UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K


(Mark
      One)x
            Annual
      report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of
      1934
              
              For the fiscal year ended September
      30, 2008-OR-o
            Transition
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934
              For
      the transition period from ___________ to
  _____________.




Commission File Number: 0-51500


AMERICAN
      BANCORP OF NEW JERSEY, INC.(Exact
      Name of Registrant as Specified in its
Charter)




New
      Jersey
            
            55-0897507(State
      or Other Jurisdiction of
            
            (I.R.S.
      EmployerIncorporation
      or Organization)
            
            Identification
      No.)




365
      Broad Street, Bloomfield, New Jersey
            
            07003(Address
      of Principal Executive Offices)
            
            (Zip
      Code)




Registrant’s telephone number, including
area code: (973)
748-3600




Securities
registered pursuant to Section 12(b) of the Exchange Act:


Title
      of each class
            Name
      of each exchange on which registeredCommon
      Stock, par value $.10 per share
            The
      NASDAQ Stock Market LLC




Securities registered pursuant to Section
12(g) of the Exchange Act: None




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.o Yes
x
No




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.o Yes
x
No




Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.     xYes    
o
No




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x




Indicate
by check mark whether the registrant is a large accelerated file, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definition
of “large accelerated filer”, “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):




Large accelerated filer
           o
            
            Accelerated filer xNon-accelerated filer
             o
            
            Smaller reporting company o(Do
      not check if a Smaller Reporting Company)




Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2). o Yes
x
No




The
aggregate market value of the voting and non-voting common equity held by
nonaffiliates of the registrant, computed by reference to the closing price of
the registrant’s common stock on the NASDAQ Stock Market on December 11, 2008,
was $73,433,167. The exclusion from such amount of the market value of the
shares owned by any person shall not be deemed an admission by the registrant
that such person is an affiliate of the registrant.




As
of December 11, 2008, the registrant had outstanding 10,859,692 shares of
Common Stock.




DOCUMENTS
INCORPORATED BY REFERENCE:


Parts II
and IV of Form 10-K - Portions of the Annual Report to Stockholders for the year
ended


September
30, 2008


Part III
of Form 10-K - Portions of the proxy statement for the Annual Meeting of
Stockholders for the


year
ended September 30, 2008












PART
I




Forward-Looking
Statements




American
Bancorp of New Jersey, Inc. (the “Company” or “Registrant”) may from time to
time make written or oral “forward looking statements,” including statements
contained in documents filed with or furnished to the Securities and Exchange
Commission (including this Annual Report on Form 10-K and the exhibits thereto),
in its reports to stockholders and in other communications by the Company, which
are made in good faith by the Company pursuant to the “safe harbor” provisions
of the Private Securities Litigation Reform Act of 1995.




These
forward-looking statements involve risks and uncertainties, such as statements
of the Company’s plans, objectives, expectations, estimates and intentions that
are subject to change based on various important factors (some of which are
beyond the Company’s control). The following factors, among others, could cause
the Company’s financial performance to differ materially from the plans,
objectives, expectations, estimates and intentions expressed in such
forward-looking statements: the strength of the United States economy in general
and the strength of the local economies in which the Company conducts
operations; the effects of, and changes in, monetary and fiscal policies and
laws, including interest rate policies of the Board of Governors of the Federal
Reserve System, inflation, interest rates, market and monetary fluctuations; the
timely development of and acceptance of new products and services of the Company
and the perceived overall value of these products and services by users,
including the features, pricing and quality as compared to competitors’ products
and services; the identification of de novo branching opportunities and ability
to attract new customers and gain market share, the impact of changes in
financial services laws and regulations (including laws concerning taxes,
banking, securities and insurance); technological changes; acquisitions; changes
in consumer spending and saving habits; and the success of the Company at
managing the risks resulting from these factors.




The
Company cautions that the listed factors are not exclusive. The Company does not
undertake to update any forward-looking statement, whether written or oral, that
may be made from time to time by or on behalf of the Company.




Item
1. Business.




General




On
October 5, 2005, American Savings, MHC (the “MHC”) completed its reorganization
into stock form and the Company succeeded to the business of ASB Holding
Company, the MHC’s former stock holding company subsidiary. Each outstanding
share of common stock of the former mid-tier stock holding company (other than
shares held by the MHC which were canceled) was converted into 2.55102 shares of
common stock of the Company. As part of the second-step mutual to stock
conversion transaction, the Company sold a total of 9,918,750 shares to eligible
depositors of American Bank of New Jersey (the “Bank”) in a subscription
offering at $10.00 per share, including 793,500 shares purchased by the Bank’s
employee stock ownership plan with funds borrowed from the Company.




The
Company is a New Jersey corporation that was incorporated in May 2005 for the
purpose of being a holding company for the Bank, a federally-chartered stock
savings bank. The Company is a unitary savings and loan holding company and
conducts no significant business or operations of its own. References in this
Annual Report on Form 10-K to the Company generally refer to the consolidated
entity, which includes the Bank, unless the context indicates otherwise.
References to “we,” “us,” or “our” refer to the Bank or Company, or both, as the
context indicates.


2




The
Bank was originally founded in 1919 as the American-Polish Building & Loan
Association of Bloomfield, New Jersey. It became a state-chartered savings and
loan association in 1948 and converted to a federally chartered savings bank in
1995. The Bank’s deposits are insured by the Federal Deposit Insurance
Corporation up to the maximum amount permitted by law. The Bank is regulated by
the Office of Thrift Supervision and the Federal Deposit Insurance Corporation.
As of September 30, 2008, the Bank had total assets of $621.4 million, total
deposits of $455.7 million, and total loans of $478.6 million.




Our
core business is using retail deposits in order to fund a variety of mortgage
and consumer loan products. We operate as a traditional community bank, offering
retail banking services, one- to four-family residential mortgage loans,
including first mortgages, home equity loans and lines of credit, commercial
loans, including multi-family and non-residential mortgage loans, construction
loans and business loans and lines of credit, as well as consumer loans. We also
invest in mortgage-related securities, including mortgage-backed pass through
securities and collateralized mortgage obligations, and other investment
securities. The principal source of funds for our lending and investing
activities is retail deposits, supplemented with borrowings in the form of
Federal Home Loan Bank advances and reverse repurchase agreements.




Our
results of operations depend primarily on our 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 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 and the cost of those deposits and borrowed
funds. Our interest-earning assets consist primarily of one- to four-family
residential mortgage loans, commercial loans and consumer loans, as well as
residential mortgage-related securities and U.S. Agency debentures.
Interest-bearing liabilities consist primarily of retail deposits, advances from
the Federal Home Loan Bank and reverse repurchase agreements.




Market
Area




Our
administrative headquarters is located in Bloomfield, New Jersey. We have five
full service branch offices located in Bloomfield, Cedar Grove, Verona, Nutley
and Clifton New Jersey. Our lending is concentrated in New Jersey and the New
York metropolitan area, and our predominant sources of deposits are the
communities in which our five offices are located as well as the neighboring
communities. Our business of attracting deposits and making loans is primarily
conducted within our market area. A downturn in the local economy could reduce
the amount of funds available for deposit and the ability of borrowers to repay
their loans. As a result, our profitability could decrease.




Competition




We
face substantial competition in our attraction of deposits, which are our
primary source of funds for lending, and in our origination of loans. Many of
our competitors are significantly larger institutions and have greater financial
and other resources. Our ability to compete successfully is a significant factor
affecting our profitability.




Our
competition for deposits and loans historically has come from other insured
financial institutions such as local and regional commercial banks, savings
institutions, and credit unions located in our primary market area. However, we
also compete with large, national banks and mortgage banking companies for many
of these same products. Additionally, we face competition for deposits from
investment products such as mutual funds, short-term money funds and corporate
and government securities.


3




Other
Information




We
maintain a website at https://www.americansavingsnj2.com. Our annual reports on
Form 10-K, proxy statements, quarterly reports on Form 10-Q, current reports on
Form 8-K, and all amendments to those reports, are made available, free of
charge, through the Investor Relations portion of our website, as soon as
reasonably practicable after we electronically file them or furnish them to the
Securities and Exchange Commission (“SEC”). You may also access any document we
file with the SEC online at www.sec.gov or at the SEC’s Public Reference Room at
100 F Street, NE, Washington, DC 20549. Information may be obtained on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You
may also obtain copies, without charge, by writing to our Investor Relations
Department located at 365 Broad Street, Bloomfield, NJ 07003.


4




Lending
Activities




General.Historically,
we have focused on the origination of one- to four-family loans. Consequently, a
majority of our total loan portfolio comprises such loans as reflected in the
table below. Notwithstanding, our business plan calls for significantly greater
emphasis on commercial lending which includes multifamily, nonresidential,
construction and business loans. While outstanding balances in commercial loans
still fall below those in the one- to four-family loan category, the table below
shows the dollar and percentage of portfolio growth trends in the commercial
categories reflecting the Company’s loan diversification
strategy.




Loan
Portfolio Composition. The following table analyzes the composition of
our loan portfolio by loan category at the dates
indicated.


At
      September 302008
            
            2007
            
            2006
            
            2005
            
            2004Amount
            
            Percent
            
            Amount
            
            Percent
            
            Amount
            
            Percent
            
            Amount
            
            Percent
            
            Amount
            
            Percent(Dollars
      in thousands)Type of Loans:One-
      to four-family
              real estate(1)
            
            $
            276,690
            
            55.88
            %
            $
            278,183
            
            60.92
            %
            $
            283,469
            
            68.05
            %
            $
            267,052
            
            78.09
            %
            $
            251,531
            
            80.17
            %Multi-family
      and nonresidential real estate
            
            
            127,573
            
            25.77
            
            
            99,059
            
            21.70
            
            
            73,496
            
            17.64
            
            
            58,615
            
            17.14
            
            
            43,197
            
            13.77Land
            
            
            8,017
            
            1.62
            
            
            3,341
            
            0.73
            
            
            534
            
            0.13
            
            
            —
            
            —
            
            
            —
            
            —Construction
            
            
            53,315
            
            10.77
            
            
            48,561
            
            10.64
            
            
            33,155
            
            7.96
            
            
            1,450
            
            0.42
            
            
            7,175
            
            2.29Consumer
            
            
            1,159
            
            0.23
            
            
            655
            
            0.14
            
            
            720
            
            0.17
            
            
            702
            
            0.21
            
            
            746
            
            0.24Home
      equity
            
            
            20,836
            
            4.21
            
            
            19,756
            
            4.33
            
            
            19,122
            
            4.59
            
            
            13,413
            
            3.92
            
            
            10,666
            
            3.40Business
            
            
            7,543
            
            1.52
            
            
            7,024
            
            1.54
            
            
            6,068
            
            1.46
            
            
            746
            
            0.22
            
            
            398
            
            0.13Total
      loans receivable
            
            
            495,133
            
            100.00
            %
            
            456,579
            
            100.00
            %
            
            416,564
            
            100.00
            %
            
            341,948
            
            100.00
            %
            
            313,713
            
            100.00
            %Less:Allowance
      for loan losses
            
            
            (3,035
            )
            
            
            
            (2,568
            )
            
            
            
            (2,123
            )
            
            
            
            (1,658
            )
            
            
            
            (1,578
            )Net
      deferred origination costs
            
            
            1,006
            
            
            
            
            1,084
            
            
            
            
            1,100
            
            
            
            
            1,036
            
            
            
            
            935Loans
      in process
            
            
            (14,530
            )
            
            
            
            (15,969
            )
            
            
            
            (16,917
            )
            
            
            
            (350
            )
            
            
            
            (4,100
            )Total
      loans receivable, net
            
            $
            478,574
            
            
            
            $
            439,126
            
            
            
            $
            398,624
            
            
            
            $
            341,006
            
            
            
            $
            308,970




(1)
            Includes
      loans held for sale of $0, $1,243,346, $0, $280,250, and $0 at September
      30, 2008, September 30, 2007, September 30, 2006, September 30, 2005 and
      September 30, 2004,
respectively.


5




Loan
Maturity Schedule. The following table sets forth the maturity of our
loan portfolio at September 30, 2008. Demand loans, loans having no stated
maturity, and overdrafts are shown as due in one year or less. This table shows
contractual maturities and does not reflect repricing or the effect of
prepayments. Actual repayment of loan balances will vary significantly from
their contractual maturities due to amortization and prepayments.


At
      September 30, 2008One-
      to
              Four-
              Family
              Real
      Estate
            
            
            Multi-family
              And
              Nonresidential
              Real
      Estate
            
            
            Land
            
            
            Construction
            
            
            Consumer
            
            
            Home
              Equity
            
            
            Business
            
            
            Total(Dollars
      in thousands)Amounts
      Due:Within
      1 Year
            
            $
            61
            
            
            $
            1,516
            
            
            $
            2,500
            
            
            $
            37,414
            
            
            $
            1,159
            
            
            $
            86
            
            
            $
            3,766
            
            
            $
            46,502After
      1 year:1
      to 5 years
            
            
            10,923
            
            
            
            3,024
            
            
            
            3,666
            
            
            
            2,705
            
            
            
            —
            
            
            
            736
            
            
            
            3,293
            
            
            
            24,3475
      to 10 years
            
            
            37,901
            
            
            
            67,913
            
            
            
            517
            
            
            
            —
            
            
            
            —
            
            
            
            1,826
            
            
            
            385
            
            
            
            108,54210
      to 15 years
            
            
            28,563
            
            
            
            19,271
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            583
            
            
            
            99
            
            
            
            48,516Over
      15 years
            
            
            199,242
            
            
            
            35,849
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            17,605
            
            
            
            —
            
            
            
            252,696Total
      due after one year
            
            
            276,629
            
            
            
            126,057
            
            
            
            4,183
            
            
            
            2,705
            
            
            
            —
            
            
            
            20,750
            
            
            
            3,777
            
            
            
            434,101Total
      amount due
            
            $
            276,690
            
            
            $
            127,573
            
            
            $
            6,683
            
            
            $
            40,119
            
            
            $
            1,159
            
            
            $
            20,836
            
            
            $
            7,543
            
            
            $
            480,603


6




The
following table sets forth the dollar amount of all loans at September 30, 2008
due after September 30, 2009, which have fixed interest rates and which have
floating or adjustable interest rates.


Fixed
      Rates
            
            
            Floating
      or
              Adjustable
      Rates
            
            
            Total(In
      thousands)One-
      to four-family real estate
            
            $
            139,420
            
            
            $
            137,209
            
            
            $
            276,629Multi-family
      and non-residential real estate
            
            
            78,952
            
            
            
            47,105
            
            
            
            126,057Land
            
            
            517
            
            
            
            3,666
            
            
            
            4,183Construction
            
            
            —
            
            
            
            2,705
            
            
            
            2,705Consumer
            
            
            —
            
            
            
            —
            
            
            
            —Home
      equity
            
            
            —
            
            
            
            20,750
            
            
            
            20,750Business
            
            
            2,472
            
            
            
            1,305
            
            
            
            3,777Total
            
            $
            221,361
            
            
            $
            212,740
            
            
            $
            434,101




One-
to Four-Family Real Estate Loans.As noted above, our primary lending
activity historically has consisted of the origination of one- to four-family
mortgage loans, most of which are secured by property located in northern New
Jersey. We will generally originate a one- to four-family mortgage loan in an
amount up to 80% of the lesser of the appraised value or the purchase price of a
mortgaged property. For loans exceeding this guideline, private mortgage
insurance on the loan is typically required.




Our
residential loans are generally originated with fixed or adjustable rates and
have terms of ten to thirty years. We previously offered mortgage loans with
bi-weekly payments and terms up to forty years. However, we discontinued
offering those products during fiscal 2007. Regarding adjustable rate loans, we
offer fully amortizing, adjustable rate loans with initial fixed rate periods
ranging from one to ten years. Additionally, we offer adjustable rate loans with
interest only payments for the first five, seven or ten years that fully
amortize after the initial interest-only period. We previously offered mortgage
loans with interest only payments for the first three years but discontinued
offering that product during fiscal 2007. Loans with interest only payments are
generally considered to entail greater risk than loans whose terms require the
payment of both interest and principal over the life of the loan. Of particular
concern are borrowers’ abilities to meet their payment obligations when the
interest rate on the loan resets for the first time while, simultaneously,
scheduled principal amortization begins to be collected over the loan’s
remaining term to maturity. These concurrent factors may result in significant
increases to a borrower’s monthly payment obligations.




The
majority of our one- to four-family adjustable rate loan products provide for an
interest rate that is tied to the one-year Constant Maturity U.S. Treasury index
and have terms of up to thirty years with initial fixed rate periods of one,
three, five, seven, or ten years according to the terms of the loan. We
previously offered an adjustable rate loan with a rate that adjusts every three
years to the three-year Constant Maturity U.S. Treasury index. However, we
discontinued offering that product during the first quarter of fiscal 2008 and
all loans originated under that program have paid off in full.




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 the significant
majority of the one-to four-family mortgages originated and retained by the
Bank.


7




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.




The
Bank continues to offer a limited Alt-A program through which it originates and
sells all such loans to FNMA 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.




The
fixed rate mortgage loans that we originate generally meet the secondary
mortgage market standards of the Federal National Mortgage Association (“FNMA”).
For the purposes of interest rate risk management, we have historically sold a
portion of our qualifying one- to four-family residential mortgages into the
secondary market without recourse on both a servicing retained and servicing
released basis. Toward that end, we sold loans totaling approximately $1.9
million in the year ended September 30, 2008, $9.3 million in the year ended
September 30, 2007, $5.8 million in the year ended September 30, 2006 and $2.4
million in the year ended September 30, 2005. Purchasers of our loans included,
but were not limited to, FNMA and Countrywide Home Loans.




Notwithstanding
the loan sales in prior years, the Bank has discontinued the sale of most one-
to four-family mortgage loan originations for a period of time to augment the
growth in commercial loans. Loans originated under the Bank’s FNMA Alt-A program
noted above will continue to be sold into the secondary market. The Bank will
carefully monitor the earnings, liquidity, and balance sheet allocation impact
of this strategy and make interim adjustments, as necessary, to support
achievement of the Company’s business plan goals and objectives.




Substantially
all of our residential mortgages include a “due on sale” clause, which is a
provision giving us the right to declare a loan immediately payable if the
borrower sells or otherwise transfers an interest in the property to a third
party. Property appraisals on real estate securing our one- to four-family
residential loans are made by state certified or licensed independent appraisers
approved by the Board of Directors. Appraisals are performed in accordance with
applicable regulations and policies. We require title insurance policies on all
first mortgage real estate loans originated. Homeowners, liability, fire and, if
required, flood insurance policies are also required.




Multi-Family
and Non-Residential Real Estate Loans. We originate and participate in
commercial loans on multi-family and non-residential real estate properties,
including loans on retail/service properties, small office buildings, strip
malls and other income-producing properties. We generally require a 25% down
payment or equity position for these mortgage loans. Typically these loans are
made with amortization terms of up to twenty-five years. The majority of these
loans are on properties located within New Jersey and the New York metropolitan
area.


8




Commercial
real estate loans generally are considered to entail significantly greater risk
than that associated with one- to four-family real estate lending. The repayment
of these loans typically is dependent on the real estate securing the loan as
collateral and the successful operations of the property and income stream of
the borrower generated from the property. These risks can be significantly
affected by economic conditions. In addition, commercial loans may carry larger
balances to single borrowers or related groups of borrowers than one- to
four-family loans. Furthermore, this type of real estate lending generally
requires substantially greater evaluation and oversight efforts compared to
one-to-four family mortgage lending.




Construction
Loans. We originate and participate in construction loans throughout the
New Jersey and New York metropolitan area. Our construction lending includes
loans to individuals for construction of a primary residence as well as loans to
builders and developers for single family homes, multi-family homes, residential
tract development, condominium projects, as well as other commercial real estate
projects. We have no formal limits as to the number of projects a builder may
have under construction or development, and make a case by case determination on
loans to builders and developers who have multiple projects under development.
In some cases, we convert a construction loan to the permanent end mortgage loan
upon completion of construction.




Construction
lending is generally considered to involve a higher degree of credit risk than
long-term permanent financing of residential properties. If the estimate of
construction cost proves to be inaccurate, we may be compelled to advance
additional funds to complete the construction with repayment dependent, in part,
on the success of the ultimate project rather than the ability of a borrower or
guarantor to repay the loan. If we are forced to foreclose on a project prior to
completion, there is no assurance that we will be able to recover all of the
unpaid portion of the loan. In addition, we may be required to fund additional
amounts to complete a project and may have to hold the property for an
indeterminate period of time.




In
response to the deteriorating financial market and economic conditions, we have
diminished the emphasis on construction lending as a component of our strategic
growth in commercial loans. Consequently, the Bank does not expect to see
significant growth in origination of construction loans during fiscal
2009.




Business
Loans.We
also originate business loans to a variety of professionals, sole
proprietorships and small businesses, primarily in our market area. These loans
are generally secured by real estate. We generally require the personal
guarantee of the business owner. Business lending products include term loans
and lines of credit. Our business term loans generally have terms from one to
five years and are mostly fixed rate loans. Our business lines of credit have
terms from one to three years and are mostly adjustable rate
loans.




Unlike
single-family residential mortgage loans, which generally are made on the basis
of the borrower’s ability to make repayment from his or her employment and other
income and which are secured by real property whose value tends to be more
easily ascertainable, business loans typically are made on the basis of the
borrower’s ability to make repayment from the cash flow of the borrower’s
business. As a result, the availability of funds for the repayment of business
loans may be substantially dependent on the success of the business itself and
the general economic environment. Business loans, therefore, have greater credit
risk than residential mortgage loans. In addition, business lending generally
requires substantially greater evaluation and oversight efforts compared to
residential or non-residential real estate lending.


9




Home
Equity Loans. Our home equity loan portfolio includes home equity lines
of credit and second mortgage term loans. Home equity lines of credit are
prime-based loans that are adjusted monthly. Home equity loans are primarily
originated in our market area and are generally made in amounts of up to 75% of
value which was reduced from 80% of value during fiscal 2008. We offer home
equity loans on investment properties in addition to loans on primary
residences. Loans on investment properties were previously made in amounts of up
to 65% of value on second mortgage term loans and up to 60% of value of home
equity lines of credit. However, we discontinued the investment property home
equity loan program during fiscal 2008.




Generally,
our second mortgage term loans have fixed rates for terms of up to fifteen
years. Second mortgage term loans and home equity lines of credit do not require
title insurance but do require homeowner, liability, fire and, if required,
flood insurance policies.




Consumer
Loans.Consumer
loans consist of savings secured loans and unsecured consumer loans which
generally have shorter terms and higher interest rates than residential loans.
We will generally lend up to 90% of the account balance on a savings secured
loan. At September 30, 2008, we had $69,000 of unsecured consumer loans which
were comprised entirely of overdrafts and overdraft lines of credit related to
deposit accounts.




Unsecured
consumer loans, and consumer loans secured by collateral other than savings
accounts, entail greater risks than residential mortgage loans. Consumer loan
repayment is dependent on the borrower’s continuing financial stability and is
more likely to be adversely affected by job loss, divorce, illness or personal
bankruptcy. Finally, the application of various laws, including federal and
state bankruptcy and insolvency laws, may limit the amount which can be
recovered on consumer loans in the event of a default.




Our
underwriting standards for consumer loans include a determination of the
applicant’s credit history and an assessment of the applicant’s ability to meet
existing obligations and payments on the proposed loan. The stability of the
applicant’s monthly income may be determined by verification of gross monthly
income from primary employment, and additionally from any verifiable secondary
income.




Loans
to One Borrower. Under federal law, savings institutions have, subject to
certain exemptions, lending limits to one borrower or a group of related
borrowers in an amount equal to the greater of $500,000 or 15% of the
institution’s unimpaired capital and surplus. As of September 30, 2008, our
loans to one borrower limit was approximately $11.6
million.




At
September 30, 2008, our largest group of related borrowers had an aggregate
balance, including unfunded commitments, of approximately $8.0 million,
representing 8 loans on single purpose commercial real estate, mixed use
properties, one- to four-family and a construction loan for residential
properties.




At
the same date, our second largest group of related borrowers had an aggregate
balance including total commitments of approximately $7.5 million, representing
one loan secured by a construction loan for a completed condominium
project.




Our
third largest group of related borrowers at that date had an aggregate balance
including total commitments of approximately $6.9 million, representing 7 loans
secured by a catering facility, land, one- to four-family properties and
receivables. At September 30, 2008, we had 32 additional lending relationships
exceeding $2.0 million, with outstanding balances at that date ranging from $2.0
million to $6.8 million.




Loan
Originations, Purchases, Sales, Solicitation and Processing. Our loan
growth arises primarily from the retail origination of our own loans and
retaining such loans in portfolio. Our sources of loan originations include
repeat customers, referrals from realtors, brokers, and other professionals,
such as attorneys, accountants and financial planners, as well as “walk-in”
customers. Gross loan originations, excluding loan extensions and renewals,
totaled approximately $121.9 million for the year ended September 30, 2008. Net
of principal repayments, loan growth totaled approximately $39.4 million for the
year ended September 30, 2008.


10




By
contrast, our loan purchase activity has been limited in recent years. We did
not purchase any whole loans during the years ended September 30, 2008, 2007 and
2006.




During
the years ended September 30, 2008, 2007 and 2006, we sold loans totaling $1.9
million, $9.3 million and $5.8 million, respectively. As noted earlier, we have
sold these loans on a non-recourse, servicing retained and non-recourse,
servicing released basis. At September 30, 2008, loans serviced for the benefit
of others totaled $16.8 million.




Generally,
loan sales have been part of our interest rate risk management strategy.
However, for the reasons noted earlier, the Bank intends to discontinue the sale
of one- to four-family mortgage loan originations for a period of time to
augment the growth in commercial loans. The Bank will carefully monitor the
earnings, liquidity, and balance sheet allocation impact of this strategy and
make interim adjustments, as necessary, to support achievement of the Company’s
business plan goals and objectives.




We
occasionally purchase participations in loans originated through other lending
institutions. At September 30, 2008, we had participations with other
institutions that had outstanding balances totaling $12.3 million. Approximately
$978,000 of unfunded commitments remain outstanding related to those loans.
Additionally, we have $1.2 million of outstanding loan balances from the Thrift
Institutions Community Investment Corporation of New Jersey (“TICIC”).
Approximately $130,000 of unfunded commitments remain outstanding related the
TICIC loans. Our participations through these entities are secured by one- to
four-family properties as well as multi-family or other non-one- to-four family
properties, such as assisted living facilities. We may also sell participation
interests in multi-family, commercial and other real estate loans or
construction loans.




Loan
Commitments. We provide written commitments to prospective borrowers on
all one- to four-family and commercial loans. The total amount of commitments to
extend credit for these loans as of September 30, 2008, was approximately $16.3
million, excluding commitments on unused lines of credit of $31.3 million and
undisbursed portions of construction loans totaling $14.5
million.




Loan
Approval Procedures and Authority. Our lending policies and loan approval
limits are recommended by senior management and approved by the Board of
Directors. Regarding our one-to-four family mortgage and home equity loans, our
Loan Underwriter has individual authority to approve one-to four-family loans up
to $417,000, the FNMA conforming loan limit. The loan committee overseeing these
lending activities consists of Joseph Kliminski, CEO, Fred Kowal, President
& COO, and Catherine Bringuier, SVP Chief Lending Officer. Each of these
officers has individual authority to approve one- to four-family loans up to
$750,000. One- to four-family loans between $750,000 and $1,000,000 require two
approvals. One- to four-family loans greater than $1,000,000 require two
signatures from loan committee members.




Regarding
our commercial loans, including multi-family and non-residential real estate,
construction and business loans, the loan committee overseeing these lending
activities consists of Joseph Kliminski, CEO, Fred Kowal, President & COO,
Catherine Bringuier, SVP Chief Lending Officer and Glenn Miller, SVP Commercial
Real Estate. Loan approval authority within this committee is limited to the
CEO, President & COO and SVP Chief Lending Officer. Commercial loans secured
by real estate up to $750,000 require the approval of either the President &
COO or SVP Chief Lending Officer. Loans greater than $750,000 require two
approvals from authorized members of the loan committee.


11




In
addition to the applicable loan committee member approvals, all loans in excess
of certain dollar thresholds must be presented to a subcommittee of the Board of
Directors for review and approval. The Board of Director’s loan committee
currently comprises two outside directors - the Chairman and Vice Chairman of
the Board. During fiscal 2008, the loan amount threshold requiring the Board of
Director’s loan committee approval was $2.5 million.




As
with existing policies and limits, any changes recommended by management,
regarding loan authority, will be subject to Board of Director
approval.




Asset
Quality




Loan
Delinquencies and Collection Procedures. The borrower is notified by both
mail and telephone when a loan is sixteen days past due. If the delinquency
continues, subsequent efforts are made to contact the delinquent borrower and
additional collection notices and letters are sent. When a loan is ninety days
delinquent, it is referred to an attorney for repossession or foreclosure. All
reasonable attempts are made to collect from borrowers prior to referral to an
attorney for collection. In certain instances, we may modify the loan or grant a
limited moratorium on loan payments to enable the borrower to reorganize his
financial affairs, and we attempt to work with the borrower to establish a
repayment schedule to cure the delinquency.




As
to mortgage loans, if a foreclosure action is taken and the loan is not
reinstated, paid in full or refinanced, the property is sold at judicial sale at
which we may be the buyer if there are no adequate offers to satisfy the debt.
Any property acquired as the result of foreclosure or by deed in lieu of
foreclosure is classified as real estate owned until it is sold or otherwise
disposed of. When real estate owned is acquired, it is recorded at the lower of
the unpaid principal balance of the related loan or its fair market value less
estimated selling costs. The initial write-down of the property is charged to
the allowance for loan losses. Adjustments to the carrying value of the
properties that result from subsequent declines in value are charged to
operations during the period in which the declines occur. At September 30, 2008,
we held no real estate owned.




Loans
are reviewed on a regular basis and are placed on non-accrual status when they
are more than ninety days delinquent. Loans may be placed on a non-accrual
status at any time if, in the opinion of management, the collection of
additional interest is doubtful. Interest accrued and unpaid at the time a loan
is placed on non-accrual status is charged against interest income. Subsequent
payments are either applied to the outstanding principal balance or recorded as
interest income, depending on the assessment of the ultimate collectibility of
the loan. At September 30, 2008, we had approximately $1.1 million of loans that
were held on a non-accrual basis.


12




Non-Performing
Assets. The following table provides information regarding our
non-performing loans and other non-performing assets as of the dates
indicated.


At
      September 30,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004(Dollars
      in thousands)Loans
      accounted for on a non-accrual basis:One-
      to four-family
            
            $
            484
            
            
            $
            690
            
            
            $
            691
            
            
            $
            952
            
            
            $
            445Multi-family
      and non residential
            
            
            493
            
            
            
            550
            
            
            
            1,398
            
            
            
            101
            
            
            
            74Construction
            
            
            146
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Consumer
            
            
            14
            
            
            
            —
            
            
            
            —
            
            
            
            62
            
            
            
            —Home
      equity
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            48
            
            
            
            —Business
            
            
            —
            
            
            
            9
            
            
            
            —
            
            
            
            —
            
            
            
            —Total
            
            
            1,137
            
            
            
            1,249
            
            
            
            2,089
            
            
            
            1,163
            
            
            
            519Accruing
      loans contractually past due 90 days or more
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Total
      non-performing loans
            
            
            1,137
            
            
            
            1,249
            
            
            
            2,089
            
            
            
            1,163
            
            
            
            519Real
      estate owned
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Other
      non-performing assets
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Total
      non-performing assets
            
            $
            1,137
            
            
            $
            1,249
            
            
            $
            2,089
            
            
            $
            1,163
            
            
            $
            519Allowance
      for loan losses to non-performing loans
            
            
            266.97
            %
            
            
            205.56
            %
            
            
            101.64
            %
            
            
            142.62
            %
            
            
            304.05
            %Total
      non-performing loans to total loans
            
            
            0.24
            %
            
            
            0.28
            %
            
            
            0.52
            %
            
            
            0.34
            %
            
            
            0.17
            %Total
      non-performing loans to total assets
            
            
            0.18
            %
            
            
            0.22
            %
            
            
            0.41
            %
            
            
            0.21
            %
            
            
            0.12
            %Total
      non-performing assets to total assets
            
            
            0.18
            %
            
            
            0.22
            %
            
            
            0.41
            %
            
            
            0.21
            %
            
            
            0.12
            %




During
the year ended September 30, 2008, $43,123 of interest paid on non-accrual loans
was included in income. An additional $27,390 of interest income would have been
recorded on such loans if those loans had been current during the year ended
September 30, 2008.




Classified
Assets. Management, in compliance with Office of Thrift Supervision
(“OTS”) guidelines, has instituted an internal loan review program, whereby
non-performing loans are classified as substandard, doubtful or loss. It is our
policy to review the loan portfolio, in accordance with regulatory
classification procedures, on at least a quarterly basis. When a loan is
classified as substandard or doubtful, management evaluates the loan for
impairment. When management classifies a portion of a loan as loss, a reserve
equal to 100% of the loss amount is allocated against the loan.




An
asset is considered “substandard” if it is inadequately protected by the paying
capacity and net worth of the obligor or the collateral pledged, if any.
Substandard assets include those characterized by the distinct possibility that
the insured institution will sustain some loss if the deficiencies are not
corrected. Assets classified as “doubtful” have all of the weaknesses inherent
in those classified substandard, with the added characteristic that the
weaknesses present make collection or liquidation in full highly questionable
and improbable, on the basis of currently existing facts, conditions, and
values. Assets, or portions thereof, classified as “loss” are considered
uncollectible and of so little value that their continuance as assets without
the allocation of an impairment reserve is not warranted. Assets which do not
currently expose the insured institution to a sufficient degree of risk to
warrant classification in one of the aforementioned categories but which have
credit deficiencies or potential weaknesses are required to be designated
“special mention” by management.


13




Management’s
classification of assets is reviewed by the Board on a regular basis and by the
regulatory agencies as part of their examination process. The following table
discloses our classification of assets and designation of certain loans as
special mention as of September 30, 2008. At September 30, 2008, all of the
classified assets and special mention designated assets were loans.




At
              September
      30, 2008(In
      thousands)Special
      Mention
            
            $
            24,637Substandard
            
            
            1,302Doubtful
            
            
            —Loss
            
            
            —Total
            
            $
            25,939




At
September 30, 2008, approximately $1,133,276 of loans classified as
“substandard” were accounted for as non-performing loans. As of that same date,
none of the loans classified as “special mention” were accounted for as
non-performing loans.




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.




In
recent years, our charge-offs have been low and, consequently, our estimation of
the amount of losses in the loan portfolio both probable and reasonable to
estimate has been more reflective of other factors.


14




Our
allowance estimation methodology utilizes historical loss experience and
environmental factors such as the local and national economy, loan growth rate,
trends in delinquencies and non-performing loans, experience of lending
personnel, and other similar factors. However, we have had significant growth in
recent years. As a result of the significant loan growth, a portion of our loan
portfolio is considered “unseasoned,” meaning that the loans were originated
less than three years ago. Generally, unseasoned loans demonstrate a greater
risk of credit losses than their seasoned counterparts. Moreover, in many cases,
these unseasoned loans are obligations of borrowers with whom the Bank has had
no prior payment experience. In the absence of adequate historical loss
experience upon which the Bank can base its allowance calculations, the Bank
includes peer group information in its evaluation of the allowance. The peer
group information utilized by the Bank is that of OTS regulated thrifts in the
northeast region. Management believes that the majority of thrifts in the
northeast region have similar loan portfolio composition.




This
estimation is inherently subjective as it requires estimates and assumptions
that are susceptible to significant revisions as more information becomes
available or as future events change. Future additions to the allowance for loan
losses may be necessary if economic and other conditions in the future differ
substantially from the current operating environment. In addition, the OTS as an
integral part of its examination process, periodically reviews our loan and
foreclosed real estate portfolios and the related allowance for loan losses and
valuation allowance for foreclosed real estate. The OTS may require the
allowance for loan losses or the valuation allowance for foreclosed real estate
to be increased based on its review of information available at the time of the
examination, which would negatively affect our earnings.




Based
on the allowance for loan loss methodology discussed above, management expects
provisions for loan losses to increase as a result of the net growth in loans
called for in the Company’s business plan. Specifically, our business strategy
calls for increased strategic emphasis in commercial real estate and business
lending. The loss factors used in the Bank’s loan loss calculations are
generally higher for such loans compared with those applied to one- to
four-family mortgage loans. Consequently, future net growth in commercial real
estate and business loans may result in required loss provisions that exceed
those recorded in prior years when comparatively greater strategic emphasis had
been placed growing the one- to four-family mortgage loan
portfolio.


15




The
following table sets forth information with respect to our allowance for loan
losses for the periods indicated:




Year
      Ended September 30,2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004(Dollars
      in thousands)Allowance
      balance at beginning of period
            
            $
            2,568
            
            
            $
            2,123
            
            
            $
            1,658
            
            
            $
            1,578
            
            
            $
            1,371Provision
      for loan losses
            
            
            501
            
            
            
            445
            
            
            
            465
            
            
            
            81
            
            
            
            207Charge-offs:One-
      to four-family real estate
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Construction
            
            
            (34
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Consumer
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Total
      charge-offs
            
            
            (34
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Recoveries:Consumer
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Total
      recoveries
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Net
      (charge-offs) recoveries
            
            
            (34
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Allowance
      balance at end of period
            
            $
            3,035
            
            
            $
            2,568
            
            
            $
            2,123
            
            
            $
            1,658
            
            
            $
            1,578Total
      loans outstanding at end of period
            
            $
            478,574
            
            
            $
            456,579
            
            
            $
            416,564
            
            
            $
            341,978
            
            
            $
            313,713Average
      loans outstanding during period
            
            $
            459,931
            
            
            $
            418,969
            
            
            $
            369,916
            
            
            $
            327,948
            
            
            $
            278,632Allowance
      as a % of total loans
            
            
            0.63
            %
            
            
            0.58
            %
            
            
            0.53
            %
            
            
            0.48
            %
            
            
            0.50
            %Net
      loan charge-offs as a % of average loans
            
            
            0.01
            %
            
            
            0.00
            %
            
            
            0.00
            %
            
            
            0.00
            %
            
            
            0.00
            %


16


Allocation
of Allowance for Loan Losses.The
following table sets forth the allocation of our allowance for loan losses by
loan category and the percent of loans in each category to total loans
receivable at the dates indicated. The portion of the loan loss allowance
allocated to each loan category does not represent the total available for
future losses which may occur within the loan category since the total loan loss
allowance is a valuation allocation applicable to the entire loan
portfolio.




At
      September 302008
            
            2007
            
            2006
            
            2005
            
            2004Amount
            
            Percent
              of
      Loans
              to
      Total
              Loans
            
            Amount
            
            Percent
              of
      Loans
              to
      Total
              Loans
            
            Amount
            
            Percent
              of
      Loans
              to
      Total
              Loans
            
            Amount
            
            Percent
              of
      Loans
              to
      Total
              Loans
            
            Amount
            
            Percent
              of
      Loans
              to
      Total
              Loans(Dollars
      in thousands)At
      end of period allocated to:One-
      to four-family real estate
            
            $
            713
            
            55.88
            %
            $
            748
            
            60.92
            %
            $
            806
            
            68.05
            %
            $
            782
            
            78.09
            %
            $
            777
            
            80.17
            %Multi-family
      and non-residential real estate
            
            
            1,442
            
            25.77
            
            
            1,109
            
            21.70
            
            
            878
            
            17.64
            
            
            737
            
            17.14
            
            
            680
            
            13.77Land
            
            
            93
            
            1.62
            
            
            46
            
            0.73
            
            
            6
            
            0.13
            
            
            —
            
            —
            
            
            —
            
            —Construction
            
            
            563
            
            10.77
            
            
            427
            
            10.64
            
            
            174
            
            7.96
            
            
            12
            
            0.42
            
            
            21
            
            2.29Consumer
            
            
            6
            
            0.23
            
            
            5
            
            0.14
            
            
            5
            
            0.17
            
            
            4
            
            0.21
            
            
            4
            
            0.24Home
      equity
            
            
            105
            
            4.21
            
            
            139
            
            4.33
            
            
            95
            
            4.59
            
            
            63
            
            3.92
            
            
            43
            
            3.40Business
            
            
            113
            
            1.52
            
            
            94
            
            1.54
            
            
            115
            
            1.46
            
            
            16
            
            0.22
            
            
            9
            
            0.13Unallocated
            
            
            —
            
            —
            
            
            —
            
            —
            
            
            44
            
            —
            
            
            44
            
            —
            
            
            44
            
            —Total
      allowance
            
            $
            3,035
            
            100.00
            %
            $
            2,568
            
            100.00
            %
            $
            2,123
            
            100.00
            %
            $
            1,658
            
            100.00
            %
            $
            1,578
            
            100.00
            %




17


Securities
Portfolio




General.Federally
chartered savings banks have the authority to invest in various types of liquid
assets. The investments authorized by the Bank’s board-approved investment
policy include U.S. government and government agency obligations,
mortgage-related securities of various U.S. government agencies or
government-sponsored enterprises and private corporate issuers (including
securities collateralized by mortgages) and mutual funds comprising such
securities. Authorized investments also include certificates of deposits of
insured banks and savings institutions and municipal securities. Our policy does
not permit corporate non-residential mortgage related securities. Our investment
securities portfolio at September 30, 2008 did not contain securities of any
issuer with an aggregate book value in excess of 10% of our equity, excluding
those issued by the United States Government or its
agencies.




Statement
of Financial Accounting Standards No. 115, “Accounting for Certain Investments
in Debt and Equity Securities,” requires that securities be categorized as
“held-to-maturity,” “trading securities” or “available-for-sale,” based on
management’s intent as to the ultimate disposition of each security. Statement
No. 115 allows debt securities to be classified as “held-to-maturity” and
reported in financial statements at amortized cost only if the reporting entity
has the positive intent and ability to hold these securities to maturity.
Securities that might be sold in response to changes in market interest rates,
changes in the security’s prepayment risk, increases in loan demand, or other
similar factors cannot be classified as “held-to-maturity.”




We
do not currently use or maintain a trading account. Securities not classified as
“held-to-maturity” are classified as “available-for-sale.” These securities are
reported at fair value, and unrealized gains and losses on the securities are
excluded from earnings and reported, net of deferred taxes, as a separate
component of equity.




All
of our securities carry market risk insofar as changes in market rates of
interest may cause a decrease in their market value. Investments in securities
are made based on certain considerations, which include the interest rate, tax
considerations, yield, settlement date and maturity of the security, our
liquidity position, and anticipated cash needs and sources. The effect that the
proposed security would have on our credit and interest rate risk and risk-based
capital is also considered. We purchase securities to provide necessary
liquidity for day-to-day operations, to aid in the management of interest rate
risk and when investable funds exceed loan demand.




Our
investment policy, which is approved by the Board of Directors, is designed to
foster earnings and liquidity within prudent interest rate risk guidelines,
while complementing our lending activities. Generally, our investment policy is
to invest funds in various categories of securities and maturities based upon
our liquidity needs, asset/liability management policies, investment quality,
marketability and performance objectives. The Asset/Liability Management
Committee, comprised of the Bank’s Chief Executive Officer, President and Chief
Operating Officer, Senior Vice President and Chief Financial Officer, Senior
Vice President and Chief Lending Officer, Senior Vice President, Commercial Real
Estate, Vice President, Branch Administration, and Vice President, Controller,
is responsible for the oversight of the securities portfolio. Management
conducts regular, informal meetings, generally on a weekly basis while the
committee meets quarterly to formally review the Bank’s securities portfolio and
other asset/liability management-related matters. The results of the committee’s
quarterly review are reported to the full Board, which makes adjustment to the
investment policy and strategies as it considers necessary and
appropriate.


18


Like
other investors in mortgage-relates securities, we have historically relied on
the financial strength of government-sponsored entities such as FNMA and FHLMC –
and their guarantees of timely return of principal and interest to their
investors – to help support the overall credit quality of the Bank’s investment
portfolio. Similarly, we have also relied on the review and ratings of the
established credit rating agencies to provide assurance of the creditworthiness
of the non-agency mortgage related-securities held in the portfolio.
Notwithstanding these past practices, unprecedented turmoil in the financial
services industry, triggered by the recent collapse of the sub-prime mortgage
markets, has resulted in both FHLMC and FNMA becoming undercapitalized. As a
result, both entities have been placed into conservatorship by the U.S.
government who now effectively guarantees the timely repayment of principal and
interest to investors in the mortgage-related securities issued by those
entities. Moreover, the rating agencies continue to be scrutinized and
criticized due to the disproportionate level of losses incurred within
non-agency mortgage-related securities in relation to their initial credit
ratings.




While
we continue to monitor the turmoil and uncertainty characterizing the current
financial markets, the performance of our investment portfolio remained
resilient to these challenges during fiscal 2008. The Company did not record any
“other than temporary impairment” losses against its investment portfolio during
all of fiscal 2008. This was due, in large part, to the composition of our
investment portfolio which has historically been comprised predominantly of
agency mortgage-related securities and debentures. Our portfolio continues to
exclude investments such as FNMA and FHLMC preferred stock, non-AAA rated
mortgage securities and pools of trust-preferred securities (TRUPS) that have
been the source of significant losses incurred by many financial institutions
during the past year.




Finally,
we do not currently participate in hedging programs, interest rate caps, floors
or swaps, or other activities involving the use of off-balance sheet derivative
financial instruments, but we may do so in the future as part of our interest
rate risk management. Further, we do not invest in securities which are not
rated investment grade.




Actual
maturities of the securities held by us may differ from contractual maturities
because issuers may have the right to call or prepay obligations with and
without prepayment penalties.




Mortgage-related
Securities.Mortgage-related
securities represent a participation interest in a pool of one- to four-family
or multi-family mortgages, although we focus primarily on mortgage-related
securities secured by one- to four-family mortgages. Our mortgage-related
securities portfolio includes mortgage-backed securities and collateralized
mortgage obligations issued by U.S. government agencies or government-sponsored
entities, such as Federal Home Loan Mortgage Corporation (FHLMC), the Government
National Mortgage Association (GNMA), and the Federal National Mortgage
Association (FNMA), as well as by private corporate
issuers.




The
mortgage originators use intermediaries (generally government agencies and
government-sponsored enterprises, but also a variety of private corporate
issuers) to pool and repackage the participation interests in the form of
securities, with investors such as us receiving the principal and interest
payments on the mortgages. Securities issued or sponsored by U.S. government
agencies and government-sponsored entities are guaranteed as to the payment of
principal and interest to investors. Privately issued securities typically offer
rates above those paid on government agency issued or sponsored securities, but
lack the guaranty of those agencies and are generally less liquid investments.
In the absence of an agency guarantee, our policy requires that we purchase only
privately-issued mortgage-related securities that have been assigned the highest
credit rating (AAA) by the applicable securities rating agencies. Limiting our
purchases of privately-issued mortgage-related securities to those with a AAA
rating reduces our added credit risk in purchasing non-agency guaranteed
securities. Moreover, because there is an established secondary market for
AAA-rated privately-issued mortgage-related securities, much of the liquidity
risk otherwise associated with our investment in non-agency securities is
mitigated.


19




Mortgage-backed
securities are pass-through securities typically issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a specific range and have varying
maturities. The life of a mortgage-backed security thus approximates the life of
the underlying mortgages. Mortgage-backed securities generally yield less than
the mortgage loans underlying the securities. The characteristics of the
underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well as
prepayment risk, are passed on to the certificate holder. Mortgage-backed
securities are generally referred to as mortgage participation certificates or
pass-through certificates.




Collateralized
mortgage obligations are mortgage-derivative products that aggregate pools of
mortgages and mortgage-backed securities and create different classes of
securities with varying maturities and amortization schedules as well as a
residual interest with each class having different risk characteristics. The
cash flows from the underlying collateral are usually divided into “tranches” or
classes whereby tranches have descending priorities with respect to the
distribution of principal and interest repayment of the underlying mortgages and
mortgage-backed securities as opposed to pass through mortgage-backed securities
where cash flows are distributed pro rata to all security holders. Unlike
mortgage-backed securities from which cash flow is received and prepayment risk
is shared pro rata by all securities holders, cash flows from the mortgages and
mortgage-backed securities underlying collateralized mortgage obligations are
paid in accordance with a predetermined priority to investors holding various
tranches of the securities or obligations. A particular tranche or class may
carry prepayment risk which may be different from that of the underlying
collateral and other tranches.




At
September 30, 2008, the Company’s portfolio of collateralized mortgage
obligations primarily included tranches whose terms and structure support the
regular receipt of principal cash flows within a wide range of prepayment speeds
of the underlying collateral. This reduces the likelihood that reductions in
market value resulting from movements in market interest rates may be identified
as “other than temporary” which would require an adjustment to the carrying cost
of the security recorded through earnings. Rather, investing in collateralized
mortgage obligations allows us to better manage the prepayment and extension
risk associated with conventional mortgage-related securities thereby reducing
the market value sensitivity of that segment of the investment portfolio.
Management believes collateralized mortgage obligations represent attractive
alternatives relative to other investments due to the wide variety of maturity,
repayment and interest rate options available. At September 30, 2008,
collateralized mortgage obligations comprised $31.4 million of our securities
portfolio.




Other
Securities.In
addition, at September 30, 2008 we held an approximate investment of $2.7
million in Federal Home Loan Bank of New York common stock (this amount is not
shown in the securities portfolio).


20




The
following table sets forth the carrying value of our securities portfolio at the
dates indicated. Securities that are held-to-maturity are shown at our amortized
cost, and securities that are available-for-sale are shown at the current market
value. The balances reported for September 30, 2008 include securities purchased
during the fiscal 2008 relating to a $50 million wholesale growth transaction
through which the Bank purchased approximately $50 million of mortgage-related
investment securities funded by an equivalent amount of borrowings. Through this
transaction, the Bank took advantage of the opportunity presented by the
aforementioned turmoil in the financial markets to acquire, agency AAA-rated
mortgage-related securities at historically wide interest rate spreads in
relation to the cost of wholesale funding sources.




At
      September 30,2008
            
            
            2007
            
            
            2006(In
      thousands)Securities
      Held-to-Maturity:U.S.
      government and federal agency obligation
            
            $
            —
            
            
            $
            —
            
            
            $
            2,000Collateralized
      mortgage non-agency obligations
            
            
            1,587
            
            
            
            1,855
            
            
            
            2,137Collateralized
      mortgage agency obligations
            
            
            40
            
            
            
            47
            
            
            
            58Government
      National Mortgage Association
            
            
            120
            
            
            
            145
            
            
            
            200Federal
      Home Loan Mortgage Corporation
            
            
            116
            
            
            
            138
            
            
            
            286Federal
      National Mortgage Association
            
            
            5,646
            
            
            
            4,545
            
            
            
            5,866Total
      securities held-to-maturity
            
            
            7,509
            
            
            
            6,730
            
            
            
            10,547Securities
      Available-for-Sale:U.S.
      government and federal agency obligation
            
            $
            —
            
            
            
            2,005
            
            
            
            10,917Collateralized
      mortgage non-agency obligations
            
            
            —
            
            
            
            —
            
            
            
            —Collateralized
      mortgage agency obligations
            
            
            29,801
            
            
            
            35,271
            
            
            
            32,393Government
      National Mortgage Association
            
            
            64
            
            
            
            81
            
            
            
            108Federal
      Home Loan Mortgage Corporation
            
            
            24,507
            
            
            
            9,040
            
            
            
            12,882Federal
      National Mortgage Association
            
            
            26,791
            
            
            
            11,696
            
            
            
            18,223Total
      securities available-for-sale
            
            
            81,163
            
            
            
            58,093
            
            
            
            74,523Total
            
            $
            88,672
            
            
            $
            64,823
            
            
            $
            85,070


21




The
following table sets forth certain information regarding the carrying values,
weighted average yields and maturities of our investment and mortgage-backed
securities portfolio at September 30, 2008. This table shows contractual
maturities and does not reflect repricing or the effect of prepayments. Actual
maturities may differ.




At
      September 30, 2008One
      Year or Less
            
            One
      to Five Years
            
            Five
      to Ten Years
            
            More
      than Ten Years
            
            Total
      SecuritiesCarrying
              Value
            
            Average
              Yield
            
            Carrying
              Value
            
            Average
              Yield
            
            Carrying
              Value
            
            Average
              Yield
            
            Carrying
              Value
            
            Average
              Yield
            
            Carrying
              Value
            
            Average
              Yield
            
            Market
              Value(Dollars
      in thousands)U.S.
      Government and Federal Agency
            
            $
            —
            
            —
            %
            $
            —
            
            —
            %
            $
            —
            
            —
            %
            $
            —
            
            —
            %
            $
            —
            
            —
            %
            $
            —Mortgage-backed
      non-agency Obligations
            
            
            1,588
            
            3.84
            
            
            —
            
            —
            
            
            —
            
            —
            
            
            —
            
            —
            
            
            1,588
            
            3.84
            
            
            1,493Government
      National Mortgage Association
            
            
            —
            
            —
            
            
            —
            
            —
            
            
            —
            
            —
            
            
            184
            
            5.41
            
            
            184
            
            5.41
            
            
            184Federal
      Home Loan Mortgage Association
            
            
            401
            
            2.62
            
            
            —
            
            —
            
            
            9,955
            
            4.78
            
            
            36,075
            
            4.95
            
            
            46,431
            
            4.90
            
            
            46,431Federal
      National Mortgage Association
            
            
            —
            
            —
            
            
            3,279
            
            3.26
            
            
            10,819
            
            4.64
            
            
            26,371
            
            4.68
            
            
            40,469
            
            4.55
            
            
            40,498Total
            
            $
            1,989
            
            3.59
            %
            $
            3,279
            
            3.26
            %
            $
            20,774
            
            4.71
            %
            $
            62,630
            
            4.84
            %
            $
            88,672
            
            4.72
            %
            $
            88,606


22


Sources
of Funds




General.Deposits are our major source of funds for lending and other investment
purposes. In addition, we derive funds from loan and mortgage-backed securities
principal repayments, and proceeds from the maturity, call and sale of
mortgage-backed securities and investment securities. Loan and securities
payments are a relatively stable source of funds, while deposit inflows are
significantly influenced by general interest rates and money market conditions.
Borrowings, in the form of advances from the Federal Home Loan Bank and reverse
repurchase agreements, are also used to supplement the amount of funds for
lending and investment.




Deposits.Our
current deposit products include checking, savings, money market, club accounts,
certificates of deposit accounts ranging in terms from thirty days to ten years,
and individual retirement accounts. Deposit account terms are generally
determined based upon the required minimum balance amount, the amount of time
that the funds must remain on deposit and the applicable interest
rate.




Deposits
are obtained primarily from within New Jersey. Traditional methods of
advertising are used to attract new customers and deposits, including print
media, direct mail and inserts included with customer statements. We have not in
the past utilized the services of deposit brokers and do not expect to utilize
such services at this time. The Bank also expects to periodically offer special
promotional programs by which premiums or incentives will be paid for the
opening of checking accounts. Such programs may be augmented by promotional
rates offered on particular certificate of deposit
maturities.




The
determination of interest rates is based upon a number of factors, including:
(1) our need for funds based on loan demand, current maturities of deposits and
other cash flow needs; (2) a current survey of general market rates and rates of
a selected group of competitors’ rates for similar products; (3) our current
cost of funds and yield on assets; and (4) the alternate cost of funds on a
wholesale basis, in particular the cost of advances from the Federal Home Loan
Bank. Interest rates are reviewed by senior management on a weekly
basis.




At
September 30, 2008, $255.8 million or 57.1% of our deposits were in certificates
of deposit. Our liquidity could be reduced if a significant amount of
certificates of deposit, maturing within a short period of time, were not
renewed. Historically, a significant portion of the certificates of deposit
remain with us after they mature and we believe that this will continue.
However, the need to retain these time deposits could result in an increase in
our cost of funds.




At
September 30, 2008, we had approximately $5.6 million of public funds on deposit
at the Bank. These deposits include one account relationship whose balances at
September 30, 2008 totaled approximately $4.8
million.


23




The
following table sets forth the distribution of deposits at the Bank at the dates
indicated and the weighted average nominal interest rates for each period on
each category of deposits presented.




At
      September 302008
            
            2007
            
            2006Amount
            
            Percent
              of
      Total
              Deposits
            
            Weighted
              Average
              Nominal
              Rate
            
            Amount
            
            Percent
              of
      Total
              Deposits
            
            Weighted
              Average
              Nominal
              Rate
            
            Amount
            
            Percent
              of
      Total
              Deposits
            
            Weighted
              Average
              Nominal
              RateNon-interest-bearing
      demand deposits
            
            $
            31,447
            
            7.02
            %
            —
            %
            $
            30,494
            
            7.11
            %
            —
            %
            $
            23,545
            
            7.20
            %
            —
            %Interest-bearing
      demand deposits
            
            
            75,307
            
            16.82
            
            2.58
            
            
            111,795
            
            26.08
            
            4.51
            
            
            31,429
            
            9.61
            
            2.25Savings
      deposits
            
            
            85,092
            
            19.01
            
            2.00
            
            
            92,778
            
            21.65
            
            2.54
            
            
            107,008
            
            32.71
            
            2.62Time
      deposits
            
            
            255,841
            
            57.15
            
            3.91
            
            
            193,533
            
            45.16
            
            4.93
            
            
            165,165
            
            50.48
            
            4.48Total
      deposits
            
            $
            447,687
            
            100.00
            %
            3.05
            %
            $
            428,600
            
            100.00
            %
            3.95
            %
            $
            327,147
            
            100.00
            %
            3.34
            %


24




The
following table shows the amount of our certificates of deposit of $100,000 or
more by time remaining until maturity as of September 30, 2008.
 Remaining
      Time Until Maturity
              
              Certificatesof
Deposits(In
      thousands)Within
      three months
              
              $
              29,520Three
      through six months
              
              
              45,425Six
      through twelve months
              
              
              15,993Over
      twelve months
              
              
              10,958Total
              
              $
              101,896
  Borrowings.
To supplement our deposits as a source of funds for lending or investment, we
borrow funds in the form of advances from the Federal Home Loan Bank and reverse
repurchase agreements. We regularly make use of borrowings as part of our
interest rate risk management, primarily to extend the duration of funding to
match the longer term fixed rate loans held in the loan portfolio as part of our
growth strategy.
  Advances
from the Federal Home Loan Bank are typically secured by the Federal Home Loan
Bank stock we own and a portion of our residential mortgage loans and may be
secured by other assets, mainly securities which are obligations of, or
guaranteed by, the U.S. government. At September 30, 2008, our borrowing limit
with the Federal Home Loan Bank was approximately $155.4 million. Additional
information regarding our borrowings is included under Note 7 of the Notes to
the Financial Statements.
  The
following table sets forth certain information regarding our borrowed funds. The
balances reported for September 30, 2008 include borrowings drawn during the
fiscal 2008 relating to a $50 million wholesale growth transaction through which
the Bank purchased approximately $50 million of mortgage-related investment
securities funded by an equivalent amount of borrowings. As noted earlier,
through this transaction, the Bank took advantage of the opportunity presented
by the aforementioned turmoil in the financial markets to acquire, agency
AAA-rated mortgage-related securities at historically wide interest rate spreads
in relation to the cost of wholesale funding sources.
 At
      or For theYear
      Ended September 30,2008
              
              
              2007
              
              
              2006Borrowings:Average
      balance outstanding
              
              $
              61,370
              
              
              $
              44,256
              
              
              $
              52,725Maximum
      amount outstanding at any month-end during the period
              
              $
              86,580
              
              
              $
              56,269
              
              
              $
              56,075Balance
      outstanding at end of period
              
              $
              75,547
              
              
              $
              37,612
              
              
              $
              56,075Weighted
      average interest rate during the period
              
              
              3.91
              %
              
              
              5.14
              %
              
              
              4.95
              %Weighted
      average interest rate at end of period
              
              
              3.18
              %
              
              
              5.21
              %
              
              
              5.16
              %
  25
  Subsidiary
Activity
  In
addition to American Bank of New Jersey, the Company has one other subsidiary,
ASB Investment Corp., a New Jersey corporation, which was organized in June 2003
for the purpose of selling insurance and investment products, including
annuities, to customers of the Bank and the general public through a third party
networking arrangement. There has been very little activity at this subsidiary
and sales are currently limited to the sale of fixed rate
annuities.
  American
Bank of New Jersey has one subsidiary, American Savings Investment Corp., which
was formed in August 2004 under New Jersey law as an investment company
subsidiary. The purpose of this subsidiary is to invest in stocks, bonds, notes
and all types of equity, mortgages, debentures and other investment securities.
Holding investment securities in this subsidiary reduces our New Jersey state
income tax rate.
  Personnel
  As
of September 30, 2008, we had 71 full-time employees and 9 part-time employees.
The employees are not represented by a collective bargaining unit. We believe
our relationship with our employees is satisfactory.
  Regulation
  Set
forth below is a brief description of certain laws that relate to the regulation
of the Bank and the Company. The description does not purport to be complete and
is qualified in its entirety by reference to applicable laws and regulations.
The Bank and the Company operate in a highly regulated industry. This regulation
and supervision establishes a comprehensive framework of activities in which a
federal savings bank may engage and is intended primarily for the protection of
the deposit insurance fund and depositors.
  Any
change in applicable statutory and regulatory requirements, whether by the OTS,
the Federal Deposit Insurance Corporation (“FDIC”) or the United States
Congress, could have a material adverse impact on the Company and the Bank, and
their operations. The adoption of regulations or the enactment of laws that
restrict the operations of the Bank and/or the Company or impose burdensome
requirements upon one or both of them could reduce their profitability and could
impair the value of the Bank’s franchise which could hurt the trading price of
the Company’s common stock.
  Regulation
of the Bank
  General.As a
federally chartered, FDIC-insured savings bank, the Bank is subject to extensive
regulation by the OTS and the FDIC. This regulatory structure gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies
regarding the classification of assets and the level of the allowance for loan
losses. The activities of federal savings banks are subject to extensive
regulation including restrictions or requirements with respect to loans to one
borrower, the percentage of non-mortgage loans or investments to total assets,
capital distributions, permissible investments and lending activities, liquidity
management, transactions with affiliates and community reinvestment. The FDIC
also has authority to examine the Bank in its role as the administrator of the
Deposit Insurance Fund (“DIF”), which is the fund established upon the merger of
the Savings Association Insurance Fund (“SAIF”) and the Bank Insurance Fund
(“BIF”) in March 2006. Federal savings banks are also subject to reserve
requirements of the Federal Reserve System. A federal savings bank’s
relationship with its depositors and borrowers is regulated by both state and
federal law, especially in such matters as the ownership of savings accounts and
the form and content of the bank’s mortgage documents.
  26
  The
Bank must file regular reports with the OTS concerning its activities and
financial condition, and must obtain regulatory approvals prior to entering into
certain transactions such as mergers with or acquisitions of other financial
institutions. The OTS regularly examines the Bank and prepares reports to the
Bank’s Board of Directors on deficiencies, if any, found in its
operations.
  Insurance
of Deposit Accounts.The Bank is a member of the DIF, which is
administered by the FDIC. Deposits are insured up to the applicable limits by
the FDIC and such insurance is backed by the full faith and credit of the United
States Government. As insurer, the FDIC imposes deposit insurance premiums and
is authorized to conduct examinations of and to require reporting by
FDIC-insured institutions. It also may prohibit any FDIC-insured institution
from engaging in any activity the FDIC determines by regulation or order to pose
a serious risk to the DIF. The FDIC also has the authority to initiate
enforcement actions against savings institutions, after giving the OTS an
opportunity take such action, and may terminate the deposit insurance if it
determines that the institution has engaged in unsafe or unsound practices or is
in an unsafe or unsound condition.
  The
Emergency Economic Stabilization Act (“EESA”), which became law on October 3,
2008, raised the amount of federal deposit insurance coverage for all deposit
accounts to $250,000. This provision of the Act is scheduled to expire on
December 31, 2009. In addition, on October 14, 2008 the FDIC announced a new
program – the Temporary Liquidity Guarantee Program, which, among other things,
provides FDIC coverage on non-interest bearing deposit transaction accounts and
certain other accounts regardless of dollar amount. The Bank has opted in to the
transaction account guarantee portion of the Temporary Liquidity Program as well
as the debt guarantee portion of the Temporary Liquidity Program. The FDIC will
assess us an annual fee of 10 basis points for amounts in guaranteed accounts
that exceed $250,000. We did not participate in the U.S. Treasury’s Troubled
Assets Relief Program (“TARP”) Capital Purchase Program, which allowed qualified
U.S. banking organizations to sell senior preferred stock and grant warrants to
purchase common stock to the U.S. Treasury. The TARP Capital Purchase Program
was created by the U.S. Treasury in order to restore stability to the U.S.
financial system, and is currently authorized to purchase up to $250 billion
total in preferred stock from qualified U.S. banking organizations.
  The
Federal Deposit Insurance Corporation regulations assess insurance premiums
based on an institution’s risk. Under this assessment system, the Federal
Deposit Insurance Corporation evaluates the risk of each financial institution
based on its supervisory rating, financial ratios, and long-term debt issuer
rating. The rates for nearly all of the financial institutions industry vary
between five and seven cents for every $100 of domestic deposits. Federal law
requires the Federal Deposit Insurance Corporation to establish a deposit
reserve ratio for the deposit insurance fund of between 1.15% and 1.50% of
estimated deposits. The Federal Deposit Insurance Corporation has designated the
reserve ratio for the deposit insurance fund through the first quarter of 2009
at 1.25% of estimated insured deposits.
  Effective
March 31, 2006, the Federal Deposit Insurance Corporation merged the Bank
Insurance Fund (“BIF”) and the Savings Association Insurance Fund (“SAIF”) into
a single fund called the Deposit Insurance Fund. In addition to the Federal
Deposit Insurance Corporation assessments, the Financing Corporation (“FICO”) is
authorized to impose and collect, with the approval of the Federal Deposit
Insurance Corporation, assessments for anticipated payments, issuance costs and
custodial fees on bonds issued by the FICO in the 1980s to recapitalize the
Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are
due to mature in 2017 through 2019. For the quarter ended June 30, 2008, the
annualized FICO assessment was equal to 1.14 basis points for each $100 in
domestic deposits maintained at an institution.
  Recent
failures have significantly increases the Deposit Insurance Fund’s (the DIF or
the fund) loss provisions, resulting in a decline in the reserve ratio. As of
June 30, 2008, the reserve ratio stood at 1.01%, 18 basis points below the
reserve ratio as of March 31, 2008. This is the lowest reserve ratio for a
combined bank and thrift insurance fund since March 31, 1995. Staff expects a
higher rate of insured institution failures in the next few years compared to
recent years; thus, the reserve ratio may continue to decline. Because the fund
reserve ratio has fallen below 1.15% and is expected to remain below 1.15%, the
FDIC is required to establish and implement a restoration plan to restore the
reserve ratio to 1.15%. Absent extraordinary circumstances, the reserve ratio
must be returned to at least 1.15% no later than five years after establishment
of the plan.
  27
  On
October 6, 2008 the FDIC issued a Notice of Proposed Rulemaking on Risk-Bases
Assessments and the Designated Reserve Ratio for 2009. The proposal calls for
raising premiums by seven basis points during the first quarter of 2009, with a
series of additional risk-based adjustments that would take effect in the second
quarter of 2009. Under the proposal, premiums for well capitalized banks will
increase from five to seven basis points to twelve to fourteen basis points for
the first quarter of 2009. After that, base rates for well capitalized banks
would be set at ten to fourteen basis points with additional adjustments
resulting in base rates between eight and twenty-one basis points. Included in
the proposed additional adjustments are reductions of up to two basis for banks
with tier one ratios greater than ten percent and increases for banks with
secured liabilities greater than fifteen percent of domestic deposits and banks
with brokered deposits in excess of ten percent of domestic
deposits.
  Regulatory
Capital Requirements.OTS
capital regulations require savings institutions to meet three capital
standards: (1) tangible capital equal to 1.5% of total adjusted assets, (2)
“Tier 1” or “core” capital equal to at least 4% (3% if the institution has
received the highest possible rating on its most recent examination) of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted
assets. At September 30, 2008 the Bank exceeded all regulatory capital
requirements and was classified as “well capitalized.”
  In
addition, the OTS may require that a savings institution that has a risk-based
capital ratio of less than 8%, a ratio of Tier 1 capital to risk-weighted assets
of less than 4% or a ratio of Tier 1 capital to total adjusted assets of less
than 4% (3% if the institution has received the highest rating on its most
recent examination) take certain action to increase its capital ratios. If the
savings institution’s capital is significantly below the minimum required levels
of capital or if it is unsuccessful in increasing its capital ratios, the OTS
may restrict its activities.
  For
purposes of the OTS capital regulations, tangible capital is defined as core
capital less all intangible assets except for certain mortgage servicing rights.
Tier 1 or core capital is defined as common stockholders’ equity, non-cumulative
perpetual preferred stock and related surplus, minority interests in the equity
accounts of consolidated subsidiaries, and certain non-withdrawable accounts and
pledged deposits of mutual savings banks. The Bank does not have any
non-withdrawable accounts or pledged deposits. Tier 1 and core capital are
reduced by an institution’s intangible assets, with limited exceptions for
certain mortgage and non-mortgage servicing rights and purchased credit card
relationships. Both core and tangible capital are further reduced by an amount
equal to the savings institution’s debt and equity investments in
“non-includable” subsidiaries engaged in activities not permissible to national
banks other than subsidiaries engaged in activities undertaken as agent for
customers or in mortgage banking activities and subsidiary depository
institutions or their holding companies.
  The
risk-based capital standard for savings institutions requires the maintenance of
total capital of 8% of risk-weighted assets. Total capital equals the sum of
core and supplementary capital. The components of supplementary capital include,
among other items, cumulative perpetual preferred stock, perpetual subordinated
debt, mandatory convertible subordinated debt, intermediate-term preferred
stock, the portion of the allowance for loan losses not designated for specific
loan losses and up to 45% of unrealized gains on equity securities. The portion
of the allowance for loan and lease losses includable in supplementary capital
is limited to a maximum of 1.25% of risk-weighted assets. Overall, supplementary
capital is limited to 100% of core capital. For purposes of determining total
capital, a savings institution’s assets are reduced by the amount of capital
instruments held by other depository institutions pursuant to reciprocal
arrangements and by the amount of the institution’s equity investments (other
than those deducted from core and tangible capital) and its high loan-to-value
ratio land loans and non-residential construction loans.
  28
  A
savings institution’s risk-based capital requirement is measured against
risk-weighted assets, which equal the sum of each on-balance-sheet asset and the
credit-equivalent amount of each off-balance-sheet item after being multiplied
by an assigned risk weight. These risk weights range from 0% for cash to 100%
for delinquent loans, property acquired through foreclosure, commercial loans,
and other assets.
  OTS
rules require a deduction from capital for savings institutions with certain
levels of interest rate risk. The OTS calculates the sensitivity of an
institution’s net portfolio value based on data submitted by the institution in
a schedule to its quarterly Thrift Financial Report and using the interest rate
risk measurement model adopted by the OTS. The amount of the interest rate risk
component, if any, deducted from an institution’s total capital is based on the
institution’s Thrift Financial Report filed two quarters earlier. The OTS has
indefinitely postponed implementation of the interest rate risk component, and
the Bank has not been required to determine whether it will be required to
deduct an interest rate risk component from capital.
  Prompt
Corrective Regulatory Action.Under
the OTS Prompt Corrective Action regulations, the OTS is required to take
supervisory actions against undercapitalized institutions, the severity of which
depends upon the institution’s level of capital. Generally, a savings
institution that has total risk-based capital of less than 8.0%, or a leverage
ratio or a Tier 1 core capital ratio that is less than 4.0%, is considered to be
undercapitalized. A savings institution that has total risk-based capital less
than 6.0%, a Tier 1 core risk-based capital ratio of less than 3.0% or a
leverage ratio that is less than 3.0% is considered to be “significantly
undercapitalized.” A savings institution that has a tangible capital to assets
ratio equal to or less than 2.0% is deemed to be “critically undercapitalized.”
Generally, the banking regulator is required to appoint a receiver or
conservator for an institution that is “critically undercapitalized.” The
regulation also provides that a capital restoration plan must be filed with the
OTS within forty-five days of the date an institution receives notice that it is
“undercapitalized,” “significantly undercapitalized” or “critically
undercapitalized.” In addition, numerous mandatory supervisory actions become
immediately applicable to the institution, including, but not limited to,
restrictions on growth, investment activities, capital distributions, and
affiliate transactions. The OTS may also take any one of a number of
discretionary supervisory actions against undercapitalized institutions,
including the issuance of a capital directive and the replacement of senior
executive officers and directors.
  Dividend
and Other Capital Distribution Limitations.The
OTS imposes various restrictions or requirements on the ability of savings
institutions to make capital distributions, including cash
dividends.
  A
savings institution that is a subsidiary of a savings and loan holding company,
such as the Bank, must file an application or a notice with the OTS at least
thirty days before making a capital distribution. A savings institution must
file an application for prior approval of a capital distribution if: (i) it is
not eligible for expedited treatment under the applications processing rules of
the OTS; (ii) the total amount of all capital distributions, including the
proposed capital distribution, for the applicable calendar year would exceed an
amount equal to the savings bank’s net income for that year to date plus the
institution’s retained net income for the preceding two years; (iii) it would
not adequately be capitalized after the capital distribution; or (iv) the
distribution would violate an agreement with the OTS or applicable
regulations.
  The
Bank is required to file a capital distribution notice or application with the
OTS before paying any dividend to the Company. However, capital distributions by
the Company, as a savings and loan holding company, are not subject to the OTS
capital distribution rules.
  The
OTS may disapprove a notice or deny an application for a capital distribution
if: (i) the savings institution would be undercapitalized following the capital
distribution; (ii) the proposed capital distribution raises safety and soundness
concerns; or (iii) the capital distribution would violate a prohibition
contained in any statute, regulation or agreement. In addition, a federal
savings institution cannot distribute regulatory capital that is required for
its liquidation account.
  29
  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 Bank may apply
for regulatory approval to pay additional dividends to the holding company to
support the Company’s capital management objectives.
  Qualified
Thrift Lender Test.Federal
savings institutions must meet a qualified thrift lender (“QTL”) test or they
become subject to the business activity restrictions and branching rules
applicable to national banks. To qualify as a QTL, a savings institution must
either (i) be deemed a “domestic building and loan association” under the
Internal Revenue Code by maintaining at least 60% of its total assets in
specified types of assets, including cash, certain government securities, loans
secured by and other assets related to residential real property, educational
loans and investments in premises of the institution or (ii) satisfy the
statutory QTL test set forth in the Home Owners’ Loan Act by maintaining at
least 65% of its “portfolio assets” in certain “Qualified Thrift Investments”
(defined to include residential mortgages and related equity investments,
certain mortgage-related securities, small business loans, student loans and
credit card loans, and 50% of certain community development loans). For purposes
of the statutory QTL test, portfolio assets are defined as total assets minus
intangible assets, property used by the institution in conducting its business,
and liquid assets equal to 20% of total assets. A savings institution must
maintain its status as a QTL on a monthly basis in at least nine out of every
twelve months. The Bank met the QTL test as of September 30, 2008 and in each of
the last twelve months and, therefore, qualifies as a QTL.
  Transactions
with Affiliates.Generally,
federal banking law requires that transactions between a savings institution or
its subsidiaries and its affiliates must be on terms as favorable to the savings
institution as comparable transactions with non-affiliates. In addition, certain
types of these transactions are restricted to an aggregate percentage of the
savings institution’s capital. Collateral in specified amounts must usually be
provided by affiliates in order to receive loans from the savings institution.
In addition, a savings institution may not extend credit to any affiliate
engaged in activities not permissible for a bank holding company or acquire the
securities of any affiliate that is not a subsidiary. The OTS has the discretion
to treat subsidiaries of savings institutions as affiliates on a case-by-case
basis.
  Community
Reinvestment Act.Under the
Community Reinvestment Act (“CRA”), every insured depository institution,
including the Bank, has a continuing and affirmative obligation consistent with
its safe and sound operation to help meet the credit needs of its entire
community, including low- and moderate-income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions
nor does it limit an institution’s discretion to develop the types of products
and services that it believes are best suited to its particular community. The
CRA requires the OTS to assess the depository institution’s record of meeting
the credit needs of its community and to take such record into account in its
evaluation of certain applications by such institution, such as a merger or the
establishment of a branch office by the Bank. An unsatisfactory CRA examination
rating may be used as the basis for the denial of an application by the OTS. The
Office of Thrift Supervision assigned the Bank an overall rating of
“Satisfactory” in its most recent CRA evaluation.
  Federal
Home Loan Bank (“FHLB”) System.The
Bank is a member of the FHLB of New York, which is one of twelve regional FHLBs.
Each FHLB serves as a reserve or central bank for its members within its
assigned region. It is funded primarily from funds deposited by financial
institutions and proceeds derived from the sale of consolidated obligations of
the FHLB System. It makes loans to members pursuant to policies and procedures
established by the board of directors of the FHLB.
  As
a member, the Bank is required to purchase and maintain stock in the FHLB of New
York in an amount equal to the greater of 1% of our aggregate unpaid residential
mortgage loans, home purchase contracts or similar obligations at the beginning
of each year or 5% of FHLB advances. We are in compliance with this requirement.
The FHLB imposes various limitations on advances such as limiting the amount of
certain types of real estate related collateral to 30% of a member’s capital and
limiting total advances to a member.
  30
  The
FHLBs are required to provide funds for the resolution of troubled savings
institutions and to contribute to affordable housing programs through direct
loans or interest subsidies on advances targeted for community investment and
low- and moderate-income housing projects. These contributions have adversely
affected the level of FHLB dividends paid and could continue to do so in the
future.
  Federal
Reserve System.The
Federal Reserve System requires all depository institutions to maintain
non-interest-bearing reserves at specified levels against their checking
accounts and non-personal certificate accounts. The balances maintained to meet
the reserve requirements imposed by the Federal Reserve System may be used to
satisfy the OTS liquidity requirements.
  Savings
institutions have authority to borrow from the Federal Reserve System “discount
window,” but Federal Reserve System policy generally requires savings
institutions to exhaust all other sources before borrowing from the Federal
Reserve System.
  Regulation
of the Company
  General.
The Company is a savings and loan holding company, subject to regulation and
supervision by the OTS. In addition, the OTS has enforcement authority over the
Company and any non-savings institution subsidiaries. This permits the OTS to
restrict or prohibit activities that it determines to be a serious risk to the
Company. This regulation is intended primarily for the protection of the
depositors and not for the benefit of stockholders of the
Company.
  Activities
Restrictions.As a
savings and loan holding company formed after May 4, 1999, the Company is not a
grandfathered unitary savings and loan holding company under the
Gramm-Leach-Bliley Act (the “GLB Act”). As a result, the Company and its
non-savings institution subsidiaries are subject to statutory and regulatory
restrictions on their business activities. Under the Home Owners’ Loan Act, as
amended by the GLB Act, the non-banking activities of the Company are restricted
to certain activities specified by OTS regulation, which include performing
services and holding properties used by a savings institution subsidiary,
activities authorized for savings and loan holding companies as of March 5,
1987, and non-banking activities permissible for bank holding companies pursuant
to the Bank Holding Company Act of 1956 (the “BHC Act”) or authorized for
financial holding companies pursuant to the GLB Act. Furthermore, no company may
acquire control of American Bank of New Jersey unless the acquiring company was
a unitary savings and loan holding company on May 4, 1999 (or became a unitary
savings and loan holding company pursuant to an application pending as of that
date) or the company is only engaged in activities that are permitted for
multiple savings and loan holding companies or for financial holding companies
under the BHC Act as amended by the GLB Act.
  Mergers
and Acquisitions. The Company must obtain approval from the OTS before
acquiring more than 5% of the voting stock of another savings institution or
savings and loan holding company or acquiring such a savings institution or
savings and loan holding company by merger, consolidation or purchase of its
assets. In evaluating an application for the Company to acquire control of a
savings institution, the OTS would consider the financial and managerial
resources and future prospects of the Company and the target institution, the
effect of the acquisition on the risk to the insurance funds, the convenience
and the needs of the community and competitive factors.
  Sarbanes-Oxley
Act of 2002.On July 30, 2002, President Bush signed into law the
Sarbanes-Oxley Act of 2002 (the “Act”). The Securities and Exchange Commission
(“SEC”) has promulgated new regulations pursuant to the Act and may continue to
propose additional implementing or clarifying regulations as necessary in
furtherance of the Act. The passage of the Act, and the regulations implemented
by the SEC subject publicly-traded companies to additional and more cumbersome
reporting regulations and disclosure requirements. Compliance with the Act and
corresponding regulations may increase the Company’s
expenses.
  31
  Item
1A. Risk Factors.
  The
current economic downturn coupled with turmoil and uncertainty in the financial
markets may adversely impact the Company’s earnings and our ability to
successfully execute our business plan.
  The
current economic downturn may adversely impact the financial condition of the
households and businesses comprising the Bank’s loan customers. Such a
deteriorating financial condition could arise from loss of employment or
business revenue exacerbated by a reduction in the value of real estate
collateralizing customers’ loans with the Bank. As a consequence, the Bank may
experience an increase in nonperforming loans which will negatively impact
earnings through reduced collections of interest income coupled with possible
increases in the provision for loan losses and associated charge offs.
Additionally, the Bank’s ability to originate new loans in accordance with its
business plan goals and objectives may be diminished as a result of these same
factors.
  Moreover,
the general level of uncertainty in the marketplace – particularly concerning
counterparty risk – has greatly diminished the sources of funding readily
available to many large financial institutions. Consequently, such institutions
are placing greater emphasis on their retail deposit channel to attract funding
thereby placing upward pressure on retail deposit rates in the marketplace. As a
result, despite the recent reduction in overall market interest rates, the
Bank’s cost of deposits may remain stable or increase while its yield on earning
assets is reduced. This condition would reduce the Company’s net interest spread
and margin and its earnings in future periods.
  Finally,
given the increasing number of insured financial institution failures, we expect
that the Bank’s FDIC insurance premiums may increase significantly during fiscal
2009 which would result in an increase to our operating expenses and a reduction
in our earnings.
  Our
strategic plan calls for us to diversify our loan portfolio with increased
emphasis on commercial lending which may increase our operating expenses in the
future and result in a higher degree of credit risk within our loan
portfolio.
  Commercial
loans include multi-family and non-residential mortgage loans, construction
loans and business loans. At September 30, 2008, our loan portfolio included
commercial loans totaling $181.8 million, or 38.0 % of our loans receivable,
net. It is our intention to increase our origination of multi-family and
non-residential mortgage loans and business loans. As part of our plan to grow
and diversify the loan mix, we may expand our commercial lending business unit
and may hire additional commercial lenders over the next several years. We would
expect our compensation and benefit expenses to increase significantly if we
hire these lenders and associated support staff. By contrast, we expect that our
strategic emphasis on construction lending will diminish during fiscal 2009 for
the reasons noted earlier.
  Commercial
loans are generally considered to involve a higher degree of credit risk than
long-term financing of owner-occupied residential properties. The likelihood
that these loans will not be repaid or will be late in paying is generally
greater than with residential loans. Furthermore, it may take some time for us
to attract lending business sufficient to offset the increased compensation and
benefit expenses that result from hiring the additional personnel we will need.
There can be no assurance that the lenders we hire will successfully grow our
loan portfolio.
  32
  Our
strategic plan calls for us to expand our franchise through de novo branching.
New branches are expected to increase our operating expenses and reduce our net
income until they achieve profitability which can not be assured.
  Our
current business plan calls for us to open up to three de novo branches over
approximately the next five years. Having opened three full service branches
located in Verona, Nutley and Clifton, New Jersey during fiscal 2007, the
Company 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 within each of these three
branches. Based on the Company’s internal branch profitability model, the Verona
branch, which opened in December 2006, achieved profitability during the quarter
ended March 31, 2008 and continued to operate profitably during the 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.
  Costs for
land purchase and branch construction will adversely impact earnings going
forward. We currently estimate that total land, construction and equipment costs
could average as much as $3.1 million per branch and could be higher. The
expenses associated with opening new offices, in addition to the personnel and
operating costs that we will have once these offices are open, will
significantly increase noninterest expenses. Because these expenses are in fixed
assets, they will not result in any additional earnings but will result in a
substantial increase in depreciation and occupancy expense. There can be no
assurance when, or if, these new offices will open or that we will be successful
in executing this part of the business plan. If we are able to locate and obtain
suitable sites for these branches, there is no guarantee that these de novo
branches will be profitable.
  We
expect that changes in interest rates may have a significant, adverse impact on
our net interest income.
  The
income from our assets and the cost of our liabilities are sensitive to changes
in interest rates. 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: (a) the interest income we
earn on our interest-earning assets such as loans and securities; and (b) 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 or different repricing characteristics 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 than the interest paid on our
liabilities.
  Our
business is geographically concentrated in New Jersey and the New York
metropolitan area. The current downturn in economic conditions in the state and
the surrounding region could have an adverse impact on our
profitability.
  A
substantial majority of our loans are to individuals and businesses in New
Jersey and the New York metropolitan area. The current decline in the regional
economy could have an adverse impact on our earnings. Because we have a
significant amount of real estate loans, decreases in local real estate values
could adversely affect the value of property used as collateral. Adverse changes
in the economy and real estate values may also have a negative effect on the
ability of our borrowers to make timely repayments of their loans, which would
have an adverse impact on our earnings.
  33
  Strong
competition within our market area may limit our growth and
profitability.
  Competition
in the banking and financial services industry in New Jersey is intense. In our
market area, we compete with commercial banks, savings institutions, mortgage
brokerage firms, credit unions, finance companies, mutual funds, insurance
companies and brokerage and investment banking firms operating locally and
elsewhere. Many of these competitors have substantially greater resources and
lending limits than we do and offer services that we do not or cannot provide.
This competition has made it more difficult for us to make new loans and more
difficult to retain deposits. Price competition for loans might result in us
originating fewer loans, or earning less on our loans, and price competition for
deposits might result in slower growth or reduction of our total deposits or
having to pay more for our deposits.
  We
operate in a highly regulated environment and may be adversely affected by
changes in laws and regulations.
  We are
subject to extensive regulation, supervision and examination by the Office of
Thrift Supervision and by the Federal Deposit Insurance Corporation. This
regulation and supervision govern the activities in which a bank and its holding
company may engage and are intended primarily for the protection of the
insurance fund and depositors. Regulatory authorities have extensive discretion
in connection with their supervisory and enforcement activities, including the
imposition of restrictions on the operation of a bank, the classification of
assets by a bank and the adequacy of a bank’s allowance for loan losses. Any
change in this regulation and oversight, whether in the form of regulatory
policy, regulations, or legislation could have a material impact on us and our
operations.
  34
  Item
1B. Unresolved Staff Comments.
  None.
  Item
2. Properties.
  At
September 30, 2008, our net investment in property and equipment totaled $11.9
million. We use outside service companies for a variety of data processing
services. The following table sets forth the location of our main office,
separate drive-up facility and five existing branch offices, the year each
opened and the net book value for each location.
 Office
      Location
              
              
              Year
      Facility
                Opened
              
              Leased
      or
                Owned
              
              Net
      Book Value at
                September
      30, 2008(In
      thousands)Main
      Office
                365Broad
      Street
                Bloomfield,
      New Jersey 07003
              
              1965
              
              Owned
              
              $
              1,055Full
      Service Branch
                347
      Broad Street
                Bloomfield,
      New Jersey 07003
              
              2008
              
              Land
      Lease
              
              $
              1,743Bloomfield
      Branch Drive Up Facility
                16
      Pitt Street
                Bloomfield,
      New Jersey 07003
              
              1998
              
              Owned
              
              $
              278Full
      Service Branch
                310
      Pompton Avenue
                Cedar
      Grove, New Jersey 07009
              
              2001
              
              Owned
              
              $
              1,710Full
      Service Branch
                725
      Bloomfield Avenue
                Verona,
      New Jersey 07044
              
              2006
              
              Owned
              
              $
              3,538Full
      Service Branch
                213
      Harrison Street
                Nutley,
      New Jersey 07110
              
              2007
              
              Office
      Lease
              
              $
              593Full
      Service Branch
                500
      Clifton Avenue
                Clifton,
      New Jersey 07011
              
              2007
              
              Owned
              
              $
              2,977
  35
  Item
3. Legal Proceedings.
  From
time to time the Company and its subsidiaries are parties to routine litigation,
which arises in the normal course of business, such as claims to enforce liens,
condemnation proceedings on properties in which the Bank holds security
interests, claims involving the making and servicing of real property loans, and
other issues incident to the business of the Bank. In the opinion of management,
there were no lawsuits pending or known to be contemplated at September 30, 2008
that would have a material effect on operations or income.
  Item
4. Submission of Matters to a Vote of Security Holders.
  None.
  36
  PART
II
  Item
5. Market for the Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
  The
information contained in the section captioned “Investor and Corporate
Information” in the portions of the Annual Report filed as Exhibit 13 to this
Form 10-K is incorporated herein by reference.
  The
information contained in “Note 1 of the Consolidated Financial Statements” and
the section captioned “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Capital” in the portions of the Annual
Report filed as Exhibit 13 to this Form 10-K is incorporated herein by
reference.
  The
following table summarizes our share repurchase activity during the three months
ended September 30, 2008 and additional information regarding our share
repurchase program. The schedule reflects the completion of the Company’s share
repurchase program announced on January 3, 2008 and the initiation of a
subsequent program announced on August 20, 2008 by which an additional 5% of the
Company outstanding shares would be repurchased.
  Period
                
                
                (a)
      Total Number
                  Of
      Shares (or
                  Units)
      Purchased
                
                
                (b)
                  Average
      Price
                  Paid
      per Share
                  (or
      Unit)
                
                
                (c)
      Total Number
                  of
      Shares (or
                  Units)
      Purchased
                  as
      Part Of
                  Publicly
      Announced Plans
                  or
      Programs
                
                
                (d)
      Maximum Number
                  (or
      Approximate Dollar
                  Value)
      of Shares (or
                  Units)
      that May Yet Be
                  Purchased
      Under
                  Plans
      or ProgramsRepurchases
      for the MonthJuly
      1 – July 31, 2008
                
                
                —
                
                
                $
                —
                
                
                
                —
                
                
                
                9,889August
      1 – August 31, 2008
                
                
                24,889
                
                
                $
                10.36
                
                
                
                24,889
                
                
                
                531,919September
      1 – September 30, 2008
                
                
                63,705
                
                
                $
                10.33
                
                
                
                63,705
                
                
                
                468,214Total
      repurchases
                
                
                88,594
                
                
                $
                10.34
                
                
                
                88,594
  Item
6. Selected Financial Data.
  The
information contained in the table captioned “Selected Consolidated Financial
and Other Data” in the portions of the Annual Report filed as Exhibit 13 to this
Form 10-K is incorporated herein by reference.
  Item
7 . Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
  The
information contained in the section captioned “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in the Annual Report
filed as Exhibit 13 to this Form 10-K is incorporated herein by
reference.
  Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
  The
information contained in the section captioned “Management of Interest Rate Risk
and Market Risk” in the Annual Report filed as Exhibit 13 to this Form 10-K is
incorporated herein by reference.
  Item
8. Financial Statements and Supplementary Data.
  The
Company’s financial statements listed under Item 15 of this Form 10-K and
included in Exhibit 13 to this Form 10-K are incorporated herein by
reference.
  37
  Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
  Not
applicable.
  Item
9A. Controls and Procedures.
  (a)
Evaluation of disclosure controls and procedures. An evaluation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934 (the “Act”)) was carried out as of September 30,
2008 under the supervision and with the participation of our Chief Executive
Officer, Chief Financial Officer and several other members of our senior
management. Our Chief Executive Officer and Chief Financial Officer concluded
that, as of September 30, 2008, our disclosure controls and procedures were
effective in ensuring that the information we are required to disclose in the
reports we file or submit under the Act is (i) accumulated and communicated to
our management (including the Chief Executive Officer and Chief Financial
Officer) to allow timely decisions regarding required disclosure, and (ii)
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms.
  (b)
Management’s annual report on internal control over financial reporting and
Attestation report of the registered public accounting firm. The annual
report of management on the effectiveness of our internal control over financial
reporting and the attestation report thereon issued by our independent
registered public accounting firm are set forth under “Management’s Report on
Internal Control Over Financial Reporting” and “Report of Independent Registered
Public Accounting Firm” in the Annual Report filed as Exhibit 13 to this Form
10-K are incorporated by reference under “Item 8. Financial Statements and
Supplementary Data.”
  (c)
Changes in internal control over financial reporting. During the quarter
ended September 30, 2008, no change occurred in our internal control over
financial reporting that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
  We
do not expect that our disclosure controls and procedures and internal control
over financial reporting will prevent all error and all fraud. A control
procedure, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control procedure
are met. Because of the inherent limitations in all control procedures, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns in controls or procedures can occur because of
simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the control. The design of any control procedure also is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions; over time, controls may
become inadequate because of changes in conditions, or the degree of compliance
with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control procedure, misstatements due to error or
fraud may occur and not be detected.
  Item
9B. Other Information.
  Not
applicable.
  38
  PART
III
  Item
10. Directors and Executive Officers of the Registrant.
  Information
required by this item concerning the Company’s directors and compliance with
section 16(a) of the Act is incorporated herein by reference from the definitive
proxy statement for the Annual Meeting of Stockholders to be held in February
2009, except for the information contained under the heading “Compensation
Committee Report on Executive Compensation”, “Report of the Audit Committee of
the Board of Directors” and “Stockholder Return Performance Presentation”, a
copy of which will be filed not later than 120 days after the close of the
fiscal year.
  Code
of Ethics
  The
Company has adopted a Code of Ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer or controller
or persons performing similar functions. The Company’s Code of Ethics will be
provided without charge upon request to the Corporate Secretary, American
Bancorp of New Jersey, Inc., 365 Broad Street, Bloomfield, New Jersey
07003.
  Item
11. Executive Compensation.
  Information
required by this item concerning compensation is incorporated herein by
reference from the definitive proxy statement for the Annual Meeting of
Stockholders to be held in February 2008, except for the information contained
under the heading “Compensation Committee Report on Executive Compensation”,
“Report of the Audit Committee of the Board of Directors” and “Stockholder
Return Performance Presentation”, a copy of which will be filed not later than
120 days after the close of the fiscal year.
  39
  Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
  Information
required by this item concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the definitive proxy
statement for the Annual Meeting of Stockholders to be held in February 2009,
except for the information contained under the heading “Compensation Committee
Report on Executive Compensation”, “Report of the Audit Committee of the Board
of Directors” and “Stockholder Return Performance Presentation”, a copy of which
will be filed not later than 120 days after the close of the fiscal
year.
  EQUITY
COMPENSATION PLAN INFORMATION
  (a)
              
              
              (b)
              
              
              (c)Number
      of securities
                to
      be issued
                upon
      exercise of
                outstanding
      options,
                warrants
      and rights
              
              
              Weighted-average
                exercise
      price of
                outstanding
                options,
      warrants
                and
      rights
              
              
              Number
      of securities
                remaining
      available for
                future
      issuance under equity
                compensation
      plans
                (excluding
      securities
                reflected
      in column (a))Equity
      compensation plans approved by security holders
              
              
              1,412,782
              
              
              $
              9.27
              
              
              
              —Equity
      compensation plans not approved by security holders:None
              
              
              N/A
              
              
              
              N/A
              
              
              
              N/ATOTAL
              
              
              1,412,782
              
              
              $
              9.27
              
              
              
              —
  Item
13. Certain Relationships and Related Transactions.
  Information
required by this item concerning certain relationships and related transactions
is incorporated herein by reference from the definitive proxy statement for the
Annual Meeting of Stockholders to be held in February 2009, except for the
information contained under the heading “Compensation Committee Report on
Executive Compensation”, “Report of the Audit Committee of the Board of
Directors” and “Stockholder Return Performance Presentation”, a copy of which
will be filed not later than 120 days after the close of the fiscal
year.
  Item
14. Principal Accounting Fees and Services.
  Information
required by this item concerning principal accounting fees and services is
incorporated herein by reference from the definitive proxy statement for the
Annual Meeting of Stockholders to be held in February 2009, a copy of which will
be filed not later than 120 days after the close of the fiscal
year.
  PART
IV
  Item
15. Exhibits, Financial Statement Schedules.
 (a)
              Listed
      below are all financial statements and exhibits filed as part of this Form
      10-K.
  1.        The
consolidated statements of financial condition as of September 30, 2008 and 2007
and the related consolidated statements of income, changes in stockholders’
equity, and cash flows for the three years ended September 30, 2008, together
with the related notes and the report of independent certified public
accountants.
  40
  2.          The
following exhibits are either included with this Form 10-K or incorporated
herein by reference:
 (a)
              List
      of Exhibits3(i)
              Certificate of Incorporation of American Bancorp
      of New Jersey, Inc.(1)3(ii)
              Bylaws of American Bancorp of New Jersey,
      Inc.(2)4
              Specimen Stock Certificate of American Bancorp of
      New Jersey(1)10.1
              Employment Agreement between American Bank of New
      Jersey and Joseph Kliminski(3)†10.2
              Employment Agreement between American Savings Bank
      of NJ and Eric B. Heyer(3)†10.3
              Form of Executive Salary Continuation
      Agreement(3)†10.4
              Employment Agreement between American Bank of New
      Jersey and Fred G. Kowal(4)
      †10.5
              Employment Agreement between American Bank of New
      Jersey and Catherine M. Bringuier(1)
      †10.6
              2005 Stock Option Plan(5)†10.7
              2005 Restricted Stock Plan(5)†13
              Portions
      of the 2008 Annual Report to Stockholders21
              Subsidiaries23.1
              Consent
      of Auditor31
              Certifications
      Pursuant to Section 302 of the Sarbanes-Oxley Act of
  200232
              Certification
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002
  
 (1)
              Incorporated
      by reference to the Company’s Registration Statement on Form S-1 (File No.
      333-125957) filed with the SEC on June 20, 2005.(2)
              Incorporated
      by reference to the Company’s Current Report on Form 8-K (File No.
      0-51500) filed with the SEC on December 10, 2007.(3)
              Incorporated
      by reference to the Registration Statement on Form SB-2 (File No.
      333-105472) of ASB Holding Company filed with the SEC on May 22,
      2003.(4)
              Incorporated
      by reference to the Form 8-K (File No. 000-31789) of ASB Holding Company
      filed with the SEC on April 18, 2005.(5)
              Incorporated
      by reference to the definitive proxy statement (File No. 000-31789) of ASB
      Holding Company filed with the SEC on December 28,
2004.†
              Management
      or compensatory plan required to be filed as an
  exhibit.
  41
  SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized as of December 12,
2008.
  AMERICAN
      BANCORP OF NEW JERSEY, INC.By:
              /s/
      Fred G. KowalFred
      G. KowalPresident
      and Chief Operating Officer(Duly
      Authorized Representative)
  Pursuant
to the requirement of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of December 12,
2008.
  /s/W.
      George Parker
              
              
              /s/Joseph
      KliminskiW.
      George Parker
              
              
              Joseph
      KliminskiChairman
              
              
              Chief
      Executive Officer and Director(Principal
      Executive Officer)/s/Fred
      G. Kowal
              
              
              /s/Eric
      B. HeyerFred
      G. Kowal
              
              
              Eric
      B. HeyerPresident,
      Chief Operating Officer
              
              
              Senior
      Vice President, Treasurer andand
      Director
              
              
              Chief
      Financial Officer(Principal
      Financial and AccountingOfficer)/s/H.
      Joseph North
              
              
              /s/James
      H. Ward, IIIH.
      Joseph North
              
              
              James
      H. Ward, IIIDirector
              
              
              Vice
      Chairman/s/Vincent
      S. Rospond
              
              
              /s/Robert
      GaccioneVincent
      S. Rospond
              
              
              Robert
      GaccioneDirector
              
              
              Director
  42