported net income of $557,000. The increase in net income
resulted from increases in net interest income and noninterest income partially
offset by increases in noninterest expense, the provision for loan losses and
the provision for income taxes.




Interest
Income. Total interest income increased $2.4 million or 8.3% to $31.4
million for the year ended September 30, 2008 from $29.0 million for the year
ended September 30, 2007. For those same comparative periods, the average yield
on interest-earning assets decreased 5 basis points to 5.59% from 5.64% while
the average balance of interest-earning assets increased $47.5 million to $561.9
million from $514.4 million.


16




Interest
income on loans increased $2.3 million or 9.4%, to $27.0 million for the year
ended September 30, 2008 from $24.7 million for the year ended September 30,
2007. This increase was due, in part, to a $41.0 million increase in the average
balance of loans receivable, including loans held for sale, to $459.9 million
for the year ended September 30, 2008 from $419.0 million for the year ended
September 30, 2007. The impact of the higher average balance was partially
offset by an reduction in the average yield on loans which decreased 2 basis
points to 5.86% from 5.88% for those same comparative periods. The increase in
the average balance of loans receivable, and the resilience of the yield on
loans receivable to the reductions in overall market interest rates, was largely
attributable to the Company’s strategic emphasis on commercial
lending.




Interest
income on securities increased $576,000 or 19.5% to $3.5 million for the year
ended September 30, 2008 from $3.0 million for the year ended September 30,
2007. The increase was due, in part, to a 38 basis point increase in the yield
on investment securities which increased to 4.58% for the year ended September
30, 2008 from 4.20% for the year ended September 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 impact on interest income attributable to the increase in the
yield was augmented by a $6.7 million increase in the average balance of
investment securities, excluding the available for sale mark to market
adjustment, to $77.0 million for the year ended September 30, 2008 from $70.3
million for the year ended September 30, 2007.




Interest
and dividend income on federal funds sold, other interest-earning deposits and
FHLB stock decreased $482,000 to $938,000 for the year ended September 30, 2008
from $1.4 million for the year ended September 30, 2007. This decrease in income
was primarily due to a decline in the average yield on these assets which
decreased 190 basis points to 3.76% from 5.66% for the same comparative periods
reflecting reductions in short term market interest rates. A $122,000 decline in
the average balance of these assets to $25.0 million for the year ended
September 30, 2008 from $25.1 million for the year ended September 30, 2007 also
contributed to the reduced interest income reported for these assets. 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 $665,000 or 4.0% to $17.4
million for the year ended September 30, 2008 from $16.7 million for the year
ended September 30, 2007. For those same comparative periods, the average cost
of interest-bearing liabilities decreased 48 basis points from 4.21% to 3.73%,
while the average balance of interest-bearing liabilities increased $69.1
million or 17.4% to $466.7 million for the year ended September 30, 2008 from
$397.6 million for the year ended September 30, 2007.




Interest
expense on deposits increased $543,000 or 3.8% to $15.0 million for the year
ended September 30, 2008 from $14.5 million for the year ended September 30,
2007. This increase was due largely to growth in the average balance of
interest-bearing deposits which grew $52.0 million to $405.4 million for the
year ended September 30, 2008 from $353.4 million for the year ended September
30, 2007. The reported net growth in average interest-bearing deposits comprised
$23.6 million and $39.1 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 $10.7 million primarily reflecting the disintermediation of
such deposits into higher yielding time deposits.


17




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 39 basis points to 3.70% for the year ended September 30,
2008 from 4.09% for the year ended September 30, 2007. The components of this
decrease include a 105 basis point reduction in the average cost of
interest-bearing checking accounts to 3.36% from 4.41%, a 41 basis point
reduction in the average cost of savings accounts to 2.25% from 2.66% and a 31
basis point reduction in the cost of certificates of deposit to 4.46% from
4.77%. 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. 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 increased $122,000 to $2.4 million for the year ended
September 30, 2008 from $2.3 million for the year ended September 30, 2007. This
increase in interest expense reflects a $17.1 million increase in the average
balance of borrowings to $61.4 million for the year ended September 30, 2008
from $44.3 million for the year ended September 30, 2007. The impact on interest
expense attributable to this increase in average balance was partially offset by
a decline in cost of borrowings which decreased 123 basis points to 3.91% for
the year ended September 30, 2008 from 5.14% for the year ended September 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 $1.7 million or 14.2%,
to $14.0 million for the year ended September 30, 2008 from $12.3 million for
the year ended September 30, 2007. For those same comparative periods, the
Company’s net interest rate spread widened 43 basis points to 1.87% from 1.44%
while the net interest margin increased 11 basis points to 2.50% from 2.39%. 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 $17.8 million to $37.3 million for the year
ended September 30, 2008 from $19.6 million for the year ended September 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 $1.7
million in net interest income was reduced by approximately $1.0 million
attributable to interest earned during the earlier comparative period on the
interest-earning assets that were subsequently utilized to fund share
repurchases.


18




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 $501,000 for the year ended September 30, 2008,
representing an increase of $56,000 from the year ended September 30, 2007. The
expense for fiscal 2008 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 September 30, 2008 representing an increase of 5 basis
points from 0.58% at September 30, 2007. These ratios reflect allowance for loan
loss balances of $3.0 million and $2.6 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 0.18% of total assets at September 30, 2008 compared with 0.22% at September
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 $369,000 to $1.8 million for the
year ended September 30, 2008 from $1.4 million for the year ended September 30,
2007. The growth in noninterest income was largely attributable to increases in
deposit service fees and charges which increased $233,000 in fiscal 2008
compared to fiscal 2007. A portion of that increase was attributable 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 an
increase of $78,000 in income from the cash surrender value of life insurance
attributable to a combination of higher average balances and improved yields on
those assets. Additionally, the Company reported an increase of $85,000 in other
noninterest income attributable primarily to growth in loan-related fees and
charges including, but not limited to, increases in prepayment penalties and
late charges. Offsetting a portion of these increases in noninterest income was
a $34,000 reduction in loan sale gains during fiscal 2008 compared with fiscal
2007. The reduction reflects the Company’s discontinuation of selling a portion
of one-to four-family loans originated into the secondary market – as had been
the Company’s strategy during fiscal 2007 - in favor of adding all loans
originated in fiscal 2008 to the portfolio.




Noninterest
Expense. Noninterest expense increased $998,000 to $13.5 million for the
year ended September 30, 2008 from $12.5 million for the year ended September
30, 2007. This growth in noninterest expense was primarily attributable to
comparative increases in salaries and employee benefits of $206,000, increases
in occupancy and equipment expense of $791,000 and increases in data processing,
legal and other noninterest expenses totaling $34,000, $48,000 and
$103,000, respectively. These increases in noninterest expense were partially
offset by a $177,000 reduction in advertising and marketing
expenses.




19




The
reported increase in salaries and employee benefits for fiscal 2008 included a
charge resulting from the death of a director emeritus of the Company during the
second fiscal 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 that quarter. Other increases in compensation expense, including those
attributable to the three de novo branches opened during fiscal 2007, were more
than offset by the Company’s compensation expense control efforts which resulted
in a nearly 10% reduction in the number of full time equivalent employees during
fiscal 2008.




The
reported decrease in advertising and marketing expense during fiscal 2008 was
largely attributable to the absence of grand opening expenses during fiscal 2008
associated with the three de novo branches opened during fiscal 2007. The full
year’s operating costs of those branches contributed significantly to the
reported increase in occupancy and equipment and data processing expenses for
fiscal 2008. However, such increases also reflected the ongoing operating costs
associated with the Bank’s relocated Bloomfield branch which opened in April,
2008. Additionally, the reported increase in occupancy and equipment expense
also reflected the costs associated with outsourcing a significant portion of
the Company’s information technology infrastructure support services that had
been provided by in-house resources during the earlier comparative
period.




The
reported increase in legal expense was primarily attributable to revisions to
benefit plan agreements as required by newly-implemented Internal Revenue
Service regulations as well as other human resource-related legal
expenses.




Finally,
the reported increase in other noninterest expense resulted primarily from
increases in FDIC insurance expense. This increase was attributable, in part, to
overall growth in the balance of FDIC-insured deposits. However, the increase
also reflected the expiration of FDIC insurance credits during fiscal 2008 which
had previously reduced the Bank’s net cost of FDIC deposit insurance throughout
fiscal 2007.




Provision
for Income Taxes. The provision for income taxes increased $386,000 for
the year ended September 30, 2008 compared with the year ended September 30,
2007. For the more recent period, the Company’s effective income tax rate was
31.3% compared with an effective income tax rate of 23.8% 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.


20




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 earlier comparative 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.




Additionally,
during the fourth quarter of fiscal 2008, the Company established an $18,000
valuation allowance against a net deferred state income tax asset that
originally resulted from capital losses associated with the sale of certain
investment securities during prior periods. The expense associated with this
valuation allowance is included in the provision for income taxes which
contributed to the reported increase in the Company’s effective income tax rate
for fiscal 2008.




Comparison
of Operating Results for the Years Ended September 30, 2007 and
2006




General.
Net income for the year ended September 30, 2007 was $557,000, a decrease of
$1.6 million, or 73.9% from the year ended September 30, 2006. The decrease in
net income resulted from a decrease in net interest income and an increase in
noninterest expense partially offset by a decrease in the provision for loan
losses, an increase in noninterest income and a decrease in the provision for
income taxes.




Interest
Income. Total interest income increased 14.5% or $3.7 million to $29.0
million for the year ended September 30, 2007 from $25.3 million for the year
ended September 30, 2006. For those same comparative years, the average yield on
interest-earning assets increased 52 basis points to 5.64% from 5.12% while the
average balance of interest-earning assets increased $19.0 million to $514.4
million from $495.4 million.




Interest
income on loans increased $4.4 million or 21.5%, to $24.7 million for fiscal
2007 from $20.3 million for fiscal 2006. This increase was due, in part, to a
$49.1 million increase in the average balance of loans receivable, including
loans held for sale, to $419.0 million for fiscal 2007 from $369.9 million for
fiscal 2006. In addition, the average yield on loans increased 39 basis points
to 5.88% from 5.49% 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.




The
rise in interest income on loans was partially offset by lower interest income
on securities, which decreased $975,000 or 24.8% to $3.0 million for fiscal 2007
from $3.9 million for fiscal 2006. The decrease was due in part, to a $28.1
million decline in the average balance of investment securities to $70.3 million
for fiscal 2007 from $98.4 million for fiscal 2006. The impact on interest
income attributable to this decrease was partially offset by a 21 basis point
increase in the average yield on securities which grew to 4.20% from 3.99% 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 and existing adjustable rate
securities in portfolio which have repriced upward in accordance with the
general movement of market interest rates.


21




Further,
interest and dividend income on federal funds sold, other interest-bearing
deposits and FHLB stock increased $295,000 to $1.4 million for fiscal 2007 from
$1.1 million for fiscal 2006. This growth in income was due, in part, to an
increase in the average yield on these assets which grew 150 basis points to
5.66% in fiscal 2007 from 4.16% in fiscal 2006. The impact of the increase in
average yield was partially offset by a decline in the average balance of these
assets which decreased $2.0 million to $25.1 million in fiscal 2007 from $27.1
million in fiscal 2006. 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 $4.9 million or 41.8% to
$16.7 million for fiscal 2007 from $11.8 million for fiscal 2006. For those same
comparative years, the average cost of interest-bearing liabilities increased 89
basis points from 3.32% to 4.21%, while the average balance of interest-bearing
liabilities increased $41.8 million or 11.7% to $397.6 million for fiscal 2007
from $355.9 million for fiscal 2006.




Interest
expense on deposits increased $5.3 million or 57.3% to $14.5 million for fiscal
2007 from $9.2 million for fiscal 2006. This increase was due largely to growth
in the average balance of interest-bearing deposits which grew $50.3 million to
$353.4 million for fiscal 2007 from $303.1 million for fiscal 2007. The reported
net growth in average interest-bearing deposits comprised $39.7 million and
$21.3 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 $10.7
million.




The
growth in the average balance of interest-bearing deposits for fiscal 2007 was
primarily attributable to the Bank’s branch in Verona, New Jersey which opened
in the first quarter of fiscal 2007. To a lesser extent, average balance of
interest bearing deposits was also influenced by the growth in the Nutley and
Clifton branches which opened later in the year. The growth in deposits at the
Bank’s three newest branches, coupled with higher promotional interest rates
paid on those deposits, contributed significantly to the reported increase in
deposit interest expense. However, a portion of this increase was also
attributable to continued upward pressure on deposit interest rates in the other
highly competitive markets serviced by the Bank.




In
total, the average cost of interest-bearing deposits increased 106 basis points
to 4.09% for fiscal 2007 from 3.03% for fiscal 2006. The components of this
increase include a 225 basis point increase in the average cost of
interest-bearing checking accounts to 4.41% from 2.16%, a 90 basis point
increase in the average cost of certificates of deposit to 4.77% from 3.87%, and
a 52 basis point increase in the average cost of savings accounts to 2.66% from
2.14%.


22




Interest
expense on FHLB advances decreased $337,000 to $2.3 million for fiscal 2007 from
$2.6 million for fiscal 2006. This decrease was due, in part, to a $8.5 million
decrease in the average balance of advances to $44.3 million for fiscal 2007
from $52.7 million for fiscal 2006. The impact on interest expense from the
lower average balances reported were offset, in part, by a 19 basis point
increase in the average cost of advances to 5.14% for fiscal 2007 from 4.95% for
fiscal 2006. The higher average cost for the current period was primarily
attributable to the repayment of maturing term advances since the close of the
earlier comparative period whose total weighted average cost was below that of
the average outstanding balance of the remaining advances during fiscal
2007.




Net
Interest Income. Net interest income decreased by $1.2 million or 9.2%,
to $12.3 million for fiscal 2007 from $13.5 million for fiscal 2006. The
Company’s net interest rate spread declined 36 basis points to 1.44% from 1.80%
for the same comparative periods, while the net interest margin decreased 34
basis points to 2.39% from 2.73%. As noted earlier, the change in the Company’s
net interest margin was also significantly impacted by the Company’s share
repurchase plans through which approximately $26.0 million of interest earning
assets was utilized to repurchase 2.2 million shares, or approximately 15%, of
the Company’s stock. Based upon the growth in the average balance of the
Company’s treasury stock account during fiscal 2007 and its average yield on
earning assets reported for fiscal 2006, the Company estimates that
approximately $777,000, or 63%, of the $1.2 million decrease in net interest
income was attributable to interest earned during fiscal 2006 on the earning
assets that were subsequently utilized in fiscal 2007 to repurchase
shares.




Provision
for Loan Losses.Using the allowance methodology described under Critical
Accounting Policies found later in this discussion, the provision for loan
losses totaled $445,000 for fiscal 2007, representing a decrease of $20,000 from
fiscal 2006. The provision expense for 2007 reflected the reversal of an $86,000
loss reserve against a previously impaired loan participation. Management’s
review of the loan conducted as of December 31, 2006 concluded that, based upon
the loan’s consistent payment history and the improved financial performance of
the underlying commercial property, the loan was no longer impaired resulting in
the reversal of the prior impairment reserve. The loan’s classification was also
upgraded from doubtful to substandard. Excluding this adjustment, the Bank’s
provision expense for 2007 totaled $531,000 or an increase of $66,000 compared
with that recorded during fiscal 2006. This adjusted variance reflects the
increase in loan loss provision generally attributable to the comparatively
higher net growth in our commercial loan portfolio between the two fiscal years.
Specifically, as adjusted, each period’s provision resulted largely from the
incremental growth in the outstanding balance of the loans on which historical
and environmental loss factors are applied. For the year ended September 30,
2007, outstanding loan balances, excluding the allowance for loan loss and loans
held for sale, increased $39.8 million to $440.5 million from $400.7 million at
September 30, 2006. The growth was comprised of net increases in commercial
loans totaling $45.7 million. 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 $3.0 million. Offsetting the growth in these categories was a
$8.9 million decrease in the balance of 1-4 family first
mortgages.


23




By
comparison, for the year ended September 30, 2006, total outstanding loan
balances, excluding the allowance for loan loss and loans held for sale, grew by
$58.1 million – an amount exceeding that of the current year. However, the
growth was comprised of net increases in the outstanding balance of commercial
loans, as defined above, of approximately $35.8 million – comparatively lower
net growth on those loans on which the Bank applies relatively higher historical
and environment loss factors. Loan growth in the earlier period also included
net increases in one- to four-family mortgages totaling $13.0 million coupled
with increases in home equity loans and home equity lines of credit of $9.2
million – loan types for which the Bank applies comparatively lower historical
and environmental loss factors.




In
total, the allowance for loan losses as a percentage of gross loans outstanding
increased to 0.58% at September 30, 2007- an increase of 5 basis points from
0.53% at September 30, 2006. These ratios reflect allowance for loan loss
balances of $2.6 million and $2.1 million, respectively. The overall increase in
the ratio of allowance to gross loans reported reflects the changing composition
of the portfolio with greater strategic emphasis on loans with higher risk
factors. As noted earlier, no additions to the allowance for loan losses were
required for nonperforming loans, which decreased to 0.22% of total assets at
September 30, 2007 from 0.41% at September 30, 2006. The level of the allowance
is based on estimates and the ultimate losses may vary from those
estimates.




Noninterest
Income. Noninterest income increased $401,000 to $1.4 million for fiscal
2007 from $1.0 million for fiscal 2006. The net increase was attributable, in
large part, to a comparative decrease in losses on sale of investment securities
totaling $260,000. The losses reported in the prior period included a $271,000
loss on sale of one underperforming investment security. The Company also
reported an increase of $153,000 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 recognized a $28,000 increase in the
gain on sale of loans resulting from comparatively greater 1-4 family mortgage
loan sales than had been recorded in the prior period. Offsetting these
increases in noninterest income were comparative reductions in other noninterest
income of $39,000. This decline resulted primarily from comparatively lower
receipts of loan prepayment penalties due to lower commercial loan prepayments
partially offset by increases in loan withdrawal fees and loan servicing
fees.




Noninterest
Expense. Noninterest expense increased $1.9 million to $12.5 million for
fiscal 2007 from $10.7 million for fiscal 2006. Significant components of this
growth in operating costs include comparative increases to salaries and employee
benefits of $1.7 million, increased occupancy and equipment costs of $149,000,
increases in data processing costs of $95,000, increases in advertising and
marketing costs of $95,000 and increases to other noninterest expenses of
$124,000. Offsetting these increases were decreases of $150,000 and $123,000 in
legal costs and professional and consulting fees, respectively.




The
$1.7 million increase in salaries and employee benefits for the comparative
periods includes increases of approximately $551,000 that were directly
attributable to the Bank’s three full service branches that were opened during
fiscal 2007. Salary and employee benefit expenses for 2007 also increased
approximately $113,000 due to net staffing additions in the Bank’s commercial
lending department. Other noteworthy increases to salaries and employee benefits
resulted from the implementation of the Company’s 2006 Equity Incentive Plan
approved by shareholders in May, 2006. Specifically, total expenses associated
with the Company’s restricted stock and stock option plans increased
approximately $653,000 in fiscal 2007 compared with that reported for fiscal
2006. Finally, the variance for the comparative years also reflects the reversal
of $131,000 of profit sharing expense recorded in the first quarter of the
earlier comparative period resulting from the discontinuation of that
benefit.


24




The
remaining $190,000 increase in noninterest expense during fiscal 2007 included
increases in occupancy and equipment, advertising and other noninterest expense
totaling $368,000 which were largely attributable to the start up and ongoing
operation of the Bank’s three newest branches opened during fiscal 2007. The
Company also recognized an increase in data processing costs of $95,000 in 2007.
A portion of this increase was also attributable to the start up and ongoing
operation of the Bank’s newest branches. However, the increase in data
processing costs for fiscal 2007 also included approximately $64,000 of one-time
expenses attributable to upgrading the Bank’s public website and online banking
services and the implementation of certain outsourced network infrastructure
management services. The latter expense 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 also resulted in the elimination of one managerial
position within the Bank’s MIS department during the fourth quarter ended
September 30, 2007.




The
reported decrease in legal fees was primarily attributable to comparatively
lower utilization of legal services during fiscal 2007. The earlier comparative
period included expenses for legal services resulting from the completion of the
Company’s second step conversion for which similar expenses were not incurred
during the current year. Legal expenses during the earlier comparative period
included those relating to the modification of the Bank’s employee benefit
plans, including the Bank’s 401k and ESOP, as well as the development of the
2006 Equity Incentive Plan.




Finally,
comparative decreases in professional and consulting fees were primarily the
result of lower internal and external audit costs associated with the Sarbanes
Oxley Act of 2002 during the current year. The expense incurred for fiscal 2006
included a portion of the first year costs associated with the development,
implementation and audit of controls over financial statement reporting in
accordance with Section 404 of the Act. The lower costs in fiscal 2007 reflect
the reduced financial burden of maintaining and updating those controls as
required to ensure ongoing compliance with the Act.




Provision
for Income Taxes. The provision for income taxes decreased $1.1 million
for fiscal 2007 compared with fiscal 2006. For those same comparative years, the
Company’s effective tax rate was 23.8% and 38.0%, respectively. The lower
effective tax rate in the current period rate was largely the result of the
level of “tax favored” income reported by the Company for the comparative years
in relation to the level of pretax net income reported by the Company for those
same periods. “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.


25




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
fiscal 2007 and fiscal 2006. However, the comparatively lower pretax net income
reported for fiscal 2007 resulted in the items discussed above having a
proportionally greater net beneficial impact on the Company’s reported effective
tax rate in the current year.


26




Average
Balances, Interest, and Average Yields/Cost




The
following table presents certain information at and for the periods indicated
regarding average balances of assets and liabilities as well as the total dollar
amounts of interest income from average interest-earning assets and interest
expense on average interest-bearing liabilities and average yields and costs.
The yields and costs for the periods indicated are derived by dividing income or
expense by the average balances of assets or liabilities, respectively, for the
periods presented. Average balances were derived from average daily
balances.




At
      September 30,
            
            Years
      Ended September 30,2008
            
            2008
            
            2007
            
            2006Balance
            
            Yield/
              Cost
            
            Average
              Balance
            
            Interest
              Earned/
              Paid
            
            Average
              Yield/
              Cost
            
            Average
              Balance
            
            Interest
              Earned/
              Paid
            
            Average
              Yield/
              Cost
            
            Average
              Balance
            
            Interest
              Earned/
              Paid
            
            Average
              Yield/
              Cost(Dollars
      in thousands)Interest-earning
      assets:Loans receivable,
      net(1)
            
            $
            478,574
            
            
            5.82
            %
            $
            459,931
            
            $
            26,970
            
            
            5.86
            %
            $
            418,969
            
            $
            24,656
            
            
            5.88
            %
            $
            369,916
            
            $
            20,291
            
            
            5.49
            %Investment
      securities(2)
            
            
            89,572
            
            
            4.72
            
            
            76,997
            
            
            3,529
            
            
            4.58
            
            
            70,301
            
            
            2,953
            
            
            4.20
            
            
            98,405
            
            
            3,928
            
            
            3.99Other
      interest-earning assets(3)
            
            
            17,961
            
            
            2.14
            
            
            24,964
            
            
            938
            
            
            3.76
            
            
            25,085
            
            
            1,420
            
            
            5.66
            
            
            27,058
            
            
            1,125
            
            
            4.16Total
      interest-earning assets
            
            
            586,107
            
            
            5.54
            
            
            561,892
            
            
            31,437
            
            
            5.59
            
            
            514,355
            
            
            29,029
            
            
            5.64
            
            
            495,379
            
            
            25,344
            
            
            5.12Non-interest-earning
      assets
            
            
            35,526
            
            
            
            
            
            34,672
            
            
            
            
            
            
            
            
            28,130
            
            
            
            
            
            
            
            
            17,415Total
      assets
            
            $
            621,633
            
            
            
            
            $
            596,564
            
            
            
            
            
            
            
            $
            542,485
            
            
            
            
            
            
            
            $
            512,794Interest-bearing
      liabilities:NOW
      & money market
            
            $
            75,307
            
            
            2.58
            %
            $
            99,742
            
            $
            3,355
            
            
            3.36
            %
            $
            76,114
            
            $
            3,358
            
            
            4.41
            %
            $
            36,379
            
            $
            785
            
            
            2.16
            %Savings
      deposits
            
            
            85,092
            
            
            2.00
            
            
            89,926
            
            
            2,020
            
            
            2.25
            
            
            100,665
            
            
            2,674
            
            
            2.66
            
            
            111,398
            
            
            2,389
            
            
            2.14Certificates
      of deposit
            
            
            255,841
            
            
            3.91
            
            
            215,687
            
            
            9,625
            
            
            4.46
            
            
            176,601
            
            
            8,425
            
            
            4.77
            
            
            155,350
            
            
            6,017
            
            
            3.87Total
      interest-bearing deposits
            
            
            416,240
            
            
            3.28
            
            
            405,355
            
            
            15,000
            
            
            3.70
            
            
            353,380
            
            
            14,457
            
            
            4.09
            
            
            303,127
            
            
            9,191
            
            
            3.03Borrowings
            
            
            75,547
            
            
            3.18
            
            
            61,370
            
            
            2,397
            
            
            3.91
            
            
            44,256
            
            
            2,274
            
            
            5.14
            
            
            52,725
            
            
            2,611
            
            
            4.95Total
      interest-bearing liabilities
            
            
            491,787
            
            
            3.26
            
            
            466,725
            
            
            17,397
            
            
            3.73
            
            
            397,636
            
            
            16,731
            
            
            4.21
            
            
            355,852
            
            
            11,802
            
            
            3.32Non-interest-bearing
      deposits
            
            
            31,447
            
            
            
            
            
            29,050
            
            
            
            
            
            
            
            
            28,183
            
            
            
            
            
            
            
            
            23,664Other
      non-interest-bearing liabilities
            
            
            7,551
            
            
            
            
            
            7,397
            
            
            
            
            
            
            
            
            6,905
            
            
            
            
            
            
            
            
            6,522Total
      liabilities
            
            
            530,785
            
            
            
            
            
            503,172
            
            
            
            
            
            
            
            
            432,724
            
            
            
            
            
            
            
            
            386,038Accumulated
      other comprehensive income
            
            
            (541
            )
            
            
            
            
            (257
            )
            
            
            
            
            
            
            
            (620
            )
            
            
            
            
            
            
            
            (1,129
            )Retained
      earnings & other equity
            
            
            91,389
            
            
            
            
            
            93,649
            
            
            
            
            
            
            
            
            110,381
            
            
            
            
            
            
            
            
            127,885Total
      liabilities and equity
            
            $
            621,633
            
            
            
            
            $
            596,564
            
            
            
            
            
            
            
            $
            542,485
            
            
            
            
            
            
            
            $
            512,794Net interest
      spread(4)
            
            
            
            
            
            2.28
            %
            
            
            
            $
            14,040
            
            
            1.87
            %
            
            
            
            $
            12,298
            
            
            1.44
            %
            
            
            
            $
            13,542
            
            
            1.80
            %Net interest
      margin(5)
            
            
            
            
            
            2.80
            %
            
            
            
            
            
            
            
            2.50
            %
            
            
            
            
            
            
            
            2.39
            %
            
            
            
            
            
            
            
            2.73
            %Ratio
      of interest-earning assets to interest-bearing liabilities
            
            
            119.18
            %
            
            
            
            
            120.39
            %
            
            
            
            
            
            
            
            129.35
            %
            
            
            
            
            
            
            
            139.21
            %







(1)
                    Calculated
      net of deferred fees and loss reserves. Includes loans held for
      sale.(2)
                    Calculated
      based on amortized cost and excludes FAS 115 market value
      adjustment.(3)
                    Includes
      Federal Home Loan Bank stock at cost and term deposits with other
      financial institutions.(4)
                    Interest
      rate spread represents the difference between the average yield on
      interest-earning assets and the average cost of interest-bearing
      liabilities.(5)
                    Net
      interest margin represents net interest income as a percentage of average
      interest-earning
assets.


27




Rate/Volume
Analysis




The
following table presents the effects of changing rates and volumes on the
interest income and interest expense of the Company. The rate column shows the
effects attributable to changes in rate (changes in rate multiplied by prior
volume). The volume column shows the effects attributable to changes in volume
(changes in volume multiplied by prior rate). The rate/volume column shows
changes attributable to changes in both rate and volume, which cannot be
segregated.




2008-2007Increase
      (Decrease)Volume
            
            
            Rate
            
            
            Rate/
              Volume
            
            
            Net(Dollars
      in thousands)Interest-earning
      assets:Loans
      receivable
            
            $
            2,411
            
            
            $
            (88
            )
            
            $
            (9
            )
            
            $
            2,314Securities
            
            
            281
            
            
            
            269
            
            
            
            26
            
            
            
            576Other
      interest-earning assets
            
            
            (7
            )
            
            
            (477
            )
            
            
            2
            
            
            
            (482
            )Total
      interest-earning assets
            
            
            2,685
            
            
            
            (296
            )
            
            
            19
            
            
            
            2,408Interest-bearing
      liabilities:NOW
      and money market accounts
            
            
            1,042
            
            
            
            (798
            )
            
            
            (248
            )
            
            
            (4
            )Savings
      accounts
            
            
            (285
            )
            
            
            (413
            )
            
            
            44
            
            
            
            (654
            )Certificates
      of deposit
            
            
            1,865
            
            
            
            (544
            )
            
            
            (120
            )
            
            
            1,201Total
      interest bearing deposits
            
            
            2,622
            
            
            
            (1,755
            )
            
            
            (324
            )
            
            
            543Federal
      Home Loan Bank advances
            
            
            879
            
            
            
            (545
            )
            
            
            (211
            )
            
            
            123Total
      interest-bearing liabilities
            
            
            3,501
            
            
            
            (2,300
            )
            
            
            (535
            )
            
            
            666Increase
      (decrease) in net interest income
            
            $
            (816
            )
            
            $
            2,004
            
            
            $
            554
            
            
            $
            1,742




2007-2006Increase
      (Decrease)Volume
            
            
            Rate
            
            
            Rate/
              Volume
            
            
            Net(Dollars
      in thousands)Interest-earning
      assets:Loans
      receivable
            
            $
            2,691
            
            
            $
            1,478
            
            
            $
            196
            
            
            $
            4,365Securities
            
            
            (1,122
            )
            
            
            206
            
            
            
            (59
            )
            
            
            (975
            )Other
      interest-earning assets
            
            
            (82
            )
            
            
            407
            
            
            
            (30
            )
            
            
            295Total
      interest-earning assets
            
            
            1,487
            
            
            
            2,091
            
            
            
            107
            
            
            
            3,685Interest-bearing
      liabilities:NOW
      and money market accounts
            
            
            857
            
            
            
            820
            
            
            
            896
            
            
            
            2,573Savings
      accounts
            
            
            (230
            )
            
            
            570
            
            
            
            (55
            )
            
            
            285Certificates
      of deposit
            
            
            823
            
            
            
            1,394
            
            
            
            191
            
            
            
            2,408Total
      interest bearing deposits
            
            
            1,450
            
            
            
            2,784
            
            
            
            1,032
            
            
            
            5,266Federal
      Home Loan Bank advances
            
            
            (419
            )
            
            
            98
            
            
            
            (16
            )
            
            
            (337
            )Total
      interest-bearing liabilities
            
            
            1,031
            
            
            
            2,882
            
            
            
            1,016
            
            
            
            4,929Increase
      (decrease) in net interest income
            
            $
            456
            
            
            $
            (791
            )
            
            $
            (909
            )
            
            $
            (1,244
            )


28




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, construction and business 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.




During
fiscal 2008, changes to environmental factors used in the Bank’s allowance for
loan loss calculations were made during the third fiscal quarter and continued
to reflect the Company’s increased strategic focus on commercial lending within
an increasing challenging economic and lending environment . Environmental
factors applied to the outstanding balance of commercial loans reflected the
changes to overall lending policies, procedures and practices associated with
that strategic emphasis, the increased volume of commercial loans in relation to
total loan originations, changes in credit concentration reflecting larger loan
balances to borrowers and concerns about deteriorating economic conditions and
their impact on regional real estate values. The impact of these increases were
largely offset by reductions in environmental factors attributable to tightened
underwriting standards within the one- to four-family mortgage loan
portfolio.


29




Management
generally expects the allowance for loan losses to continue to increase to the
extent that the Company’s strategic emphasis on commercial lending, coupled with
its traditional one- to four-family lending activities, continues to result in
net loan growth given the currently challenging economic and lending
environment.




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, and to enhance
its interest rate risk management.




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 September 30, 2008, the total approved
loan origination commitments outstanding amounted to $16.3 million. At the same
date, unused lines of credit were $31.3 million and loans in process were $14.5
million.


30




Certificates
of deposit scheduled to mature in one year or less at September 30, 2008,
totaled $234.0 million. Management’s 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 deposits will remain with the Bank.
Additionally, at September 30, 2008 the Bank has $12.5 million of borrowings
from the Federal Home Loan Bank of New York (“FHLB”) maturing in one year or
less of which approximately $7.5 million is currently expected to repaid without
renewal at maturity. Repayment of such advances increases the Bank’s unused
borrowing capacity from the FHLB which, at September 30, 2008 totaled $114.9
million. 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. On that basis, the total
collateralized borrowing limit from the FHLB was $155.4 million of which we had
$40.5 million outstanding.




The
following tables disclose our contractual obligations and commercial commitments
as of September 30, 2008. Scheduled principal payments on amortizing borrowings
are reported as maturities.




Total
            
            
            Less
      Than
              1
      Year
            
            
            1-3
      Years
            
            
            4-5
      Years
            
            
            After
              5
      Years(In
      thousands)Time
      Deposits
            
            $
            255,841
            
            
            $
            234,031
            
            
            $
            7,712
            
            
            $
            4,511
            
            
            $
            9,587Borrowings(1)
            
            
            75,547
            
            
            
            12,547
            
            
            
            22,000
            
            
            
            6,000
            
            
            
            35,000Total
            
            $
            331,388
            
            
            $
            246,578
            
            
            $
            29,712
            
            
            $
            10,511
            
            
            $
            44,587




Total
              Amounts
              Committed
            
            
            Less
      Than
              1
      Year
            
            
            1-3
      Years
            
            
            4-5
      Years
            
            
            Over
              5
      Years(In
      thousands)Lines of credit(1)
            
            $
            31,318
            
            
            $
            3,353
            
            
            $
            2,079
            
            
            $
            787
            
            
            $
            25,099Land
      lease - Bloomfield
            
            
            2,279
            
            
            
            127
            
            
            
            277
            
            
            
            295
            
            
            
            1,580Building
      lease - Nutley
            
            
            1,408
            
            
            
            84
            
            
            
            184
            
            
            
            189
            
            
            
            951Loans in
      process(1)
            
            
            14,530
            
            
            
            9,000
            
            
            
            5,530
            
            
            
            —
            
            
            
            —Other commitments to
      extend credit(1)
            
            
            16,288
            
            
            
            16,288
            
            
            
            —
            
            
            
            —
            
            
            
            —Total
            
            $
            65,823
            
            
            $
            28,852
            
            
            $
            8,070
            
            
            $
            1,271
            
            
            $
            27,630









(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 representsa
      contingent liability to the Bank, expires in June
  2009.




31




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 $73.7 million at September 30, 2008, or 11.87% of total
assets on that date. As of September 30, 2008, the Bank exceeded all capital
requirements of the Office of Thrift Supervision. The Bank’s regulatory capital
ratios at September 30, 2008 were as follows: core capital 11.94%; Tier I
risk-based capital, 18.52%; and total risk-based capital, 19.28%. The regulatory
capital requirements to be considered well capitalized are 5.0%, 6.0% and 10.0%,
respectively.




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




A
discussion of recent accounting pronouncements is presented in “Footnote 1 –
Summary of Significant Accounting Policies” contained within the Consolidated
Financial Statements included in this annual report.




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:


32




•
            The
      interest income we earn on our interest-earning assets such as loans and
      securities; and•
            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-costing liabilities from an interest rate risk perspective
are set forth in the preceding section of this report titled “Comparison of
Financial Condition at September 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.


33




As
noted in the Executive Summary discussion earlier, that trend was reversed
during fiscal 2008 when the Company’s net interest rate spread increased 43
basis points to 1.87% in comparison to 1.44% for fiscal 2007 as reductions in
the Company’s cost of interest-bearing liabilities outpaced that of the
reductions in our yield on earning assets. In large part, the improvements in
net interest rate spread for fiscal 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 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
September 30, 2008, excluding allowance for loan losses and net deferred
origination costs and including loans held for sale, loans totaled $480.6
million comprising 77.3% of total assets. As presented in the loan-related
tables in the preceding section of this report titled “Comparison of Financial
Condition at September 30, 2008 and September 30, 2007”, loans reported as fixed
rate mortgages totaled $219.0 million or 35.2% of total assets while adjustable
rate mortgages (“ARMs”) totaled $188.3 million or 30.3% 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 and/or the potential for additional net 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 such deposits as rates on such accounts
were incrementally adjusted to “non-promotional” levels was rigorously tested
throughout fiscal 2008. While some expected outflows of the most price sensitive
deposits was experienced – as evidenced particularly within the Verona branch –
we also experienced noteworthy disintermediation of deposits across all branches
into higher yielding accounts, such as certificates of deposit. Moreover, as
noted earlier, recent volatility in the financial markets has resulted in
competitors seeking to attract and/or retain liquidity through their retail
deposit product offerings. Such strategies have resulted in significant upward
pressure on retail deposit rates in relation to the general level of market
interest rates.


34




Quantitative
Aspects of Market Risk. The following table presents American Bank of New
Jersey’s net portfolio value as of September 30, 2008 – 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
            
            Net
      Portfolio
              Value
      as % of
              Present
      Value of Assets
            
            
            
            
            Board
              Established
      LimitsChanges
      in
              Rates
            
            
            $
      Amount
            
            $
      Change
            
            %
      Change
            
            Net
              Portfolio
              Value
              Ratio
            
            Basis
              Point
              Change
            
            Net
              Portfolio
              Value
              Ratio
            
            Basis
              Point
              Change(Dollars
      in thousands)+300
      bp
            
            
            
            54,270
            
            -27,544
            
            
            -34
            %
            
            9.09
            %
            
            -379bp
            
            
            5.00
            %
            
            -450bp+200
      bp
            
            
            
            64,193
            
            -17,621
            
            
            -22
            %
            
            10.53
            %
            
            -236bp
            
            
            6.00
            %
            
            -300bp+100
      bp
            
            
            
            73,474
            
            -8,341
            
            
            -10
            %
            
            11.80
            %
            
            -108bp
            
            
            7.00
            %
            
            -150bp0
      bp
            
            
            
            81,814
            
            
            
            
            
            
            
            12.89
            %
            
            
            
            
            8.00
            %-100
      bp
            
            
            
            86,530
            
            4,716
            
            
            +6
            %
            
            13.42
            %
            
            +54bp
            
            
            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.


35




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 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
noninterest income.




At
September 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. 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.


36




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 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.


37




AMERICAN BANCORP LOGO




MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING




Management
of American Bancorp of New Jersey, Inc. (“the Company”) is responsible for
establishing and maintaining an effective system of internal control over
financial reporting. The Company’s system of internal control over financial
reporting is designed 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. There are
inherent limitations in the effectiveness of any system of internal control over
financial reporting, including the possibility of human error and circumvention
or overriding of controls. Accordingly, even an effective system of internal
control over financial reporting can provide only reasonable assurance with
respect to financial statement preparation. Projections of any evaluation of
effectiveness to future periods are subject to the risks that controls may
become inadequate because of changes in conditions or that the degree of
compliance with the policies or procedures may deteriorate.




Management
assessed the Company’s systems of internal control over financial reporting as
of September 30, 2008. This assessment was based on criteria for effective
internal control over financial reporting described in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, management believes that, as of
September 30, 2008, the Company maintained effective internal control over
financial reporting based on those criteria.




The
Company’s independent registered public accounting firm that audited the
consolidated financial statements that are included in this annual report on
Form 10-K, has expressed an opinion of the effectiveness of the Company’s
internal control over financial reporting as of September 30, 2008. The
attestation report of Crowe Horwath LLP appears on the following
page.


38




REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board
      of DirectorsAmerican
      Bancorp of New Jersey, Inc.Bloomfield,
      New Jersey




We have
audited the accompanying consolidated balance sheets of American Bancorp of New
Jersey Inc. as of September 30, 2008 and 2007, and the related statements of
income, changes in stockholders’ equity, and cash flows for each of the years in
the three-year period ended September 30, 2008. We also have audited American
Bancorp of New Jersey Inc.’s internal control over financial reporting as of
September 30, 2008, based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). American Bancorp of New Jersey Inc.’s management is
responsible for these financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on these consolidated financial
statements and an opinion on the Company’s internal control over financial
reporting based on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement and whether
effective internal control over financial reporting was maintained in all
material respects. Our audits of the consolidated financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.


39




A
company’s internal control over financial reporting is a process designed 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. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the consolidated financial
statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of American Bancorp of New
Jersey Inc. as of September 30, 2008 and 2007, and the results of its operations
and its cash flows for each of the years in the three-year period ended
September 30, 2008 in conformity with accounting principles generally accepted
in the United States of America. Also in our opinion, American Bancorp of New
Jersey Inc. maintained, in all material respects, effective internal control
over financial reporting as of September 30, 2008, based on criteria established
in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).


/s/
      Crowe Horwath LLPCrowe
      Horwath LLPLivingston,
      New JerseyDecember
      8, 2008


40




AMERICAN
BANCORP OF NEW JERSEY, INC. CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION September
30, 2008 and 2007 (In
thousands except share data)







2008
            
            
            2007ASSETSCash
      and cash equivalentsCash
      and due from banks
            
            $
            5,158
            
            
            $
            9,983Interest-bearing
      deposits
            
            
            15,217
            
            
            
            14,638Federal
      funds sold
            
            
            —
            
            
            
            12,800Total
      cash and cash equivalents
            
            
            20,375
            
            
            
            37,421Securities
      available-for-sale
            
            
            81,163
            
            
            
            58,093Securities
      held-to-maturity (fair value: 2008-$7,443, 2007 - $6,671)
            
            
            7,509
            
            
            
            6,730Loans
      held for sale
            
            
            —
            
            
            
            1,243Loans
      receivable, net of allowance for loan losses (2008-$3,035,
      2007-$2,568)
            
            
            478,574
            
            
            
            437,883Premises
      and equipment
            
            
            11,894
            
            
            
            10,856Federal
      Home Loan Bank stock, at cost
            
            
            2,743
            
            
            
            2,553Cash
      surrender value of life insurance
            
            
            13,761
            
            
            
            13,214Accrued
      interest receivable
            
            
            2,391
            
            
            
            2,212Other
      assets
            
            
            3,223
            
            
            
            3,533Total
      assets
            
            $
            621,633
            
            
            $
            573,738LIABILITIES
      AND EQUITYDepositsNon-interest-bearing
            
            $
            31,447
            
            
            $
            30,494Interest-bearing
            
            
            416,240
            
            
            
            398,106Total
      deposits
            
            
            447,687
            
            
            
            428,600Advance
      payments by borrowers for taxes and insurance
            
            
            2,811
            
            
            
            2,702Borrowings
            
            
            75,547
            
            
            
            37,612Accrued
      expenses and other liabilities
            
            
            4,740
            
            
            
            4,231Total
      liabilities
            
            
            530,785
            
            
            
            473,145Commitments
      and contingent liabilitiesStockholders’
      EquityPreferred
      stock, $.10 par value, 10,000,000 shares authorized at September 30, 2008
      and 2007;
            
            
            —
            
            
            
            —Common
      stock, $.10 par value, 20,000,000 shares authorized, 14,527,953 shares
      issued at September 30, 2008 and September 30, 2007, 10,859,692 and
      11,946,190 outstanding at September 30, 2008 and September 30,
      2007
            
            
            1,453
            
            
            
            1,453Additional
      paid in capital
            
            
            115,661
            
            
            
            113,607Unearned
      ESOP shares
            
            
            (7,649
            )
            
            
            (8,099
            )Retained
      earnings
            
            
            23,648
            
            
            
            24,258Treasury
      Stock; 2008-3,668,261, 2007-2,581,763 shares
            
            
            (41,724
            )
            
            
            (30,353
            )Accumulated
      other comprehensive loss
            
            
            (541
            )
            
            
            (273
            )Total
      stockholders’ equity
            
            
            90,848
            
            
            
            100,593Total
      liabilities and stockholders’ equity
            
            $
            621,633
            
            
            $
            573,738




See
      accompanying notes to consolidated financial
  statements


41




AMERICAN
BANCORP OF NEW JERSEY, INC. CONSOLIDATED
STATEMENTS OF INCOME Years
Ended September 30, 2008, 2007 and 2006 (In
thousands except share data)







2008
            
            
            2007
            
            
            2006Interest
      and dividend incomeLoans,
      including fees
            
            $
            26,970
            
            
            $
            24,656
            
            
            $
            20,291Securities
            
            
            3,529
            
            
            
            2,953
            
            
            
            3,928Federal
      funds sold and other
            
            
            938
            
            
            
            1,420
            
            
            
            1,125Total
      interest income
            
            
            31,437
            
            
            
            29,029
            
            
            
            25,344Interest
      ExpenseNow
      and money market
            
            
            3,355
            
            
            
            3,358
            
            
            
            785Savings
            
            
            2,020
            
            
            
            2,674
            
            
            
            2,389Certificates
      of deposit
            
            
            9,625
            
            
            
            8,425
            
            
            
            6,017Federal
      Home Loan Bank advances
            
            
            2,397
            
            
            
            2,274
            
            
            
            2,611Total
      interest expense
            
            
            17,397
            
            
            
            16,731
            
            
            
            11,802Net
      interest income
            
            
            14,040
            
            
            
            12,298
            
            
            
            13,542Provision
      for loan losses
            
            
            501
            
            
            
            445
            
            
            
            465Net
      interest income after provision for loan losses
            
            
            13,539
            
            
            
            11,853
            
            
            
            13,077Noninterest
      incomeDeposit
      service fees and charges
            
            
            954
            
            
            
            721
            
            
            
            722Income
      from cash surrender value of life insurance
            
            
            547
            
            
            
            468
            
            
            
            315Gain
      on sale of loans
            
            
            9
            
            
            
            43
            
            
            
            15Loss
      on sales of securities available-for-sale
            
            
            (5
            )
            
            
            (11
            )
            
            
            (271
            )Other
            
            
            286
            
            
            
            201
            
            
            
            240Total
      noninterest income
            
            
            1,791
            
            
            
            1,422
            
            
            
            1,021Noninterest
      expenseSalaries,
      benefits, and director fees
            
            
            8,813
            
            
            
            8,607
            
            
            
            6,910Occupancy
      and equipment
            
            
            1,889
            
            
            
            1,098
            
            
            
            949Data
      processing
            
            
            798
            
            
            
            764
            
            
            
            669Advertising
            
            
            232
            
            
            
            409
            
            
            
            314Professional
      and consulting
            
            
            400
            
            
            
            407
            
            
            
            530Legal
            
            
            184
            
            
            
            136
            
            
            
            286Other
            
            
            1,226
            
            
            
            1,123
            
            
            
            999Total
      noninterest expense
            
            
            13,542
            
            
            
            12,544
            
            
            
            10,657Income
      before provision for income taxes
            
            
            1,788
            
            
            
            731
            
            
            
            3,441Provision
      for income taxes
            
            
            560
            
            
            
            174
            
            
            
            1,308Net
      income
            
            $
            1,228
            
            
            $
            557
            
            
            $
            2,133Earnings
      per share:Basic
            
            $
            0.12
            
            
            $
            0.05
            
            
            $
            0.16Diluted
            
            $
            0.12
            
            
            $
            0.05
            
            
            $
            0.16




See
      accompanying notes to consolidated financial
  statements


42




AMERICAN
BANCORP OF NEW JERSEY, INC. CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Years
Ended September 30, 2008, 2007 and 2006 (In
thousands)







Common
              Stock
            
            
            Additional
              Paid-In
              Capital
            
            
            Unearned
              ESOP
              Shares
            
            
            Unearned
              RSP
              Shares
            
            
            Retained
              Earnings
            
            
            Accumulated
              Other
              Comprehensive
              Loss
            
            
            Treasury
      Stock
            
            
            Amount
              Reclassified
              On
      ESOP
              Shares
            
            
            Total
              Equity
            
            
            Compre-
              hensive
              Income
              (Loss)Balance
      at September 30, 2005
            
            $
            555
            
            
            $
            17,242
            
            
            $
            (1,064
            )
            
            $
            (1,212
            )
            
            $
            25,417
            
            
            $
            (959
            )
            
            $
            —
            
            
            $
            (473
            )
            
            $
            39,506Transfer
      of Unearned RSP to APIC due to adoption of FAS 123R
            
            
            —
            
            
            
            (1,212
            )
            
            
            —
            
            
            
            1,212
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Issuance
      and exchange of common stock, net of issuance costs (9,918,750 shares
      issued)
            
            
            862
            
            
            
            96,661
            
            
            
            (7,935
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            89,588MHC
      capital infusion from merger
            
            
            —
            
            
            
            99
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            99RSP
      stock grants (358,484 shares issued)
            
            
            36
            
            
            
            (36
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Share
      purchases (566,779 shares)
            
            
            —
            
            
            
            (2,254
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (4,282
            )
            
            
            —
            
            
            
            (6,536
            )RSP
      shares earned including tax benefit of vested awards
            
            
            —
            
            
            
            668
            
            
            
            —
            
            
            
            
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            668RSP
      shares transfer from APIC
            
            
            —
            
            
            
            98
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (98
            )
            
            
            —
            
            
            
            —Stock
      options earned
            
            
            —
            
            
            
            384
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            384ESOP
      shares earned
            
            
            —
            
            
            
            130
            
            
            
            450
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            580Cash
      dividends paid – $0.16 per share
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (2,112
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (2,112
            )Reclassification
      due to elimination of repurchase obligation
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            473
            
            
            
            473Comprehensive
      incomeNet
      income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,133
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,133
            
            
            $
            2,133Change
      in unrealized gain (loss) on securities available-for-sale, net of
      taxes
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            78
            
            
            
            —
            
            
            
            —
            
            
            
            78
            
            
            
            78Total
      comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            2,211Balance
      at September 30, 2006
            
            $
            1,453
            
            
            $
            111,780
            
            
            $
            (8,549
            )
            
            $
            —
            
            
            $
            25,438
            
            
            $
            (881
            )
            
            $
            (4,380
            )
            
            $
            —
            
            
            $
            124,861




See
      accompanying notes to consolidated financial
  statements


43




CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Years
Ended September 30, 2008, 2007 and 2006 (In
thousands)









Common
              Stock
            
            
            Additional
              Paid-In
              Capital
            
            
            Unearned
              ESOP
              Shares
            
            
            Retained
              Earnings
            
            
            Accumulated
              Other
              Comprehensive
              Income
            
            
            TreasuryStock
            
            
            Total
              Equity
            
            
            Compre-
              hensive
              Income
              (Loss)Balance
      at September 30, 2006
            
            $
            1,453
            
            
            $
            111,780
            
            
            $
            (8,549
            )
            
            $
            25,438
            
            
            $
            (881
            )
            
            $
            (4,380
            )
            
            $
            124,861Cumulative
      effect of adoption of SAB 108
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            130
            
            
            
            —
            
            
            
            —
            
            
            
            130Balance
      at October 1, 2006
            
            
            1,453
            
            
            
            111,780
            
            
            
            (8,549
            )
            
            $
            25,568
            
            
            
            (881
            )
            
            
            (4,380
            )
            
            
            124,991RSP
      stock grants (6,249 shares issued)
            
            
            —
            
            
            
            (76
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            76
            
            
            
            —RSP
      shares earned including tax benefit of vested awards
            
            
            —
            
            
            
            1,183
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,183Share
      purchases (2,223,279 shares)
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (26,049
            )
            
            
            (26,049
            )Stock
      options earned
            
            
            
            
            
            
            563
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            563ESOP
      shares earned
            
            
            —
            
            
            
            157
            
            
            
            450
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            607Cash
      dividends paid – $0.16 per share
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (1,867
            )
            
            
            —
            
            
            
            —
            
            
            
            (1,867
            )Comprehensive
      incomeNet
      income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            557
            
            
            
            —
            
            
            
            —
            
            
            
            557
            
            
            $
            557Change
      in unrealized loss on securities available-for-sale, net of
      taxes
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            608
            
            
            
            —
            
            
            
            608
            
            
            
            608Total
      comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            1,165Balance
      at September 30, 2007
            
            $
            1,453
            
            
            $
            113,607
            
            
            $
            (8,099
            )
            
            $
            24,258
            
            
            $
            (273
            )
            
            $
            (30,353
            )
            
            $
            100,593




See
      accompanying notes to consolidated financial
  statements


44




CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Years
Ended September 30, 2008, 2007 and 2006 (In
thousands)









Common
              Stock
            
            
            Additional
              Paid-In
              Capital
            
            
            Unearned
              ESOP
              Shares
            
            
            Retained
              Earnings
            
            
            Accumulated
              Other
              Comprehensive
              Income
      (Loss)
            
            
            Treasury
      Stock
            
            
            Total
              Equity
            
            
            Compre-
              hensive
              Income
              (Loss)Balance
      at September 30, 2007
            
            $
            1,453
            
            
            $
            113,607
            
            
            $
            (8,099
            )
            
            $
            24,258
            
            
            $
            (273
            )
            
            $
            (30,353
            )
            
            $
            100,593RSP
      shares earned including tax benefit of vested awards
            
            
            —
            
            
            
            1,274
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,274Tax
      benefit on dividends paid on unvested RSP shares
            
            
            —
            
            
            
            72
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            72Share
      purchases (1,090,664 shares)
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (11,419
            )
            
            
            (11,419
            )Stock
      options earned
            
            
            —
            
            
            
            623
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            623Stock
      options exercised
            
            
            
            
            
            
            (19
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            48
            
            
            
            29ESOP
      shares earned
            
            
            —
            
            
            
            104
            
            
            
            450
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            554Cash
      dividends paid – $0.18 per share
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (1,838
            )
            
            
            —
            
            
            
            —
            
            
            
            (1,838
            )Comprehensive
      incomeNet
      income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,228
            
            
            
            —
            
            
            
            —
            
            
            
            1,228
            
            
            $
            1,228Change
      in unrealized loss on securities available-for-sale, net of
      taxes
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (268
            )
            
            
            —
            
            
            
            (268
            )
            
            
            (268
            )Total
      comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            960Balance
      at  September 30, 2008
            
            $
            1,453
            
            
            $
            115,661
            
            
            $
            (7,649
            )
            
            $
            23,648
            
            
            $
            (541
            )
            
            $
            (41,724
            )
            
            $
            90,848




See
      accompanying notes to consolidated financial
  statements




45


AMERICAN
      BANCORP OF NEW JERSEY, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWSYears
      Ended September 30, 2008, 2007, and 2006(In
      thousands)




2008
            
            
            2007
            
            
            2006Cash
      flows from operating activitiesNet
      Income
            
            $
            1,228
            
            
            $
            557
            
            
            $
            2,133Adjustments
      to reconcile net income to net cash provided by operating
      activitiesDepreciation
      and amortization
            
            
            566
            
            
            
            379
            
            
            
            342Net
      amortization of premiums and discounts
            
            
            (69
            )
            
            
            (10
            )
            
            
            (89
            )Losses
      on sales of securities available-for-sale
            
            
            5
            
            
            
            11
            
            
            
            271ESOP
      compensation expense
            
            
            554
            
            
            
            607
            
            
            
            580RSP
      compensation expense
            
            
            1,243
            
            
            
            1,111
            
            
            
            637SOP
      compensation expense
            
            
            623
            
            
            
            563
            
            
            
            384Provision
      for loan losses
            
            
            501
            
            
            
            445
            
            
            
            465Increase
      in cash surrender value of life insurance
            
            
            (547
            )
            
            
            (467
            )
            
            
            (315
            )Gain
      on sale of loans
            
            
            (7
            )
            
            
            (43
            )
            
            
            (15
            )Proceeds
      from sales of loans
            
            
            1,869
            
            
            
            9,337
            
            
            
            5,775Origination
      of loans held for sale
            
            
            (619
            )
            
            
            (10,543
            )
            
            
            (5,525
            )Increase
      in accrued interest receivable
            
            
            (179
            )
            
            
            (233
            )
            
            
            (511
            )Decrease
      (increase) in other assets
            
            
            1,077
            
            
            
            (400
            )
            
            
            61Change
      in deferred income taxes
            
            
            (562
            )
            
            
            (633
            )
            
            
            (520
            )Increase
      in other liabilities
            
            
            509
            
            
            
            591
            
            
            
            192Net
      cash provided by operating activities
            
            
            6,192
            
            
            
            1,272
            
            
            
            3,865Cash
      flows from investing activitiesNet
      increase in loans receivable
            
            
            (41,192
            )
            
            
            (39,704
            )
            
            
            (58,083
            )Purchases
      of securities held-to-maturity
            
            
            (2,157
            )
            
            
            —
            
            
            
            (4,935
            )Maturities
      of securities held-to-maturity
            
            
            —
            
            
            
            2,000
            
            
            
            —Principal
      paydowns on securities held-to-maturity
            
            
            1,365
            
            
            
            1,800
            
            
            
            2,184Purchases
      of securities available-for-sale
            
            
            (54,841
            )
            
            
            (18,753
            )
            
            
            (52,606
            )Sales
      of securities available-for-sale
            
            
            11,510
            
            
            
            3,227
            
            
            
            9,750Maturities
      of securities available-for-sale
            
            
            2,000
            
            
            
            16,000
            
            
            
            11,000Principal
      paydowns on securities available-for-sale
            
            
            17,865
            
            
            
            16,941
            
            
            
            19,654Purchase
      of Federal Home Loan Bank stock
            
            
            (958
            )
            
            
            (1,999
            )
            
            
            (2,836
            )Redemption
      of Federal Home Loan Bank stock
            
            
            768
            
            
            
            2,802
            
            
            
            2,599Purchase
      of bank-owned life insurance
            
            
            —
            
            
            
            (4,000
            )
            
            
            (920
            )Purchase
      of premises and equipment
            
            
            (1,604
            )
            
            
            (4,712
            )
            
            
            (2,734
            )Net
      cash used in investing activities
            
            
            (67,244
            )
            
            
            (26,398
            )
            
            
            (76,927
            )Cash
      flows from financing activitiesNet
      increase in deposits
            
            
            19,087
            
            
            
            101,453
            
            
            
            (13,778
            )Stock
      subscriptions held for parent received (refunded or
    applied)
            
            
            —
            
            
            
            —
            
            
            
            (115,201
            )Net
      change in advance payments by borrowers for taxes and
      insurance
            
            
            109
            
            
            
            236
            
            
            
            22Proceeds
      from borrowings
            
            
            60,000
            
            
            
            —
            
            
            
            —Repayment
      of borrowings
            
            
            (22,065
            )
            
            
            (8,063
            )
            
            
            (8,059
            )Net
      change in FHLB of New York overnight lines of credit
            
            
            —
            
            
            
            (10,400
            )
            
            
            10,400RSP
      tax benefit of vested awards
            
            
            31
            
            
            
            72
            
            
            
            31Tax
      benefit on dividends paid on unvested RSP shares
            
            
            72
            
            
            
            —
            
            
            
            —Proceeds
      from stock option exercises
            
            
            29
            
            
            
            —
            
            
            
            —Cash
      dividends paid
            
            
            (1,838
            )
            
            
            (1,867
            )
            
            
            (2,112
            )MHC
      capital infusion
            
            
            —
            
            
            
            —
            
            
            
            99RSP
      and treasury share purchases
            
            
            (11,419
            )
            
            
            (26,049
            )
            
            
            (6,536
            )Net
      proceeds from stock issuance
            
            
            —
            
            
            
            —
            
            
            
            89,588Net
      cash provided by (used in) financing activities
            
            
            44,006
            
            
            
            55,382
            
            
            
            (45,546
            )Net
      change in cash and cash equivalents
            
            
            (17,046
            )
            
            
            30,256
            
            
            
            (118,608
            )Cash
      and cash equivalents at beginning of year
            
            
            37,421
            
            
            
            7,165
            
            
            
            125,773Cash
      and cash equivalents at end of year
            
            $
            20,375
            
            
            $
            37,421
            
            
            $
            7,165(Continued)


46




AMERICAN
      BANCORP OF NEW JERSEY, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWSYears
      Ended September 30, 2008, 2007, and 2006(In
      thousands)




2008
            
            
            2007
            
            
            2006Supplemental
      cash flow information:Cash
      paid during the period forInterest
            
            $
            17,455
            
            
            $
            16,871
            
            
            $
            11,814Income
      taxes, net of refunds
            
            
            525
            
            
            
            909
            
            
            
            1,797See
      accompanying notes to consolidated financial statements.


47




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Nature
of Operations and Principles of Consolidation: American Bancorp of New
Jersey, Inc. (“ABNJ”) 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, which was previously owned by ASB Holding Company
(“ASBH”) and American Savings, MHC, a federally chartered mutual holding
company. American Bank of New Jersey originally converted from a mutual to a
stock savings bank in a mutual holding company reorganization in 1999 in which
no stock was sold to any person other than American Savings,
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
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 American Savings, MHC were
converted and sold in a subscription offering. Through this transaction, ASB
Holding company ceased to exist and was supplanted by American Bancorp of New
Jersey 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 employee stock ownership plan and the ESOP used those funds to
acquire 793,500 shares of common stock at $10 per share.




As part
of the conversion, the 1,666,350 outstanding shares of ASB Holding Company were
each exchanged for 2.55102 shares of American Bancorp of New Jersey, the new
holding Company of American Bank of New Jersey. This exchange resulted in an
additional 4,250,719 of outstanding shares of American Bancorp of New Jersey,
Inc. for a total of 14,169,469 outstanding shares.


(Continued)


48




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)




The
consolidated financial statements include American Bancorp of New Jersey, Inc.
and its wholly owned subsidiaries, American Bank of New Jersey (“the Bank”) and
ASB Investment Corp (“the Investment Corp”), and the Bank’s wholly owned
subsidiary American Savings Investment Corp (“ASIC”), together referred to as
“the Company.” Intercompany transactions and balances are eliminated in
consolidation.




The only
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 in New Jersey. ASIC was formed for the purpose of investing 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 tax rate lower than the statutory state income tax rate.
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 products, including
annuities, to customers of the Bank and the general public, with initial
activities limited to the sale of fixed rate annuities.




The
accounting and reporting policies of the Company are based upon accounting
principles generally accepted in the United States of America and conform to
predominant practices within the banking industry. Significant accounting
polices followed by the Company are presented below.




Use
of Estimates: In preparing the financial statements, management is
required to make estimates and assumptions that affect the amounts reported in
the financial statements and the disclosures provided. Actual results could
differ significantly from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to the
determination of the allowance for losses on loans and the valuation of real
estate acquired in connection with foreclosures or in satisfaction of loans.
Additionally, prepayment speed assumptions related to mortgage-backed securities
and collateralized mortgage obligations are the primary basis upon which related
discounts and premiums are accreted and amortized into interest income. As such,
these assumptions affect the carrying values and yields reported for such
securities.




A
substantial portion of the Bank’s loans are secured by real estate in the New
Jersey market. Accordingly, as with most financial institutions in the market
area, the ultimate collectibility of a substantial portion of the Bank’s loan
portfolio is susceptible to changes in market conditions.


(Continued)


49




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)




Cash
and Cash Equivalents: For purposes of the statements of cash flows, cash
and cash equivalents include cash on hand and in banks; interest-bearing
deposits with original maturities of 90 days or less; and federal funds sold,
which are generally sold for one-day periods.Net cash flows are reported for customer loan and deposit transactions,
interest-bearing deposits in other financial institutions, and federal funds
purchased.




Securities:
Debt securities are classified as held to maturity and carried at amortized cost
when management has the positive intent and ability to hold them to maturity.
Debt securities are classified as available for sale when they might be sold
before maturity. Equity securities, including mutual funds, with readily
determinable fair values are classified as available for sale. Securities
available for sale are carried at fair value, with unrealized holding gains and
losses reported in other comprehensive income, net of tax. Other securities such
as Federal Home Loan Bank stock are carried at cost.




Interest
income includes amortization of purchase premium or discount. Premiums and
discounts are amortized using the level yield method. Gains and losses on sales
are based on the amortized cost of the security sold.




Declines
in the fair value of securities below their cost that are other than temporary
are reflected as realized losses. In estimating other-than-temporary losses,
management considers: (1) the length of time and extent that fair value has been
less than cost, (2) the financial condition and near term prospects of the
issuer, and (3) the Company’s ability and intent to hold the security for a
period sufficient to allow for any anticipated recovery in fair
value.




Loans:
Mortgages on real estate and other loans are stated at the outstanding principal
amount of the loans, net of deferred loan fees and the allowance for loan
losses. Interest income on loans is accrued and credited to interest income as
earned. Loans are generally placed on nonaccrual status when they become
delinquent 90 days or more as to principal or interest or when it appears that
principal or interest is uncollectible. Interest accrued prior to a loan being
placed on nonaccrual status is subsequently reversed. Interest income on
nonaccrual loans is recognized only in the period in which it is ultimately
collected. Loans are returned to an accrual status when factors indicating
doubtful collectibility no longer exist.




The Bank
generally identifies the population of potentially impaired loans to be all
nonaccrual commercial loans. However, additional criteria may be considered in
identifying commercial loans that may be potentially impaired. Commercial loans
are defined herein as multifamily, commercial real estate, construction and
business loans. Smaller balance homogeneous loans that may be collectively
evaluated for impairment such as residential mortgage loans and installment
loans, are specifically excluded from the impaired loan portfolio.


(Continued)


50




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)




Loans
Held-For-Sale: Loans held-for-sale are carried at the lower of cost or
market, using the aggregate method. Net unrealized losses, if any, are recorded
as a valuation allowance and charged to earnings. Gains and losses on sales of
mortgage loans are recognized at the time of sale.




Allowance
For Loan Losses: The allowance for loan losses is a valuation account
that reflects our estimation of the losses in our loan portfolio to the extent
they are both probable and reasonable to estimate. The allowance is maintained
through provisions for loan losses that are charged to income in the period they
are established. We charge losses on loans against the allowance for loan losses
when we believe the collection of loan principal is unlikely. Recoveries on
loans previously charged-off are added back to the
allowance.




Our
methodology for calculating the allowance for lease and loan losses is based
upon FAS 5 and FAS 114. Under FAS 114, we identify and analyze certain loans for
impairment. If an impairment is identified on a specific loan, a loss allocation
is recorded in the amount of that impairment. Loan types subject to FAS 114 are,
multi-family mortgage loans, non-residential mortgage loans, construction loans
and business loans. We also conduct a separate review of all loans on which the
collectibility of principal may not be reasonably assured. We evaluate all
classified loans individually and base our determination of a loss factor on the
likelihood of collectibility of principal including consideration of the value
of the underlying collateral securing the loan.




Under our
implementation of FAS 5, we segregate loans by loan category and evaluate
homogeneous loans as a group. The loss characteristics of aggregated homogeneous
loans are examined using two sets of factors: (1) annual historical loss
experience factors that consider the net charge-off history of the Bank and (2)
environmental factors. Although there may be other factors that also warrant
consideration, we consider the following environmental factors:


•
            levels
      and trends of delinquencies and impaired loans;•
            levels
      and trends of charge-offs and recoveries;•
            trends
      in volume and terms of loans;•
            changes
      to lending policies, procedures and practices;•
            experience,
      ability and depth of lending management and staff;•
            national,
      regional and local economic trends and conditions;•
            industry
      conditions; and•
            changes
      in credit concentration.(Continued)


51




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)




Loan
Fees: Loan fees and certain direct loan origination costs for originating
mortgage loans are deferred and the net fee or cost is recognized into interest
income using the interest method over the actual lives of the
loans.




Real
Estate Owned: When properties are acquired through foreclosure, they are
transferred at the lower of the carrying value or estimated fair value of the
collateral and any required write-downs are charged to the allowance for loan
losses. Subsequently, such properties are carried at the lower of the adjusted
cost or fair value less estimated selling costs. Estimated fair value of the
property is generally based on an appraisal. The Bank maintains an allowance for
real estate owned losses for subsequent declines in estimated fair value.
Expenses of holding foreclosed properties, net of other income, are charged to
operations as incurred. Gains and losses from sales of such properties are
recognized at the time of sale.




Premises
and Equipment: Land is carried at cost. Office properties and equipment
are carried at cost, less accumulated depreciation. Office buildings and
improvements are depreciated using the straight-line method with useful lives
ranging from 20 to 40 years. Furniture, fixtures, and equipment are depreciated
using the straight-line method with useful lives ranging from 3 to 10 years.
Leasehold Improvements are depreciated using the straight-line method with
useful lives over the lesser of estimated life or lease
term.




Mortgage
Servicing Rights:Servicing rights are recognized separately when they are acquired through
sales of loans. For sales of mortgage loans prior to October 1, 2007, a portion
of the cost of the loan was allocated to the servicing right based on relative
fair values. The Company adopted SFAS No. 156 on October 1, 2007, and for sales
of mortgage loans beginning in 2007, servicing rights are initially recorded at
fair value with the income statement effect recorded in gains on sales of loans.
Fair value is based on market prices for comparable mortgage servicing
contracts, when available, or alternatively, is based on a valuation model that
calculates the present value of estimated future net servicing income. The
valuation model incorporates assumptions that market participants would use in
estimating future net servicing income, such as the cost to service, the
discount rate, the custodial earnings rate, an inflation rate, ancillary income,
prepayment speeds and default rates and losses. The Company compares the
valuation model inputs and results to published industry data in order to
validate the model results and assumptions. All classes of servicing assets are
subsequently measured using the amortization method which requires servicing
rights to be amortized into non-interest income in proportion to, and over the
period of, the estimated future net servicing income of the underlying
loans.


(Continued)


52




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)




Servicing
assets are evaluated for impairment based upon the fair value of the rights as
compared to carrying amount. Impairment is determined by stratifying rights into
groupings based on predominant risk characteristics, such as interest rate, loan
type and investor type. Impairment is recognized through a valuation allowance
for an individual grouping, to the extent that fair value is less than the
carrying amount. If the Company later determines that all or a portion of the
impairment no longer exists for a particular grouping, a reduction of the
allowance may be recorded as an increase to income. Changes in valuation
allowances are reported with other income on the income statement. The fair
values of servicing rights are subject to significant fluctuations as a result
of changes in estimated and actual prepayment speeds and default rates and
losses.




Servicing fee income which
is reported on the income statement as other income is recorded for fees earned
for servicing loans. The fees are based on a contractual percentage of the
outstanding principal; or a fixed amount per loan and are recorded as income
when earned. The amortization of mortgage servicing rights is netted against
loan servicing fee income. Servicing fees totaled $22,988, $31,508 and $16,703
for the years ended September 30, 2008, 2007 and 2006. Late fees and ancillary
fees related to loan servicing are not material.




Income
Taxes: The provision for income taxes is the total of the current year
income tax due or refundable and the change in the deferred tax assets and
liabilities. Deferred tax assets and liabilities are the estimated future tax
consequences attributable to differences between the financial statements’
carrying amounts of existing assets and liabilities and their respective tax
bases, computed using enacted tax rates. The realization of deferred tax assets
is assessed and a valuation allowance provided, when necessary, for that portion
of the asset which is not likely to be realized.


(Continued)


53




AMERICAN
BANCORP OF NEW JERSEY, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS September
30, 2008, 2007, and 2006 (Tables
in Thousands)







NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)




Employee
Stock Ownership Plan: The cost of shares issued to the ESOP, but not yet
allocated to participants, is shown as a reduction of shareholders’ equity.
Compensation expense is based on the market price of shares as they are
committed to be released to participant accounts. Dividends on allocated ESOP
shares reduce retained earnings; dividends on unearned ESOP shares reduce debt
and accrued interest.




Stock-Based
Compensation: Compensation expense regarding stock options is recognized
using the modified prospective transition method under Statement of Financial
Accounting Standards (“SFAS”) No. 123(R), Share-based Payment. Accordingly, the
Company has recorded stock-based employee compensation cost using the fair value
method since 2006. See Note 11 Other-Stock-Based
Compensation..




The Bank
is recognizing compensation expense for shares of common stock awarded under the
2005 Restricted Stock Plan and 2006 Equity Incentive Plan. Expense is recognized
over the vesting period of five years from the date of award at the fair market
value of the shares on the date they were awarded.




Earnings
Per Common Share: Basic earnings per common share is net income divided
by the weighted average number of common shares outstanding during the period.
ESOP shares and restricted stock awards are considered outstanding for this
calculation unless unearned. Diluted earnings per common share includes the
dilutive effect of additional potential common shares issuable under stock
options and restricted stock awards.




Comprehensive
Income: Comprehensive income consists of net income and other
comprehensive income (loss). Other comprehensive income (loss) includes
unrealized gains and losses on securities available-for-sale, net of tax, which
are also recognized as separate components of equity.




Federal
Home Loan Bank (FHLB) stock: The Bank is a member of the FHLB system.
Members are required to own a certain amount of stock based on the level of
borrowings and other factors, and may invest in additional amounts. FHLB stock
is carried at cost, classified as a restricted security, and periodically
evaluated for impairment based on ultimate recovery of par value. Both cash and
stock dividends are reported as income.




Company
Owned Life Insurance: The Company has purchased life insurance policies
on certain key executives. Company owned life insurance is recorded at the
amount that can be realized.


(Continued)


54




AMERICAN
BANCORP OF NEW JERSEY, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS September
30, 2008, 2007, and 2006 (Tables
in Thousands)







NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)




Long-term
Assets: Premises and equipment, core deposit and other intangible assets,
and other long term assets are reviewed for impairment when events indicate
their carrying amount may not be recoverable from future undiscounted cash
flows. If impaired, the assets are recorded at fair value.




Loan
Commitments and Related Financial Instruments: Financial instruments
include off balance sheet credit instruments, such as commitments to make loans
and commercial letters of credit, issued to meet customer financing needs. The
face amount for these items represents the exposure to loss, before considering
customer collateral or ability to repay. Such financial instruments are recorded
when they are funded.




Fair
Value of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed in a separate note. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.




Loss
Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probableand
an amount or range of loss can be reasonably estimated. Management does not
believe there now are such matters that will have a material effect on the
financial statements.




Reclassifications:
Some items in the prior year financial statements were reclassified to conform
to the current presentation.




Recent
Accounting Pronouncements and Developments:




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.


(Continued)


55




AMERICAN
BANCORP OF NEW JERSEY, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS September
30, 2008, 2007, and 2006 (Tables
in Thousands)







NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)




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 adoption of SFAS No. 159 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. The Company
will not adopt the fair value option under SFAS No. 159 as of 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
will record a cumulative effect adjustment to retained earnings of $193,281 on
October 1, 2008 resulting from the adoption of EITF 06-04.




In
September 2006, the FASB Emerging Issues Task Force finalized Issue No. 06-5,
Accounting
for Purchases of Life Insurance - Determining the Amount That Could Be Realized
in Accordance with FASB Technical Bulletin No. 85-4 (Accounting for Purchases of
Life Insurance){Issue}.This Issue requires that a policyholder consider
contractual terms of a life insurance policy in determining the amount that
could be realized under the insurance contract. It also requires that if the
contract provides for a greater surrender value if all individual policies in a
group are surrendered at the same time, that the surrender value be determined
based on the assumption that policies will be surrendered on an individual
basis. Lastly, the Issue requires disclosure when there are contractual
restrictions on the Company’s ability to surrender a policy. The adoption of
EITF 06-5 on October 1, 2007 had no impact on the Company’s financial condition
or results of operation.


(Continued)


56




AMERICAN
BANCORP OF NEW JERSEY, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS September
30, 2008, 2007, and 2006 (Tables
in Thousands)







NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)




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.


(Continued)


57




AMERICAN
BANCORP OF NEW JERSEY, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS September
30, 2008, 2007, and 2006 (Tables
in Thousands)







NOTE
2 – SECURITIES




The fair
value of securities available-for-sale was as follows:


Fair
              Value
            
            
            Gross
              Unrealized
              Gains
            
            
            Gross
              Unrealized
              Losses2008U.S.
      Government and federal agency
            
            $
            —
            
            
            $
            —
            
            
            $
            —Mortgage-backedFHLMC
            
            
            24,507
            
            
            
            7
            
            
            
            (314
            )FNMA
            
            
            26,791
            
            
            
            3
            
            
            
            (577
            )GNMA
            
            
            64
            
            
            
            —
            
            
            
            —Collateralized
      mortgage obligations
              Agency
            
            
            29,801
            
            
            
            207
            
            
            
            (227
            )$
            81,163
            
            
            $
            217
            
            
            $
            (1,118
            )2007U.S.
      Government and federal agency
            
            $
            2,005
            
            
            $
            5
            
            
            $
            —Mortgage-backedFHLMC
            
            
            9,040
            
            
            
            39
            
            
            
            (22
            )FNMA
            
            
            11,696
            
            
            
            25
            
            
            
            (321
            )GNMA
            
            
            81
            
            
            
            1
            
            
            
            —Collateralized
      mortgage obligations
              Agency
            
            
            35,271
            
            
            
            93
            
            
            
            (247
            )$
            58,093
            
            
            $
            163
            
            
            $
            (590
            )




Proceeds
from sales of available-for-sale securities amounted to $11,510,206, $3,227,089
and $9,750,233 during the years ended September 30, 2008, 2007 and 2006
resulting in gross gains of $0 for fiscal 2008, 2007 and 2006 and gross losses
of $5,234, $10,734 and $271,084 for those same periods. Security sale gains and
losses are recorded on the trade date using the specific identification
method.




The gross
losses noted above represent capital losses for which the Bank recognized a
deferred income tax benefit. At September 30, 2008, the remaining balance of the
deferred tax asset relating to these capital losses was approximately $122,000.
For income tax purposes, the benefit of such capital losses may only be
recognized to the extent that the Company records future capital gains within
the carry-forward timeframes established by tax authorities. During fiscal 2008,
the Company recorded a state deferred tax valuation allowance of approximately
$18,000 pertaining to a portion of the previously recognized deferred tax assets
related to the capital losses on sales of securities.


(Continued)


58




AMERICAN
BANCORP OF NEW JERSEY, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS September
30, 2008, 2007, and 2006 (Tables
in Thousands)







NOTE
2 - SECURITIES (Continued)




The
amortized cost and fair value of securities held-to-maturity were as
follows:


Amortized
              Cost
            
            
            Gross
              Unrealized
              Gains
            
            
            Gross
              Unrealized
              Losses
            
            
            Fair
              Value2008U.S.
      Government and federal agency
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —Mortgage-backedFHLMC
            
            $
            116
            
            
            $
            —
            
            
            $
            (1
            )
            
            $
            115FNMA
            
            
            5,646
            
            
            
            42
            
            
            
            (13
            )
            
            
            5,675GNMA
            
            
            120
            
            
            
            1
            
            
            
            (1
            )
            
            
            120Collateralized
      mortgage obligations
              Agency
            
            
            40
            
            
            
            1
            
            
            
            —
            
            
            
            41Non-agency
            
            
            1,587
            
            
            
            —
            
            
            
            (95
            )
            
            
            1,492$
            7,509
            
            
            $
            44
            
            
            $
            (110
            )
            
            $
            7,4432007U.S.
      Government and federal agency
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —Mortgage-backedFHLMC
            
            $
            138
            
            
            $
            —
            
            
            $
            (1
            )
            
            $
            137FNMA
            
            
            4,545
            
            
            
            1
            
            
            
            (43
            )
            
            
            4,503GNMA
            
            
            145
            
            
            
            2
            
            
            
            —
            
            
            
            147Collateralized
      mortgage obligations
              Agency
            
            
            47
            
            
            
            —
            
            
            
            —
            
            
            
            47Non-agency
            
            
            1,855
            
            
            
            —
            
            
            
            (18
            )
            
            
            1,837$
            6,730
            
            
            $
            3
            
            
            $
            (62
            )
            
            $
            6,671


(Continued)


59




AMERICAN
BANCORP OF NEW JERSEY, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS September
30, 2008, 2007, and 2006 (Tables
in Thousands)







NOTE
2 - SECURITIES (Continued)




Securities
with carrying values of $39,549,385 and $6,180,398 at September 30, 2008
and 2007, respectively, were pledged to secure reverse repurchase agreements and
public deposits as required or permitted by law.




Available-for-sale
securities with unrealized losses at September 30, 2008 not recognized in income
are presented below by length of time the securities have been in an unrealized
loss position:


Less
      than 12 Months
            
            
            12
      Months or More
            
            
            TotalDescription
      of Securities
            
            Fair
              Value
            
            
            Unrealized
              Loss
            
            
            Fair
              Value
            
            
            Unrealized
              Loss
            
            
            Fair
              Value
            
            
            Unrealized
              LossU.S.
      Government and federal agency
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —Mortgage
      backed
            
            
            44,374
            
            
            
            (749
            )
            
            
            3,366
            
            
            
            (142
            )
            
            
            47,740
            
            
            
            (891
            )Collateralized
      mortgage obligations
            
            
            13,956
            
            
            
            (209
            )
            
            
            2,523
            
            
            
            (18
            )
            
            
            16,479
            
            
            
            (227
            )Total
      temporarily impaired
            
            $
            58,330
            
            
            $
            (958
            )
            
            $
            5,889
            
            
            $
            (160
            )
            
            $
            64,219
            
            
            $
            (1,118
            )




Available-for-sale
securities with unrealized losses at September 30, 2007 not recognized in income
are presented below by length of time the securities have been in an unrealized
loss position:




Less
      than 12 Months
            
            
            12
      Months or More
            
            
            TotalDescription
      of Securities
            
            Fair
              Value
            
            
            Unrealized
              Loss
            
            
            Fair
              Value
            
            
            Unrealized
              Loss
            
            
            Fair
              Value
            
            
            Unrealized
              LossU.S.
      Government and federal agency
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —Mortgage
      backed
            
            
            3,557
            
            
            
            (6
            )
            
            
            7,508
            
            
            
            (337
            )
            
            
            11,065
            
            
            
            (343
            )Collateralized
      mortgage obligations
            
            
            2,249
            
            
            
            (1
            )
            
            
            13,573
            
            
            
            (246
            )
            
            
            15,822
            
            
            
            (247
            )Total
      temporarily impaired
            
            $
            5,806
            
            
            $
            (7
            )
            
            $
            21,081
            
            
            $
            (583
            )
            
            $
            26,887
            
            
            $
            (590
            )




(Continued)


60




AMERICAN
BANCORP OF NEW JERSEY, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS September
30, 2008, 2007, and 2006 (Tables
in Thousands)







NOTE
2 - SECURITIES (Continued)




Held-to-maturity
securities with unrealized losses at September 30, 2008 not recognized in income
are as follows:




Less
      than 12 Months
            
            
            12
      Months or More
            
            
            TotalDescription
      of Securities
            
            Fair
              Value
            
            
            Unrealized
              Loss
            
            
            Fair
              Value
            
            
            Unrealized
              Loss
            
            
            Fair
              Value
            
            
            Unrealized
              LossU.S.
      Government and federal agency
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —Mortgage-backed
            
            
            928
            
            
            
            (9
            )
            
            
            327
            
            
            
            (6
            )
            
            
            1,255
            
            
            
            (15
            )Collateralized
      mortgage obligations
            
            
            1,493
            
            
            
            (95
            )
            
            
            —
            
            
            
            —
            
            
            
            1,493
            
            
            
            (95
            )Total
      temporarily impaired
            
            $
            2,421
            
            
            $
            (104
            )
            
            $
            327
            
            
            $
            (6
            )
            
            $
            2,748
            
            
            $
            (110
            )




Held-to-maturity
securities with unrealized losses at September 30, 2007 not recognized in income
are as follows:




Less
      than 12 Months
            
            
            12
      Months or More
            
            
            TotalDescription
      of Securities
            
            Fair
              Value
            
            
            Unrealized
              Loss
            
            
            Fair
              Value
            
            
            Unrealized
              Loss
            
            
            Fair
              Value
            
            
            Unrealized
              LossU.S.
      Government and federal agency
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —Mortgage-backed
            
            
            3,325
            
            
            
            (12
            )
            
            
            1,097
            
            
            
            (32
            )
            
            
            4,422
            
            
            
            (44
            )Collateralized
      mortgage obligations
            
            
            —
            
            
            
            —
            
            
            
            1,837
            
            
            
            (18
            )
            
            
            1,837
            
            
            
            (18
            )Total
      temporarily impaired
            
            $
            3,325
            
            
            $
            (12
            )
            
            $
            2,934
            
            
            $
            (50
            )
            
            $
            6,259
            
            
            $
            (62
            )




The
Company evaluates securities for other-than-temporary impairment at least on a
quarterly basis, and more frequently when economic or market concerns warrant
such evaluation. Consideration is given to the length of time and the extent to
which the fair value has been less cost, the financial condition and near-term
prospects of the issuer, and the intent and ability of the Company to retain its
investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value. In analyzing an issuer’s financial
condition, the Company may consider whether the securities are issued by the
federal government or its agencies, whether downgrades by bond rating agencies
have occurred, and the results of reviews of the issuer’s financial
condition.


(Continued)


61




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
2 - SECURITIES (Continued)




At
September 30, 2008, securities with unrealized losses had depreciated 1.37% from
the Company’s amortized cost basis. The Company evaluated the near-term
prospects of the issuers in relation to the severity and duration of the
impairment. The Company concluded that the financial strength of the issuers of
its securities - primarily U.S. agencies – did not contribute to any impairment
of value. Rather, these unrealized losses related principally to changes in
market interest rates. The Company then evaluated the expected timeframe and
conditions within which a recovery of such impairments could be reasonably
forecasted. For example, the Company’s mortgage backed security and
collateralized mortgage obligation portfolios are expected to reprice, amortize,
prepay or mature within a timeframe that is supported by the Company’s ability
and intent to hold such securities. Forecasted repricing of the Company’s
adjustable rate investments to market levels is one means by which an impairment
resulting from a security’s “below market” yields can be recovered. Another
means of impairment recovery is through the timely return of principal invested.
Given the duration of these investment securities, the Company can reasonably
forecast a timely and full return of the principal invested thereby recovering
the impairment that had resulted from movements in market interest
rates.




Based on
that evaluation and the Company’s ability and intent to hold those securities
for a reasonable period of time sufficient for a forecasted recovery of fair
value, the Company does not consider those securities to be
other-than-temporarily impaired at September 30, 2008.




NOTE
3 - LOANS




Loans at
period-end were as follows:




2008
            
            
            2007Mortgage
      loans:One-to-four-family
            
            $
            276,690
            
            
            $
            276,947Multi-family
      and nonresidential
            
            
            127,573
            
            
            
            99,059Construction
            
            
            53,315
            
            
            
            48,561Land
            
            
            8,017
            
            
            
            3,341Consumer
            
            
            1,159
            
            
            
            655Home
      equity lines of credit
            
            
            20,836
            
            
            
            19,756Business
            
            
            7,543
            
            
            
            7,024Total
      loans
            
            
            495,133
            
            
            
            455,343Allowance
      for loan losses
            
            
            (3,035
            )
            
            
            (2,568
            )Net
      deferred loan costs
            
            
            1,006
            
            
            
            1,077Loans
      in process
            
            
            (14,530
            )
            
            
            (15,969
            )Loans,
      net
            
            $
            478,574
            
            
            $
            437,883




(Continued)


62




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
3 - LOANS (Continued)




At
September 30, 2008 and 2007, the balance of one-to-four-family mortgage loans
included $22.5 million and $22.6 million, respectively, 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.




Certain
directors and officers of the Bank and companies with which they are affiliated
have obtained loans from the Bank on various occasions. A summary of such loans
made by the Bank is as follows:




2008
            
            
            2007Beginning
      balance
            
            $
            617
            
            
            $
            1,617New
      loans
            
            
            —
            
            
            
            77Effect
      of changes in related parties
            
            
            —
            
            
            
            (745
            )Repayments
            
            
            (90
            )
            
            
            (332
            )Ending
      balance
            
            $
            527
            
            
            $
            617




Mortgage
loans serviced for others are not included in the accompanying financial
statements. At September 30, 2008 and 2007, the unpaid principal balances of
these loans totaled $16,817,308 and $19,073,838, respectively.




Activity
in the allowance for loan losses was as follows:




2008
            
            
            2007
            
            
            2006Balance
      at beginning of year
            
            $
            2,568
            
            
            $
            2,123
            
            
            $
            1,658Provision
      charged to income
            
            
            501
            
            
            
            445
            
            
            
            465Charge-offs
            
            
            (34
            )
            
            
            —
            
            
            
            —Recoveries
            
            
            —
            
            
            
            —
            
            
            
            —Balance
      at end of year
            
            $
            3,035
            
            
            $
            2,568
            
            
            $
            2,123


(Continued)


63




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
3 - LOANS (Continued)




Impaired
loans were as follows:




2008
            
            
            2007
            
            
            2006Period-end
      loans with no allocated allowance for loan losses
            
            $
            244
            
            
            $
            —
            
            
            $
            —Period-end
      loans with allocated allowance for loan losses
            
            
            —
            
            
            
            —
            
            
            
            172Total
            
            $
            244
            
            
            $
            —
            
            
            $
            1722008
            
            
            2007
            
            
            2006Amount
      of the allowance for loan losses allocated
            
            $
            —
            
            
            $
            —
            
            
            $
            86Average
      of impaired loans during the period
            
            
            43
            
            
            
            43
            
            
            
            173Interest
      income recognized during impairment
            
            
            —
            
            
            
            —
            
            
            
            10Cash-basis
      interest income recognized
            
            
            —
            
            
            
            —
            
            
            
            10


Nonperforming
loans were as follows:




2008
            
            
            2007
            
            
            2006Loans
      past due over 90 days still on accrual
            
            $
            —
            
            
            $
            —
            
            
            $
            —Nonaccrual
      loans
            
            
            1,137
            
            
            
            1,249
            
            
            
            2,089




Nonperforming
loans includes both smaller balance homogeneous loans that are collectively
evaluated for impairment and individually classified impaired
loans.




NOTE
4 - ACCRUED INTEREST RECEIVABLE




Accrued
interest receivable is summarized as follows:




2008
            
            
            2007Securities
            
            $
            371
            
            
            $
            290Loans
      receivable
            
            
            2,020
            
            
            
            1,922Total
            
            $
            2,391
            
            
            $
            2,212




(Continued)




64




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
5 - PREMISES AND EQUIPMENT




Premises
and equipment are summarized as follows:




2008
            
            
            2007Land
            
            $
            4,212
            
            
            $
            4,212Office
      buildings and improvements
            
            
            6,388
            
            
            
            6,396Furniture
      and equipment
            
            
            4,952
            
            
            
            4,477Leasehold
      improvements
            
            
            1,827
            
            
            
            359Future
      branch site costs
            
            
            —
            
            
            
            33117,379
            
            
            
            15,775Less
      accumulated depreciation
            
            
            5,485
            
            
            
            4,919Total
            
            $
            11,894
            
            
            $
            10,856




The
Company leases certain branch properties and equipment under operating leases.
Rent expense was $346,931, $49,477 and $0 for fiscal years 2008, 2007, and 2006,
respectively. Rent commitments, before considering renewal options that
generally are present, were as follows:




2009
            
            $
            2112010
            
            
            2312011
            
            
            2312012
            
            
            2322013
            
            
            252Thereafter
            
            
            2,531Total
            
            $
            3,688




(Continued)


65




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
6 - DEPOSITS




Deposit
accounts are summarized as follows:




2008
            
            
            2007Demand
      deposits
            
            $
            31,447
            
            
            $
            30,494NOW
      and money market accounts
            
            
            75,307
            
            
            
            111,795Savings
      accounts
            
            
            85,092
            
            
            
            92,778Certificates
      of deposit
            
            
            255,841
            
            
            
            193,533Total
      deposits
            
            $
            447,687
            
            
            $
            428,600




Certificates
of deposit accounts with balances over $100,000 totaled $94,196,254 and
$73,198,702 at September 30, 2008 and 2007, respectively. All other deposit
accounts with balances over $100,000 totaled $92,382,776 and $115,307,591 at
September 30, 2008 and 2007, respectively.




Scheduled
maturities of certificates of deposit were as follows:




2009
            
            $
            234,0322010
            
            
            5,3082011
            
            
            2,4042012
            
            
            3,0942013
      and thereafter
            
            
            11,003$
            255,841




NOTE
7 - BORROWED FUNDS




The Bank
has $40.5 million of fixed rate advances with the Federal Home Loan Bank with
maturities through fiscal 2013 and fixed rates ranging from 2.08% to 6.18% at
September 30, 2008. None of the advances are callable prior to maturity. One
advance for $1.5 million with a coupon of 4.57% has a five-year final maturity
in June 2009, with a twenty-year amortization schedule. The remaining $39.0
million of Federal Home Loan Bank advances are non-amortizing term advances. The
Bank also has an overnight line of credit with the ability to borrow $62.4
million of which $0 was drawn at September 30, 2008.


(Continued)


66




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
7 - BORROWED FUNDS (Continued)




Additionally,
at September 30, 2008, the Bank has an outstanding balance of $35.0 million in
reverse repurchase agreements. These borrowings includes two agreements
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.




For the
years ended September 30, 2008 and 2007, the scheduled repayments and maturities
of borrowed funds, including both Federal Home Loan Bank advances and reverse
repurchase agreements, are as follows:




September
      30, 2008
                    
                    September
      30, 2007Balance
                    
                    Weighted
                      Average
                      Rate
                    
                    Balance
                    
                    Weighted
                      Average
                      RateMaturing
      in 2008
                    
                    $
                    —
                    
                    
                    —
                    %
                    $
                    12,065
                    
                    
                    5.51
                    %Maturing
      in 2009
                    
                    
                    12,547
                    
                    
                    3.76
                    
                    
                    7,547
                    
                    
                    4.88Maturing
      in 2010
                    
                    
                    16,000
                    
                    
                    3.56
                    
                    
                    6,000
                    
                    
                    5.15Maturing
      in 2011
                    
                    
                    6,000
                    
                    
                    5.18
                    
                    
                    6,000
                    
                    
                    5.18Maturing
      in 2012
                    
                    
                    5,000
                    
                    
                    5.22
                    
                    
                    5,000
                    
                    
                    5.22Maturing
      in 2013
                    
                    
                    1,000
                    
                    
                    4.79
                    
                    
                    1,000
                    
                    
                    4.79Maturing
      in 2018
                    
                    
                    35,000
                    
                    
                    2.11
                    
                    
                    —
                    
                    
                    —Overnight
      line of credit
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —
                    
                    
                    —$
                    75,547
                    
                    
                    3.18
                    %
                    $
                    37,612
                    
                    
                    5.21
                    %




At
September 30, 2008, the FHLB advances are secured by mortgage loans totaling
$68,137,884, and all stock in the Federal Home Loan Bank totaling $2,743,400
under a blanket collateral agreement for the amount of the notes outstanding.
Additionally, specific investment securities with a carrying value totaling
$37,317,667 also secure the reverse repurchase agreements. At September 30,
2008, the Bank’s borrowing limit with the Federal Home Loan Bank was
approximately $155.4 million.


(Continued)


67




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
8 - INCOME TAXES




An
analysis of the provision for income taxes is as follows:




2008
            
            
            2007
            
            
            2006CurrentFederal
            
            $
            979
            
            
            $
            586
            
            
            $
            1,507State
      and local
            
            
            143
            
            
            
            221
            
            
            
            3211,122
            
            
            
            807
            
            
            
            1,828DeferredFederal
            
            
            (470
            )
            
            
            (362
            )
            
            
            (404
            )State
      and local
            
            
            (110
            )
            
            
            (271
            )
            
            
            (96
            )(580
            )
            
            
            (633
            )
            
            
            (500
            )Change
      in valuation allowance
            
            
            18
            
            
            
            —
            
            
            
            (20
            )$
            560
            
            
            $
            174
            
            
            $
            1,308




A
reconciliation of income tax expense at the statutory federal income tax rate
and the actual income tax expense was as follows:




2008
            
            
            2007
            
            
            2006Federal
      income tax expense at statutory rate
            
            $
            608
            
            
            $
            249
            
            
            $
            1,170Increase
      in taxes resulting fromState
      income taxes, net of federal benefit
            
            
            34
            
            
            
            (32
            )
            
            
            135Tax-exempt
      income from life insurance
            
            
            (186
            )
            
            
            (159
            )
            
            
            (107
            )Nondeductible
      ESOP expense
            
            
            35
            
            
            
            53
            
            
            
            44Nondeductible
      stock options expense
            
            
            53
            
            
            
            53
            
            
            
            49Other,
      net
            
            
            16
            
            
            
            10
            
            
            
            17Income
      tax expense
            
            $
            560
            
            
            $
            174
            
            
            $
            1,308




(Continued)


68




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
8 - INCOME TAXES(Continued)




The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities are as follows:




2008
            
            
            2007Deferred
      tax assetsUnrealized
      loss on securities available-for-sale
            
            $
            360
            
            
            $
            154Provision
      for loan losses
            
            
            1,220
            
            
            
            1,032Capital
      losses on security sales
            
            
            121
            
            
            
            119State
      of New Jersey net operating loss (Bank)
            
            
            74
            
            
            
            90Accrued
      expenses and other liabilities
            
            
            2,116
            
            
            
            1,706Total
      gross deferred tax assets
            
            
            3,891
            
            
            
            3,101Deferred
      tax liabilitiesDepreciation
            
            
            (143
            )
            
            
            (168
            )Deferred
      loan origination costs
            
            
            (917
            )
            
            
            (869
            )Other
            
            
            (40
            )
            
            
            (59
            )Total
      gross deferred tax liabilities
            
            
            (1,100
            )
            
            
            (1,096
            )Valuation
      allowance
            
            
            (18
            )
            
            
            —Net
      deferred tax asset
            
            $
            2,773
            
            
            $
            2,005




Retained
earnings includes allocations for federal income tax purposes representing tax
bad debt deductions of approximately $4,034,000 through September 30, 2008 on
which no tax has been paid and no deferred federal income taxes have been
provided. The related amount of deferred tax liability is approximately
$1,611,000. Reductions of amounts so allocated for purposes other than tax bad
debt losses will create income for tax purposes only, which will be subject to
the then current corporate income tax rate.


(Continued)


69




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
8 - INCOME TAXES(Continued)




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 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.
The Company and its subsidiaries are subject to U.S. federal income tax as well
as income tax of the state of New Jersey. The Company does not expect the total
amount of unrecognized tax benefits to significantly increase in the next twelve
months. The Company recognizes interest and penalties related to income tax
matters as other expense. The Company did not have any amounts accrued for
interest and penalties at October 1, 2007 and September 30, 2008. The Company is
no longer subject to examination by taxing authorities for years before
2004.




NOTE
9 - BENEFIT PLANS




The Bank
has a directors’ retirement plan that provides retirement benefits to all
members of the Board of Directors vested under the plan in accordance with the
plan document. During the years ended September 30, 2008, 2007, and 2006 the
Bank recorded expenses related to the plan totaling $60,873, $196,990 and
$64,165, respectively. The balance of the accrued liability for the director’s
retirement plan at September 30, 2008 was approximately $1,775,000.




The Bank
has a 401(k) profit sharing plan covering substantially all employees.
Contributions to the plan in fiscal 2008, 2007 and 2006 were limited to
participant salary deferrals along with a matching contribution provided by the
Bank. For the years ended September 30, 2008 and September 30, 2007, 401(k)
matching contribution expense totaled $92,558 and $88,291, respectively. Related
expenses for the year ended September 30, 2006 totaled $74,220. However,
offsetting the cost in fiscal 2006 was the reversal of $131,250 of profit
sharing expense that had been accrued during fiscal 2005 for which no
discretionary contribution to the plan was made in 2006.


(Continued)




70




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
9 - BENEFIT PLANS(Continued)




The Bank
implemented a supplemental executive retirement plan that provides benefits to
certain key officers in accordance with the plan document. During the years
ended September 30, 2008, 2007 and 2006, Bank expenses related to the plan
totaled $385,867, $284,658 and $226,371. The Bank also purchased bank-owned life
insurance on the individuals covered by the supplemental executive retirement
plan. The cash surrender value of the Company’s bank-owned life insurance
policies at September 30, 2008 was $13.8 million of which approximately $10.4
million relate to policies originally purchased to provide income to offset the
costs of the Bank’s supplemental executive retirement plans. The remaining $3.4
million of cash surrender value relate to policies that provide life insurance
benefits primarily to the Bank’s senior officers. The balance of the accrued
liability for the supplemental executive retirement plan at September 30, 2008
was approximately $1,657,000.




The Bank
has entered into employment agreements with its Chief Executive Officer (CEO),
President & Chief Operating Officer (COO), and two Senior Vice Presidents
(SVPs). The CEO’s and President & COO’s employment agreements have a term of
three years while the two SVPs’ agreements have a term of two years. Each of the
agreements provides for an annual one-year extension of the term of the
agreement upon determination of the Board of Directors that the executive’s
performance has met the requirements and standards of the Board, so that the
remaining term of the agreement continues to be three years, in the case of the
CEO and President & COO, and two years, in the case of the two SVPs. If the
Bank terminates the officer without “just cause” as defined in the agreement,
they will be entitled to a continuation of their salary from the date of
termination through the remaining term of their agreement at a minimum. The
agreements also provide for various payouts if the officer is terminated without
just cause following a change in control.




NOTE
10 – EMPLOYEE STOCK OWNERSHIP PLAN




As part
of the minority stock offering, the Bank established an employee stock ownership
plan (“ESOP”) for the benefit of substantially all employees. The ESOP borrowed
$1,333,080 from ASBH and used those funds to acquire 133,308 shares of ASBH
stock at $10 per share. As part of the second step conversion, the ESOP borrowed
$7,935,000 from the Company to acquire an additional 793,500 shares of the
Company’s stock at $10 per share. At the time of the closing of the second step
conversion, the unpaid balance of the first ESOP borrowing of approximately
$1,064,000 was combined with the balance of the second ESOP borrowing resulting
in a total ESOP borrowing obligation of approximately $8,999,000 to the Company.
Additionally, each of the 133,308 ASBH shares held by the ESOP from the minority
offering were exchanged for 2.55102 shares of the Company.


(Continued)




71




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
10 – EMPLOYEE STOCK OWNERSHIP PLAN(Continued)




Shares
issued to the ESOP are allocated to ESOP participants based on principal and
interest repayments made by the ESOP on the loan from the Company. The loan is
secured by shares purchased with the loan proceeds and is being repaid by the
ESOP with funds from the Bank’s discretionary contributions to the ESOP and
earnings on the ESOP’s assets. The Bank’s contributions to the ESOP during 2008,
2007 and 2006 were $651,018, $661,401 and $653,460, respectively. ESOP expense
for those same periods was $554,093, $607,584 and $579,961, respectively.
Principal and interest payments are scheduled to occur over a twenty-year
period.




ESOP
activity for the years ended September 30, 2008, 2007 and 2006 and shares held
by the ESOP at the end of those periods are presented below.




2008
            
            
            2007
            
            
            2006Allocated
      to participants
            
            
            175,675
            
            
            
            131,509
            
            
            
            80,408Committed
      to be released
            
            
            39,936
            
            
            
            39,936
            
            
            
            39,936Unearned
            
            
            905,207
            
            
            
            958,455
            
            
            
            1,011,702Total
      ESOP shares
            
            
            1,120,818
            
            
            
            1,129,900
            
            
            
            1,132,046Fair
      value of unearned shares
            
            $
            9,324
            
            
            $
            10,418
            
            
            $
            11,989ESOP
      compensation expense
            
            $
            554
            
            
            $
            607
            
            
            $
            580




The
reported number of total shares and allocated shares held by the ESOP at
September 30, 2008 reflects the cumulative distribution of 12,753 allocated
shares to participants in accordance with the plan. The original number of ESOP
plan shares totaled 1,133,571 of which a total of 188,428 have been allocated
through September 30, 2008.




NOTE
11 – OTHER STOCK-BASED COMPENSATION




At the
annual meeting held on January 20, 2005, stockholders of ASBH approved the ASB
Holding Company 2005 Stock Option Plan and the American Bank of New Jersey 2005
Restricted Stock Plan. 272,171 shares of common stock were made available under
the 2005 Stock Option Plan. On January 20, 2005, options to purchase 259,923
shares were awarded with the remaining 12,248 shares awarded on May 6, 2005. In
addition, 81,651 shares of common stock were made available under the 2005
Restricted Stock Plan. On January 20, 2005, 76,752 shares of restricted stock
were awarded with the remaining 4,899 shares awarded on May 6,
2005.


(Continued)




72




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
11 – OTHER STOCK-BASED COMPENSATION(Continued)




As of the
closing of the Company’s second step conversion on October 5, 2005, each of the
ASBH shares included in the 2005 Restricted Stock Plan and 2005 Stock Option
Plan were exchanged for 2.55102 shares of American Bancorp of New Jersey, Inc.
Consequently, awarded shares under the 2005 Restricted Stock Plan and 2005 Stock
Option Plan totaled 208,295 and 694,315, respectively, at that
time.




At the
annual meeting held on May 23, 2006, stockholders of ABNJ approved the American
Bancorp of New Jersey, Inc. 2006 Equity Incentive Plan. Under this plan, 722,633
options on shares of common stock and 358,484 restricted shares of common stock
were made available. All options and restricted shares relating to this plan
were awarded on May 23, 2006. As of that date, 358,484 shares of ABNJ common
stock were issued by the Company to fund the restricted stock portion of the
2006 Equity Incentive Plan. On June 6, 2006 the Company announced the completion
of its repurchase of the 208,295 shares relating to its 2005 Restricted Stock
Plan and its intent to repurchase up to 358,484 shares of its outstanding common
stock relating to the funding of the restricted stock portion of its 2006 Equity
Incentive Plan. Share repurchases to fund the restricted stock portion of the
2006 Equity Incentive Plan were completed in the fourth quarter of fiscal 2006.
The Company intends to reissue treasury shares to fund the exercise of stock
options in future periods.




Shares of
common stock issuable pursuant to outstanding options under the 2005 Stock
Option Plan and 2006 Equity Incentive Plan are considered outstanding for
purposes of calculating earnings per share on a diluted basis. The Company
adopted FASB 123(R) on October 1, 2005. Under that accounting requirement, the
Company is now required to recognize compensation expense related to stock
options outstanding based upon the fair value of such awards at the date of
grant over the period that such awards are earned. For the years ended September
30, 2008, 2007 and 2006 the Company recognized approximately $623,000, $563,000
and $384,000, respectively, of compensation expense relating stock options
awarded through the 2005 Stock Option Plan and 2006 Equity Incentive Plan (“SOP”
options). The Company recognized approximately $187,000, $163,000 and $96,000,
respectively, of income tax benefit resulting from this expense for those
periods.


(Continued)




73




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
11 – OTHER STOCK-BASED COMPENSATION(Continued)




For
accounting purposes, the Company continues to recognize compensation expense for
restricted shares of common stock awarded under the 2005 Restricted Stock Plan
and 2006 Equity Incentive Plan over the vesting period at the fair market value
of the shares on the date they are awarded. For the year ended September 30,
2008, 2007 and 2006, the Company recognized approximately $1,243,000, $1,111,000
and $637,000 respectively, of compensation expense relating to restricted stock
plan shares awarded through the 2005 Restricted Stock Plan and 2006 Equity
Incentive Plan (“RSP” shares). The Company recognized approximately $496,000,
$445,000 and $254,000 respectively, of income tax benefit resulting from this
expense for those periods.




At
September 30, 2008, all available shares and options relating to the 2005
Restricted Stock Plan, 2005 Stock Option Plan and the 2006 Equity Incentive Plan
had been awarded to participants.




As of
September 30, 2008, there were approximately $1.1 million and $2.4 million,
respectively, of total unrecognized compensation costs related to nonvested
stock options and nonvested restricted stock plan shares. Those costs are
expected to be recognized over a weighted-average period of 2.2 and 2.4 years
respectively.




The fair
value of options granted and actual effects are computed using the Black-Scholes
option pricing model, using the following weighted-average assumptions as of the
grant dates.


December
      19,
              2006
            
            
            May
      23,
              2006
            
            
            May
      6,
              2005
            
            
            January
      20,
              2005Options
      AwardedRisk
      free interest rate
            
            
            4.56
            %
            
            
            4.91
            %
            
            
            3.95
            %
            
            
            3.67
            %Expected
      option life
            
            
            5.00
            
            
            
            5.00
            
            
            
            5.00
            
            
            
            5.00Expected
      stock price volatility
            
            
            12.17
            %
            
            
            11.00
            %
            
            
            22.00
            %
            
            
            22.00
            %Dividend
      yield
            
            
            1.35
            %
            
            
            1.39
            %
            
            
            0.00
            %
            
            
            0.00
            %Weighted
      average fair value of options granted during year
            
            $
            2.20
            
            
            $
            2.11
            
            
            $
            1.96
            
            
            $
            1.86


(Continued)




74




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
11 – OTHER STOCK-BASED COMPENSATION(Continued)




A summary
of the activity in the Company’s stock option plans for the years ended
September 30, 2008, 2007 and 2006 is as follows.




September
      30, 2008
                
                
                For
      the years ended
                  September
      30, 2007
                
                
                September
      30, 2006Shares
                
                
                Weighted
                  Average
                  Exercise
                  Price
                
                
                Shares
                
                
                Weighted
                  Average
                  Exercise
                  Price
                
                
                Shares
                
                
                Weighted
                  Average
                  Exercise
                  PriceOutstanding
      at beginning of period
                
                
                1,416,948
                
                
                $
                9.26
                
                
                
                1,397,854
                
                
                $
                9.23
                
                
                
                694,315
                
                
                $
                6.81Granted
                
                
                —
                
                
                
                —
                
                
                
                19,094
                
                
                
                11.87
                
                
                
                722,633
                
                
                
                11.49Exercised
                
                
                (4,166
                )
                
                
                6.80
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Forfeited
      or expired
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (19,094
                )
                
                
                6.80Outstanding
      at end of period
                
                
                1,412,782
                
                
                $
                9.27
                
                
                
                1,416,948
                
                
                $
                9.26
                
                
                
                1,397,854
                
                
                $
                9.23Options
      exercisable at period end
                
                
                733,125
                
                
                $
                8.82
                
                
                
                417,094
                
                
                $
                8.43
                
                
                
                138,369
                
                
                $
                6.81Weighted
      average remaining contractual life
                
                
                
                
                
                7.0
      years
                
                
                
                
                
                
                7.8
      years
                
                
                
                
                
                
                8.3
      years




The
aggregate intrinsic value of all outstanding stock options at September 30, 2008
was approximately $2,343,000. The aggregate intrinsic value of all exercisable
stock options outstanding at September 30, 2008 was approximately
$1,461,000.


(Continued)




75




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
11 – OTHER STOCK-BASED COMPENSATION(Continued)




A summary
of the status of the Company’s nonvested restricted stock plan shares as of
September 30, 2008, 2007 and 2006 and changes during the years ended September
30, 2008, 2007 and 2006 are as follows.


September
      30, 2008
            
            
            For
      the years ended
              September
      30, 2007
            
            
            September
      30, 2006Shares
            
            
            Weighted
              Average
              Grant
      Date
              Fair
      Value
            
            
            Shares
            
            
            Weighted
              Average
              Grant
      Date
              Fair
      Value
            
            
            Shares
            
            
            Weighted
              Average
              Grant
      Date
              Fair
      ValueOutstanding
      at beginning of period
            
            
            414,281
            
            
            $
            10.13
            
            
            
            520,126
            
            
            $
            10.04
            
            
            
            208,295
            
            
            $
            6.81Granted
            
            
            —
            
            
            
            —
            
            
            
            6,249
            
            
            
            11.87
            
            
            
            358,484
            
            
            
            11.49Vested
            
            
            (129,112
            )
            
            
            9.85
            
            
            
            (112,094
            )
            
            
            9.80
            
            
            
            (40,404
            )
            
            
            6.81Forfeited
      or expired
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (6,249
            )
            
            
            6.80Outstanding
      at end of period
            
            
            285,169
            
            
            $
            10.25
            
            
            
            414,281
            
            
            $
            10.13
            
            
            
            520,126
            
            
            $
            10.04




The fair
value at the vesting date of the restricted stock plan shares vested during the
year ended September 30, 2008, 2007 and 2006 was $1,348,617, $1,276,276 and
$413,700, respectively.


(Continued)




76




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
12 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK




The Bank
is party to financial instruments with off-balance-sheet risk in the normal
course of business to meet the financing needs of its customers. These financial
instruments include commitments to fund loans and previously approved unused
lines of credit. The Bank’s exposure to credit loss in the event of
nonperformance by the parties to these financial instruments is represented by
the contractual amount of the instruments. The Bank uses the same credit policy
for commitments as it uses for on-balance-sheet items.




The
contract amounts of these financial instruments are summarized as
follows:




2008
            
            
            2007Commitments
      to extend credit
            
            $
            16,288
            
            
            $
            22,400Unused
      lines of credit
            
            
            31,318
            
            
            
            29,210Loans
      in process
            
            
            14,530
            
            
            
            15,969




Since
many commitments expire without being used, the amounts above do not necessarily
represent future cash commitments. Collateral may be obtained upon exercise of a
commitment. The amount of collateral is determined by management and may include
commercial and residential real estate and other business and consumer
assets.




In
addition to the commitments 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.




NOTE
13 - EARNINGS PER SHARE (EPS)




Amounts
reported as basic earnings per share of common stock reflect earnings available
to common stockholders for the period divided by the weighted average number of
common shares outstanding during the period less unearned ESOP 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.
Weighted average shares for 2005 have been adjusted to reflect the exchange of
shares in the second step conversion.


(Continued)




77




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
13 - EARNINGS PER SHARE (EPS)(Continued)




The
factors used in the earnings per share computation follow.




2008
            
            
            2007
            
            
            2006BasicNet
      income
            
            $
            1,228
            
            
            $
            557
            
            
            $
            2,133Weighted
      average common shares outstanding
            
            
            10,065,765
            
            
            
            11,526,186
            
            
            
            13,021,674Basic
      earnings per common share
            
            $
            0.12
            
            
            $
            0.05
            
            
            $
            0.16DilutedNet
      income
            
            $
            1,228
            
            
            $
            557
            
            
            $
            2,133Weighted
      average common shares outstanding for basic earnings per common
      share
            
            
            10,065,765
            
            
            
            11,526,186
            
            
            
            13,021,674Add:
      Dilutive effects of assumed exercises of stock options
            
            
            143,622
            
            
            
            154,703
            
            
            
            112,124Add:
      Dilutive effects of full vesting of stock awards
            
            
            14,640
            
            
            
            27,643
            
            
            
            35,866Average
      shares and dilutive potential common shares
            
            
            10,224,027
            
            
            
            11,708,532
            
            
            
            13,169,664Diluted
      earnings per common share
            
            $
            0.12
            
            
            $
            0.05
            
            
            $
            0.16




For the
years ended September 30, 2008, 2007 and 2006, stock options and restricted
stock awards for 965,222, 1,038,910 and 259,356 shares of common stock ,
respectively, were not considered in computing diluted earnings per common share
because they were antidilutive.


(Continued)




78




AMERICAN
      BANCORP OF NEW JERSEY, INC.NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTSSeptember
      30, 2008, 2007, and 2006(Tables
      in Thousands)




NOTE
14 - REGULATORY CAPITAL REQUIREMENTS




American
Bancorp of New Jersey, Inc. as a unitary thrift holding company is not subject
to specific regulatory capital guidelines. The Bank is subject to various
regulatory capital requirements administered by the federal banking agencies.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank’s assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank’s capital amounts and classifications are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.




Prompt
corrective action regulations provide five classifications: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized, although these terms are not used to represent
overall financial condition. If adequately capitalized, regulatory approval is
required to accept brokered deposits. If undercapitalized, capital distributions
are limited, as is asset growth and expansion, and capital restoration plans are
required.




The
Bank’s actual and required capital amounts and ratios are presented
below.




Actual
            
            For
      Capital
              Adequacy
              Purposes
            
            To
      Be Well
              Capitalized
      Under
              Prompt
      Corrective
              ActionAmount
            
            Ratio
            
            Amount
            
            Ratio
            
            Amount
            
            RatioAs
      of September 30, 2008Total
      capital (to risk-weighted assets)
            
            $
            77,325
            
            
            19.28
            %
            $
            32,085
            
            
            8.00
            %
            $
            40,106
            
            
            10.00
            %Tier
      I capital (to risk-weighted) assets)
            
            
            74,290
            
            
            18.52
            
            
            16,042
            
            
            4.00
            
            
            24,064
            
            
            6.00Tier
      I (core) capital (to adjusted total assets)
            
            
            74,290
            
            
            11.94
            
            
            24,878
            
            
            4.00
            
            
            31,098
            
            
            5.00As
      of September 30, 2007Total
      capital (to risk-weighted assets)
            
            $
            79,694
            
            
            22.45
            %
            $
            28,402
            
            
            8.00
            %
            $
            35,502
            
            
            10.00
            %Tier
      I capital (to risk-weighted) assets)
            
            
            77,126
            
            
            21.72
            
            
            14,201
            
            
            4.00
            
            
            21,301
            
            
            6.00Tier
      I (core) capital (to adjusted total assets)
            
            
            77,126
            
            
            13.74
            
            
            22,447
            
            
            4.00
            
            
            28,058
            
            
            5.00


(Continued)




79




AMERICAN
BANCORP OF NEW JERSEY, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS September
30, 2008, 2007, and 2006 (Tables
in Thousands)







NOTE
14 - REGULATORY CAPITAL REQUIREMENTS (Continued)




As of
September 30, 2008, the most recent notification from the Office of Thrift
Supervision categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. There are no conditions or events since
that notification that management believes have changed the Bank’s
category.




The
following is a reconciliation of the Bank’s equity under accounting principles
generally accepted in the United States of America (“GAAP”) to regulatory
capital as of the dates indicated:




2008
            
            
            2007GAAP
      equity
            
            $
            73,749
            
            
            $
            76,839Accumulated
      other comprehensive loss
            
            
            541
            
            
            
            287Tier
      I capital
            
            
            74,290
            
            
            
            77,126General
      regulatory allowance for loan losses
            
            
            3,035
            
            
            
            2,568Total
      capital
            
            $
            77,325
            
            
            $
            79,694




Other
than the funds held at the holding company level, the Company’s principal source
of funds for dividend payments is dividends received from the Bank. Banking
regulations limit the amount of dividends that may be paid without prior
approval of regulatory agencies. Under these regulations, the amount of
dividends that may be paid in any calendar year is generally limited to the
current year’s net profits, combined with the retained net profits of the
preceding two years, subject to the capital requirements described above.
Notwithstanding this general limitation, during the fiscal year ended September
30, 2008, the Bank applied for, and received, regulatory approval to pay a $6.5
million dividend to the holding company which was distributed during the quarter
ended September 30, 2008. The change in the Bank’s equity capital reported above
reflects the dividend paid from the Bank to the holding company during fiscal
2008.




(Continued)


80




AMERICAN
BANCORP OF NEW JERSEY, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS September
30, 2008, 2007, and 2006 (Tables
in Thousands)







NOTE
15 - FAIR VALUE OF FINANCIAL INSTRUMENTS




The
carrying amount and estimated fair value of financial instruments were as
follows:




2008
            
            
            2007Carrying
              Amount
            
            
            Estimated
              Fair
              Value
            
            
            Carrying
              Amount
            
            
            Estimated
              Fair
              ValueFinancial
      assetsCash
      and cash equivalents
            
            $
            20,375
            
            
            $
            20,375
            
            
            $
            37,421
            
            
            $
            37,421Securities
      available-for-sale
            
            
            81,163
            
            
            
            81,163
            
            
            
            58,093
            
            
            
            58,093Securities
      held-to-maturity
            
            
            7,509
            
            
            
            7,443
            
            
            
            6,730
            
            
            
            6,671Loans
      receivable, net
            
            
            478,574
            
            
            
            475,225
            
            
            
            437,883
            
            
            
            436,811Loans
      held for sale
            
            
            —
            
            
            
            —
            
            
            
            1,243
            
            
            
            1,260Federal
      Home Loan Bank stock
            
            
            2,743
            
            
            
            2,743
            
            
            
            2,553
            
            
            
            2,553Accrued
      interest receivable
            
            
            2,391
            
            
            
            2,391
            
            
            
            2,212
            
            
            
            2,212Financial
      liabilitiesDeposits
            
            
            (447,687
            )
            
            
            (448,304
            )
            
            
            (428,600
            )
            
            
            (428,737
            )Advance
      payments by borrowers for taxes and insurance
            
            
            (2,811
            )
            
            
            (2,811
            )
            
            
            (2,702
            )
            
            
            (2,702
            )Borrowings
            
            
            (75,547
            )
            
            
            (76,002
            )
            
            
            (37,612
            )
            
            
            (37,872
            )Accrued
      interest payable
            
            
            (172
            )
            
            
            (172
            )
            
            
            (213
            )
            
            
            (213
            )




(Continued)




81




AMERICAN
BANCORP OF NEW JERSEY, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2008, 2007, and 2006 (Tables
in Thousands)







NOTE
15 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)




The
methods and assumptions used to estimate fair value are described as
follows:




Carrying
amount is the estimated fair value for cash and cash equivalents, Federal Home
Loan Bank stock, accrued interest receivable and payable, demand deposits, stock
subscriptions received, short-term debt, and variable rate loans or deposits
that reprice frequently and fully. Security fair values are based on market
prices or dealer quotes and, if no such information is available, on the rate
and term of the security and information about the issuer. For fixed rate loans
or deposits and for variable rate loans or deposits with infrequent repricing or
repricing limits, fair value is based on discounted cash flows using current
market rates applied to the estimated life and credit risk. Fair values for
impaired loans are estimated using discounted cash flow analysis or underlying
collateral values. Fair value of debt, including Federal Home Loan Bank advances
and reverse repurchase agreements, is based on current rates for similar
financing. The fair value of off-balance-sheet
items is based on the current fees or cost that would be charged to enter into
or terminate such arrangements. The fair value of these off-balance-sheet items
is not material.




NOTE
16 - OTHER COMPREHENSIVE INCOME AND LOSS




Other
comprehensive income and loss components and related taxes were as
follows.




2008
            
            
            2007
            
            
            2006Unrealized
      holding gains (losses) on available-for-sale securities
            
            $
            (479
            )
            
            $
            958
            
            
            $
            (133
            )Reclassification
      adjustments for losses later recognized in income
            
            
            5
            
            
            
            11
            
            
            
            271Net
      unrealized gains and (losses)
            
            
            (474
            )
            
            
            969
            
            
            
            138Tax
      effect
            
            
            206
            
            
            
            (361
            )
            
            
            (60
            )Other
      comprehensive income (loss)
            
            $
            (268
            )
            
            $
            608
            
            
            $
            78




(Continued)




82




AMERICAN
BANCORP OF NEW JERSEY, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS September
30, 2008, 2007, and 2006 (Tables
in Thousands)







NOTE
17 - QUARTERLY FINANCIAL DATA (UNAUDITED)




Interest
              Income
            
            
            Net
      Interest Income
            
            
            Net
              Income
            
            
            Earnings
      per ShareBasic
            
            
            Fully
      Diluted2008First
      quarter
            
            $
            7,834
            
            
            $
            3,102
            
            
            $
            93
            
            
            $
            0.01
            
            
            $
            0.01Second
      quarter
            
            
            7,590
            
            
            
            3,206
            
            
            
            (13
            )
            
            
            0.00
            
            
            
            0.00Third
      quarter
            
            
            7,963
            
            
            
            3,713
            
            
            
            431
            
            
            
            0.04
            
            
            
            0.04Fourth
      quarter
            
            
            8,050
            
            
            
            4,019
            
            
            
            717
            
            
            
            0.07
            
            
            
            0.072007First
      quarter
            
            $
            6,708
            
            
            $
            3,170
            
            
            $
            329
            
            
            $
            0.03
            
            
            $
            0.03Second
      quarter
            
            
            7,159
            
            
            
            3,057
            
            
            
            150
            
            
            
            0.01
            
            
            
            0.01Third
      quarter
            
            
            7,508
            
            
            
            3,064
            
            
            
            150
            
            
            
            0.01
            
            
            
            0.01Fourth
      quarter
            
            
            7,654
            
            
            
            3,008
            
            
            
            (72
            )
            
            
            0.00
            
            
            
            0.00







83




AMERICAN
BANCORP OF NEW JERSEY, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS September
30, 2008, 2007, and 2006 (Tables
in Thousands)







NOTE
18 – PARENT COMPANY FINANCIAL STATMENTS




American
      Bancorp of New Jersey, Inc.
              Condensed
      Statement of Financial Condition
              (In
      thousands, except share data)
            
            At
      September 30,2008
            
            
            2007ASSETSCash
      and cash equivalents
            
            $
            8,252
            
            
            $
            3,263Securities
      available-for-sale
            
            
            —
            
            
            
            11,858Investment
      in subsidiaries
            
            
            73,745
            
            
            
            76,837ESOP
      note receivable from bank subsidiary
            
            
            8,288
            
            
            
            8,541Accrued
      interest receivable
            
            
            —
            
            
            
            46Other
      assets
            
            
            569
            
            
            
            54Total
      assets
            
            $
            90,854
            
            
            $
            100,599LIABILITIES
      AND EQUITYAccrued
      expenses and other liabilities
            
            $
            6
            
            
            $
            6Total
      liabilities
            
            
            6
            
            
            
            6Stockholders
      equityPreferred
      stock, $.10 par value, 10,000,000 shares authorized at September 30,
      2008 and 2007;
            
            
            —
            
            
            
            —Common
      stock, $.10 par value, 20,000,000 shares authorized, 14,527,953 shares
      issued at September 30, 2008 and September 30, 2007, 10,859,692 and
      11,946,190 outstanding at September 30, 2008 and September 30,
      2007
            
            
            1,453
            
            
            
            1,453Additional
      paid in capital
            
            
            115,661
            
            
            
            113,607Unearned
      ESOP shares
            
            
            (7,649
            )
            
            
            (8,099
            )Retained
      earnings
            
            
            23,648
            
            
            
            24,258Treasury
      Stock; 2008 – 3,668,261, 2007 – 2,581,763 shares
            
            
            (41,724
            )
            
            
            (30,353
            )Accumulated
      other comprehensive loss
            
            
            (541
            )
            
            
            (273
            )Total
      stockholders’ equity
            
            
            90,848
            
            
            
            100,593Total
      liabilities and stockholders’ equity
            
            $
            90,854
            
            
            $
            100,599









84




AMERICAN
BANCORP OF NEW JERSEY, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS September
30, 2008, 2007, and 2006 (Tables
in Thousands)







NOTE
18 – PARENT COMPANY FINANCIAL STATEMENTS (Continued)




American
      Bancorp of New Jersey, Inc.
              Condensed
      Statement of Income
              (In
      thousands, except share data)
            
            For
      the years ended
              September
      30,2008
            
            
            2007
            
            
            2006Interest
      income
            
            $
            799
            
            
            $
            1,480
            
            
            $
            2,081Dividends
      from subsidiaries
            
            
            6,500
            
            
            
            8,000
            
            
            
            —Other
      income - (loss) on sales of securities available-for-sale
            
            
            (5
            )
            
            
            (11
            )
            
            
            —Interest
      expense
            
            
            —
            
            
            
            —
            
            
            
            —Other
      expense
            
            
            355
            
            
            
            296
            
            
            
            377Income
      before income tax and undistributed (overdistributed) subsidiary
      income
            
            
            6,939
            
            
            
            9,173
            
            
            
            1,704Provision
      (benefit) for income taxes
            
            
            177
            
            
            
            475
            
            
            
            681Equity
      in undistributed (overdistributed) subsidiary income
            
            
            (5,534
            )
            
            
            (8,141
            )
            
            
            1,110Net
      income
            
            $
            1,228
            
            
            $
            557
            
            
            $
            2,133Earnings
      per share:Basic
            
            $
            0.12
            
            
            $
            0.05
            
            
            $
            0.16Diluted
            
            $
            0.12
            
            
            $
            0.05
            
            
            $
            0.16







85




AMERICAN
BANCORP OF NEW JERSEY, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS September
30, 2008, 2007, and 2006 (Tables
in Thousands)







NOTE
18 – PARENT COMPANY FINANCIAL STATEMENTS (Continued)




American
      Bancorp of New Jersey, Inc.
              Condensed
      Statement Cash Flows
              (In
      thousands, except share data)
            
            For
      the years ended
              September
      30,2008
            
            
            2007
            
            
            2006Cash
      flows from operating activitiesNet
      Income
            
            $
            1,228
            
            
            $
            557
            
            
            $
            2,133Adjustments
      to reconcile net income to net cash provided by operating
      activitiesEquity
      in overdistributed (undistributed) earnings of subsidiary
            
            
            5,534
            
            
            
            8,141
            
            
            
            (1,110
            )Net
      amortization of premiums and discounts
            
            
            (2
            )
            
            
            (39
            )
            
            
            (156
            )Losses
      on securities available-for-sale
            
            
            5
            
            
            
            11
            
            
            
            —Decrease
      (increase) in accrued interest receivable
            
            
            46
            
            
            
            94
            
            
            
            (140
            )Decrease
      (increase) in other assets
            
            
            (678
            )
            
            
            (210
            )
            
            
            (15
            )Increase
      (decrease) in other liabilities
            
            
            —
            
            
            
            (13
            )
            
            
            (4
            )Net
      cash provided by operating activities
            
            
            6,133
            
            
            
            8,541
            
            
            
            708Cash
      flows from investing activitiesDecrease
      in ESOP note receivable
            
            
            253
            
            
            
            237
            
            
            
            221Purchases
      of securities available-for-sale
            
            
            —
            
            
            
            —
            
            
            
            (33,795
            )Sales
      of securities available-for-sale
            
            
            11,510
            
            
            
            3,227
            
            
            
            —Maturities
      of securities available-for-sale
            
            
            —
            
            
            
            6,000
            
            
            
            6,000Principal
      paydowns on securities available-for-sale
            
            
            321
            
            
            
            4,230
            
            
            
            2,687Net
      cash used in investing activities
            
            
            12,084
            
            
            
            13,694
            
            
            
            (24,887
            )Cash
      flows from financing activitiesNet
      proceeds from stock issuance
            
            
            —
            
            
            
            —
            
            
            
            89,588MHC
      Capital infusion
            
            
            —
            
            
            
            —
            
            
            
            99RSP
      and treasury share purchases
            
            
            (11,419
            )
            
            
            (26,049
            )
            
            
            (4,380
            )Proceeds
      from stock option exercises
            
            
            29
            
            
            
            —
            
            
            
            —Capital
      contribution to subsidiary
            
            
            —
            
            
            
            —
            
            
            
            (52,506
            )Cash
      dividends paid
            
            
            (1,838
            )
            
            
            (1,867
            )
            
            
            (2,112
            )Net
      cash provided by (used in) financing activities
            
            
            (13,228
            )
            
            
            (27,916
            )
            
            
            30,689Net
      change in cash and cash equivalents
            
            
            4,989
            
            
            
            (5,681
            )
            
            
            6,510Cash
      and cash equivalents at beginning of year
            
            
            3,263
            
            
            
            8,944
            
            
            
            2,434Cash
      and cash equivalents at end of year
            
            $
            8,252
            
            
            $
            3,263
            
            
            $
            8,944







86




DIRECTORS
AND OFFICERS




Directors
      of American Bancorp
              of
      New Jersey and American
              Bank
      of New Jersey
            
            Officers
      of American
              Bancorp
      of New Jersey
            
            Officers
      of American Bank
              of
      New JerseyJoseph
      Kliminski
            
            Joseph
      Kliminski
            
            Joseph
      KliminskiChief
      Executive Officer
            
            Chief
      Executive Officer
            
            Chief
      Executive OfficerFred
      G. Kowal
            
            Fred
      G. Kowal
            
            Fred
      G. KowalPresident
      and Chief Operating
            
            President
      and Chief Operating
            
            President
      and Chief OperatingOfficer
            
            Officer
            
            OfficerW.
      George Parker
            
            Eric
      B. Heyer
            
            Eric
      B. HeyerChairman
      of the Board
            
            Sr.
      Vice President, Treasurer and
            
            Sr.
      Vice President, Treasurer andPresident
      and Retired Chief
            
            Chief
      Financial Officer
            
            Chief
      Financial OfficerExecutive
      Officer of AdcoChemical
      Company
            
            Richard
      M. Bzdek
            
            Richard
      M. BzdekSr.
      Vice President, Corporate
            
            Sr.
      Vice President, CorporateJames
      H. Ward III
            
            Secretary
            
            SecretaryVice
      Chairman,Retired
      Investor
            
            
            
            Catherine
      M. BringuierSr.
      Vice President, Chief Lending OfficerRobert
      A. GaccionePartner
      of the law firm Gaccione,
            
            
            
            Glenn
      Miller IIIPomaco
      & Malanga P.C.
            
            
            
            Sr.
      Vice President, CommercialReal
      Estate LendingH.
      Joseph NorthRetired
      Town Administrator of
            
            
            
            Teresa
      W. KoBloomfield,
      NJ
            
            
            
            Vice
      President, Commercial LoanUnderwritingVincent
      S. RospondAttorney
      and majority stockholder
            
            
            
            Josephine
      Castaldoof
      the law firm Rospond, Rospond
            
            
            
            Vice
      President, Deposit&
      Conte, P.A.
            
            
            
            Operations/BSA
      OfficerLois
      AndersonVice
      President, BranchAdministrationRobert
      A. Gaccione, Jr.Vice
      President, Loan OriginationJohn
      ScognamiglioVice
      President, Controller




87




INVESTOR
AND CORPORATE INFORMATION




Annual
Meeting




The
Annual Meeting of Stock holders will be held at 8:30 a.m. local time, on
February 24, 2009, at The Wilshire Grand Hotel, 350 Pleasant Valley Way, West
Orange, New Jersey.




Stock
Listing




American
Bancorp of New Jersey common stock is listed on the Nasdaq Global Market under
the symbol “ABNJ.”




Price
Range of Common Stock




Shares of
American Bancorp of New Jersey, Inc. (“ABNJ”) began trading on October 6, 2005
following the completion of the Company’s second step conversion. The high and
low closing prices for the common stock as reported on the NASDAQ Global Market,
as well as the dividends declare per share, are reflected in the table below.
Such information reflects inter-dealer prices, without retail markup, markdown
or commission and may not represent actual transactions.




Fiscal
      Year 2008
            
            High
            
            
            Low
            
            
            DividendsFirst
      Quarter
            
            $
            10.98
            
            
            $
            10.11
            
            
            $
            0.04Second
      Quarter
            
            $
            10.86
            
            
            $
            10.10
            
            
            $
            0.04Third
      Quarter
            
            $
            11.32
            
            
            $
            9.90
            
            
            $
            0.05Fourth
      Quarter
            
            $
            10.60
            
            
            $
            9.51
            
            
            $
            0.05




The
combination of our regular quarterly dividends resulted in total cash dividends
of $0.18 per share paid to public shareholders in fiscal 2008.




Fiscal
      Year 2007
            
            High
            
            
            Low
            
            
            DividendsFirst
      Quarter
            
            $
            12.24
            
            
            $
            11.74
            
            
            $
            0.04Second
      Quarter
            
            $
            12.02
            
            
            $
            11.50
            
            
            $
            0.04Third
      Quarter
            
            $
            11.60
            
            
            $
            10.24
            
            
            $
            0.04Fourth
      Quarter
            
            $
            11.10
            
            
            $
            10.24
            
            
            $
            0.04




The
combination of our regular quarterly dividends resulted in total cash dividends
of $0.16 per share paid to public shareholders in fiscal 2007.




At
December 11, 2008, there were 10,859,692 shares of American Bancorp of New
Jersey, Inc common stock issued and outstanding and approximately 831
stockholders of record.


88




Stock
Performance Graph




(LINE GRAPH)




The
Company has added the SNL Thrift Index to its stock performance graph due to its
familiarity to investors as a representative index of the stock performance of
the thrift industry. The SNL Thrift Index is expected to replace the Hemscott
Savings & Loan Index in the Company’s stock performance graphs included in
future reports.




Stockholder
      and General Inquiries
            Transfer
      AgentAmerican
      Bancorp of New Jersey
            Registrar
      and Transfer Company365
      Broad Street
            10
      Commerce DriveBloomfield,
      New Jersey 07003
            Cranford,
      New Jersey 07016(973)
      748-3600
            (800)
      525-7686Attention:
      Eric B. HeyerInvestor
      Relations




Annual
Reports




A copy of
the Annual Report on Form 10-K without exhibits for the year ended September 30,
2008, as filed with the Securities and Exchange Commission, may be obtained
without charge by contacting Eric B. Heyer, Investor Relations, American Bancorp
of New Jersey, 365 Broad Street, Bloomfield, New Jersey, 07003.


89




OFFICE
LOCATIONS




Administrative
      Headquarters365
      Broad StreetBloomfield,
      New Jersey 07003(973)
      748-3600Bloomfield
      Branch347
      Broad StreetBloomfield,
      New Jersey 07003(973)
      748-3600Bloomfield
      Drive Up Facility16
      Pitt StreetBloomfield,
      New Jersey 07003Cedar
      Grove Branch310
      Pompton AvenueCedar
      Grove, New Jersey 07009(973)
      239-6450Verona
      Branch725
      Bloomfield AvenueVerona,
      New Jersey 07044(973)
      857-0856Nutley
      Branch213
      Harrison StreetNutley,
      New Jersey 07110(973)
      798-6150Clifton
      Branch500
      Clifton AvenueClifton,
      New Jersey 07011(973)
      798-6250




90