form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
|
SECURITIES
EXCHANGE ACT OF 1934
|
For the
quarterly period ended March 31, 2009
Commission
file number 000-18546
BRIDGE
BANCORP, INC.
(Exact
name of registrant as specified in its charter)
NEW YORK
|
11-2934195
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification Number)
|
|
|
2200 MONTAUK HIGHWAY, BRIDGEHAMPTON, NEW
YORK
|
11932
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (631) 537-1000
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.
Yes x No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one): Large accelerated filer o Accelerated filer x Non-accelerated filer
o Smaller reporting
company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o No x
There
were 6,213,661 shares of common stock outstanding as of May 4,
2009.
PART
I -
|
FINANCIAL
INFORMATION
|
|
|
|
|
Item
1.
|
|
1
|
|
|
|
|
|
1
|
|
|
|
|
|
2
|
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|
|
|
|
3
|
|
|
|
|
|
4
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|
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|
5
|
|
|
|
Item
2.
|
|
11
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Item
3.
|
|
23
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|
|
|
Item
4.
|
|
24
|
|
|
|
PART
II -
|
OTHER
INFORMATION
|
|
|
|
|
Item
1.
|
|
25
|
|
|
|
Item
1A.
|
|
25
|
|
|
|
Item
2.
|
|
25
|
|
|
|
Item
3.
|
|
25
|
|
|
|
Item
4.
|
|
25
|
|
|
|
Item
5.
|
|
25
|
|
|
|
Item
6.
|
|
25
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|
26
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|
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|
Exhibit
31.1
|
|
Exhibit
31.2
|
|
Exhibit
32.1
|
|
Item 1. Financial Statements
BRIDGE
BANCORP, INC. AND SUBSIDIARY
|
|
|
|
|
|
|
Consolidated
Balance Sheets (unaudited)
|
|
|
|
|
|
|
(In
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
March
31,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$ |
12,071 |
|
|
$ |
24,744 |
|
Federal
Funds Sold
|
|
|
6,600 |
|
|
|
- |
|
Interest
earning deposits with banks
|
|
|
2,023 |
|
|
|
4,141 |
|
Total
cash and cash equivalents
|
|
|
20,694 |
|
|
|
28,885 |
|
|
|
|
|
|
|
|
|
|
Securities
available for sale, at fair value
|
|
|
285,993 |
|
|
|
310,695 |
|
Securities
held to maturity (fair value of $40,860 and $43,890,
respectively)
|
|
|
40,298 |
|
|
|
43,444 |
|
Total
securities, net
|
|
|
326,291 |
|
|
|
354,139 |
|
|
|
|
|
|
|
|
|
|
Securities,
restricted
|
|
|
880 |
|
|
|
3,800 |
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
441,229 |
|
|
|
429,683 |
|
Allowance
for loan losses
|
|
|
(4,560 |
) |
|
|
(3,953 |
) |
Loans,
net
|
|
|
436,669 |
|
|
|
425,730 |
|
|
|
|
|
|
|
|
|
|
Premises
and equipment, net
|
|
|
19,276 |
|
|
|
18,377 |
|
Accrued
interest receivable
|
|
|
3,990 |
|
|
|
3,626 |
|
Other
assets
|
|
|
5,187 |
|
|
|
4,502 |
|
Total
Assets
|
|
$ |
812,987 |
|
|
$ |
839,059 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
$ |
183,508 |
|
|
$ |
181,213 |
|
Savings,
NOW and money market deposits
|
|
|
371,970 |
|
|
|
344,860 |
|
Certificates
of deposit of $100,000 or more
|
|
|
82,449 |
|
|
|
78,165 |
|
Other
time deposits
|
|
|
68,021 |
|
|
|
54,847 |
|
Total
deposits
|
|
|
705,948 |
|
|
|
659,085 |
|
|
|
|
|
|
|
|
|
|
Federal
funds purchased and Federal Home Loan Bank overnight
borrowings
|
|
|
24,000 |
|
|
|
70,900 |
|
Federal
Home Loan Bank term advances
|
|
|
- |
|
|
|
30,000 |
|
Repurchase
agreements
|
|
|
15,000 |
|
|
|
15,000 |
|
Accrued
interest payable
|
|
|
595 |
|
|
|
672 |
|
Other
liabilities and accrued expenses
|
|
|
8,880 |
|
|
|
7,263 |
|
Total
Liabilities
|
|
|
754,423 |
|
|
|
782,920 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Common
stock, par value $.01 per share:
|
|
|
|
|
|
|
|
|
Authorized:
20,000,000 shares; 6,386,306 issued; 6,213,661 and 6,184,080
shares outstanding, respectively
|
|
|
64 |
|
|
|
64 |
|
Surplus
|
|
|
19,753 |
|
|
|
20,452 |
|
Retained
earnings
|
|
|
40,861 |
|
|
|
40,081 |
|
Less: Treasury
Stock at cost, 172,645 and 202,226 shares, respectively
|
|
|
(5,467 |
) |
|
|
(6,309 |
) |
|
|
|
55,211 |
|
|
|
54,288 |
|
Accumulated
other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Net
unrealized gain on securities, net of deferred taxes of ($3,225) and
($2,250), respectively
|
|
|
4,898 |
|
|
|
3,417 |
|
Change
in pension assets (liabilities), net of deferred taxes of $1,046 and
$1,060, respectively
|
|
|
(1,545 |
) |
|
|
(1,566 |
) |
Total
Stockholders' Equity
|
|
|
58,564 |
|
|
|
56,139 |
|
Total
Liabilities and Stockholders' Equity
|
|
$ |
812,987 |
|
|
$ |
839,059 |
|
See
accompanying notes to the Unaudited Consolidated Financial
Statements.
BRIDGE BANCORP, INC. AND SUBSIDIARY
Consolidated
Statements of Income (unaudited)
(In
thousands, except per share amounts)
Three
months ended March 31,
|
|
2009
|
|
|
2008
|
|
Interest
income:
|
|
|
|
|
|
|
Loans
(including fee income)
|
|
$ |
7,220 |
|
|
$ |
6,857 |
|
Mortgage-backed
securities
|
|
|
3,038 |
|
|
|
1,600 |
|
State
and municipal obligations
|
|
|
563 |
|
|
|
452 |
|
U.S.
GSE securities
|
|
|
200 |
|
|
|
252 |
|
Federal
funds sold
|
|
|
1 |
|
|
|
30 |
|
Deposits
with banks
|
|
|
1 |
|
|
|
3 |
|
Total
interest income
|
|
|
11,023 |
|
|
|
9,194 |
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
Savings,
NOW and money market deposits
|
|
|
977 |
|
|
|
1,577 |
|
Certificates
of deposit of $100,000 or more
|
|
|
482 |
|
|
|
531 |
|
Other
time deposits
|
|
|
360 |
|
|
|
324 |
|
Federal
funds purchased and repurchase agreements
|
|
|
120 |
|
|
|
110 |
|
Federal
Home Loan Bank Advances
|
|
|
1 |
|
|
|
4 |
|
Total
interest expense
|
|
|
1,940 |
|
|
|
2,546 |
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
9,083 |
|
|
|
6,648 |
|
Provision
for loan losses
|
|
|
900 |
|
|
|
200 |
|
Net
interest income after provision for loan losses
|
|
|
8,183 |
|
|
|
6,448 |
|
|
|
|
|
|
|
|
|
|
Non
interest income:
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts
|
|
|
630 |
|
|
|
699 |
|
Fees
for other customer services
|
|
|
326 |
|
|
|
338 |
|
Title
fee income
|
|
|
207 |
|
|
|
378 |
|
Other
operating income
|
|
|
16 |
|
|
|
31 |
|
Total
non interest income
|
|
|
1,179 |
|
|
|
1,446 |
|
|
|
|
|
|
|
|
|
|
Non
interest expense:
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
3,612 |
|
|
|
3,058 |
|
Net
occupancy expense
|
|
|
582 |
|
|
|
467 |
|
Furniture
and fixture expense
|
|
|
226 |
|
|
|
205 |
|
Other
operating expenses
|
|
|
1,669 |
|
|
|
1,259 |
|
Total
non interest expense
|
|
|
6,089 |
|
|
|
4,989 |
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
3,273 |
|
|
|
2,905 |
|
Income
tax expense
|
|
|
1,064 |
|
|
|
935 |
|
Net
income
|
|
$ |
2,209 |
|
|
$ |
1,970 |
|
Basic
earnings per share
|
|
$ |
0.36 |
|
|
$ |
0.32 |
|
Diluted
earnings per share
|
|
$ |
0.36 |
|
|
$ |
0.32 |
|
Comprehensive
Income
|
|
$ |
3,711 |
|
|
$ |
4,216 |
|
See
accompanying notes to the Unaudited Consolidated Financial
Statements.
BRIDGE BANCORP, INC. AND SUBSIDIARY
Consolidated
Statements of Stockholders’ Equity (unaudited)
(In
thousands, except per share amounts)
|
|
Common
Stock
|
|
|
Surplus
|
|
|
Comprehensive
Income
|
|
|
Retained
Earnings
|
|
|
Treasury
Stock
|
|
|
Accumulated
Other Comprehensive Income
|
|
|
Total
|
|
Balance
at December 31, 2008
|
|
$ |
64 |
|
|
$ |
20,452 |
|
|
|
|
|
$ |
40,081 |
|
|
$ |
(6,309 |
) |
|
$ |
1,851 |
|
|
$ |
56,139 |
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
2,209 |
|
|
|
2,209 |
|
|
|
|
|
|
|
|
|
|
|
2,209 |
|
Stock
awards granted
|
|
|
|
|
|
|
(852 |
) |
|
|
|
|
|
|
|
|
|
|
852 |
|
|
|
|
|
|
|
- |
|
Vesting
of stock awards
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Exercise
of stock options, including tax benefit
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
11 |
|
|
|
|
|
|
|
17 |
|
Shares
surrendered with the vesting of restricted stock and exercising stock
options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
(21 |
) |
Shared
based compensation expense
|
|
|
|
|
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148 |
|
Cash
dividend declared, $0.23 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,429 |
) |
|
|
|
|
|
|
|
|
|
|
(1,429 |
) |
Other
comprehensive income, net of deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized net gains in securities available for sale, net of deferred
tax effects
|
|
|
|
|
|
|
|
|
|
|
1,481 |
|
|
|
|
|
|
|
|
|
|
|
1,481 |
|
|
|
1,481 |
|
Adjustment
to pension liability, net of deferred taxes
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
21 |
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
3,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2009
|
|
$ |
64 |
|
|
$ |
19,753 |
|
|
|
|
|
|
$ |
40,861 |
|
|
$ |
(5,467 |
) |
|
$ |
3,353 |
|
|
$ |
58,564 |
|
See
accompanying notes to the Unaudited Consolidated Financial
Statements.
BRIDGE BANCORP, INC. AND SUBSIDIARY
Consolidated
Statements of Cash Flows (unaudited)
(In
thousands)
Three months ended March
31,
|
|
2009
|
|
|
2008
|
|
Operating
activities:
|
|
|
|
|
|
|
Net
Income
|
|
$ |
2,209 |
|
|
$ |
1,970 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
900 |
|
|
|
200 |
|
Depreciation
and amortization
|
|
|
326 |
|
|
|
312 |
|
(Accretion)
and amortization, net
|
|
|
(9 |
) |
|
|
(1 |
) |
Share
based compensation expense
|
|
|
148 |
|
|
|
80 |
|
SERP
expense
|
|
|
70 |
|
|
|
41 |
|
Increase
in accrued interest receivable
|
|
|
(364 |
) |
|
|
(681 |
) |
Increase
in other assets
|
|
|
(690 |
) |
|
|
(2,954 |
) |
Increase
in accrued and other liabilities
|
|
|
515 |
|
|
|
3,307 |
|
Net
cash provided by operating activities
|
|
|
3,105 |
|
|
|
2,274 |
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
|
Purchases
of securities available for sale
|
|
|
(10,511 |
) |
|
|
(45,702 |
) |
Purchases
of FHLB stock
|
|
|
(19,189 |
) |
|
|
(12,537 |
) |
Purchases
of securities held to maturity
|
|
|
(130 |
) |
|
|
(733 |
) |
Redemption
of FHLB stock
|
|
|
22,109 |
|
|
|
14,112 |
|
Maturities
of securities available for sale
|
|
|
23,890 |
|
|
|
13,000 |
|
Maturities
of securities held to maturity
|
|
|
2,033 |
|
|
|
1,109 |
|
Principal
payments on mortgage-backed securities
|
|
|
15,031 |
|
|
|
5,841 |
|
Net
increase in loans
|
|
|
(11,839 |
) |
|
|
(12,767 |
) |
Purchase
of premises and equipment
|
|
|
(1,225 |
) |
|
|
(237 |
) |
Net
cash provided by (used in) investing activities
|
|
|
20,169 |
|
|
|
(37,914 |
) |
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
Net
increase in deposits
|
|
|
46,863 |
|
|
|
64,909 |
|
Net
decrease in federal funds purchased and FHLB overnight
borrowings
|
|
|
(46,900 |
) |
|
|
(5,400 |
) |
Net
decrease in FHLB term advances
|
|
|
(30,000 |
) |
|
|
(10,000 |
) |
Net
decrease in repurchase agreements
|
|
|
- |
|
|
|
(10,000 |
) |
Repurchase
of surrendered stock from exercise of stock options and vesting of
restricted stock awards
|
|
|
(5 |
) |
|
|
- |
|
Cash
dividends paid
|
|
|
(1,423 |
) |
|
|
(1,406 |
) |
Net
cash (used in) provided by financing activities
|
|
|
(31,465 |
) |
|
|
38,103 |
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(8,191 |
) |
|
|
2,463 |
|
Cash
and cash equivalents at beginning of period
|
|
|
28,885 |
|
|
|
14,348 |
|
Cash
and cash equivalents at end of period
|
|
$ |
20,694 |
|
|
$ |
16,811 |
|
|
|
|
|
|
|
|
|
|
Supplemental
Information-Cash Flows:
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
2,017 |
|
|
$ |
2,576 |
|
Income
tax
|
|
$ |
- |
|
|
$ |
1,090 |
|
|
|
|
|
|
|
|
|
|
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Securities
which settled in the subsequent period
|
|
$ |
- |
|
|
$ |
4,172 |
|
Dividends
declared and unpaid at end of period
|
|
$ |
1,429 |
|
|
$ |
1,414 |
|
See
accompanying notes to the Unaudited Consolidated Financial
Statements.
BRIDGE BANCORP, INC. AND SUBSIDIARY
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.
BASIS OF PRESENTATION
Bridge
Bancorp, Inc. (the “Company”) is incorporated under the laws of the State of New
York as a bank holding company. The Company’s business currently
consists of the operations of its wholly-owned subsidiary, The Bridgehampton
National Bank (the “Bank”). The Bank’s operations include its real
estate investment trust subsidiary, Bridgehampton Community, Inc. (“BCI”) and a
financial title insurance subsidiary, Bridge Abstract LLC (“Bridge
Abstract”).
The
accompanying Unaudited Consolidated Financial Statements, which include the
accounts of the Company and its wholly-owned subsidiary, the Bank, have been
prepared in accordance with U.S. generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. The Unaudited Consolidated Financial Statements
included herein reflect all normal recurring adjustments that are, in the
opinion of management, necessary for a fair presentation of the results for the
interim periods presented. In preparing the interim financial
statements, management has made estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expense during the reported periods. Such estimates
are subject to change in the future as additional information becomes available
or previously existing circumstances are modified. Actual future
results could differ significantly from those estimates. The
annualized results of operations for the three months ended March 31, 2009 are
not necessarily indicative of the results of operations that may be expected for
the entire fiscal year. Certain information and note disclosures
normally included in the financial statements prepared in accordance with U.S.
generally accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
reclassifications have been made to prior year amounts, and the related
discussion and analysis, to conform to the current year
presentation. The Unaudited Consolidated Financial Statements should
be read in conjunction with the Audited Consolidated Financial Statements and
notes thereto included in the Company’s Annual Report on Form 10-K for the year
ended December 31, 2008.
2.
EARNINGS PER SHARE
Basic
earnings per common share is computed by dividing net income by the
weighted-average number of common shares outstanding for the
period. Diluted earnings per share, which reflect the potential
dilution that could occur if outstanding stock options were exercised and
dilutive stock awards were fully vested and resulted in the issuance of common
stock that then shared in the earnings of the Company, is computed by dividing
net income by the weighted average number of common shares and common stock
equivalents.
Computation
of Per Share Income
|
|
|
|
|
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
Three
months ended
|
|
|
|
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
2,209 |
|
|
$ |
1,970 |
|
|
|
|
|
|
|
|
|
|
Common
Equivalent Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding
|
|
|
6,089 |
|
|
|
6,076 |
|
Weighted
Average Common Equivalent Shares Outstanding
|
|
|
11 |
|
|
|
18 |
|
Weighted
Average Common and Equivalent Shares Outstanding
|
|
|
6,100 |
|
|
|
6,094 |
|
|
|
|
|
|
|
|
|
|
Basic
Earnings per Share
|
|
$ |
0.36 |
|
|
$ |
0.32 |
|
Diluted
Earnings per Share
|
|
$ |
0.36 |
|
|
$ |
0.32 |
|
There
were approximately 61,705 and 64,243 options outstanding at March 31, 2009 and
March 31, 2008, respectively, that were not included in the computation of
diluted earnings per share because the options’ exercise prices were greater
than the average market price of common stock and were, therefore, antidilutive.
There were approximately 95,070 and 29,903 shares of unvested restricted stock
at March 31, 2009 and March 31, 2008, respectively, with a grant price higher
than the average market price of the common stock.
3.
REPURCHASE STOCK
The
Company’s Board of Directors approved a stock repurchase program on March 27,
2006 that authorized the repurchase of up to 309,000 shares or approximately 5%
of its total issued and outstanding common shares. These shares can
be purchased from time to time in the open market or through private purchases,
depending on market conditions, availability of stock, the trading price of the
stock, alternative uses for capital, and the Company’s financial
performance. Repurchased shares are held in the Company’s treasury
account and may be utilized for general corporate purposes.
For the
three months ended March 31, 2009 and March 31, 2008, the Company did not
repurchase any of its common shares. At March 31, 2009, 167,041
shares were available for repurchase under the Board approved
program.
4.
STOCK BASED COMPENSATION PLANS
The
Compensation Committee of the Board of Directors determines stock options and
restricted stock awarded under the Bridge Bancorp, Inc. Equity Incentive Plan
(“Plan”). The Company accounts for this plan under FAS
123(R).
No new
grants of stock options were awarded during the three months ended March 31,
2009 and March 31, 2008. Compensation expense attributable to stock
options was $10,000 and $8,000 for the three months ended March 31, 2009 and
2008, respectively.
The
intrinsic value for stock options is calculated based on the exercise price of
the underlying awards and the market price of our common stock as of the
reporting date. The intrinsic value of options exercised during the
first quarter of 2009 and 2008 was $7,000 and $0, respectively. The
intrinsic value of options outstanding and exercisable at March 31, 2009 was
$105,000.
A summary
of the status of the Company’s stock options as of March 31, 2009 is as
follows:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
Number
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
of
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
Life
|
|
Value
|
|
Outstanding,
December 31, 2008
|
|
|
81,205 |
|
|
$ |
22.67 |
|
|
|
|
|
Granted
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Exercised
|
|
|
(1,200 |
) |
|
$ |
14.00 |
|
|
|
|
|
Forfeited
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Expired
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Outstanding,
March 31, 2009
|
|
|
80,005 |
|
|
$ |
22.80 |
|
6.08
years
|
|
$ |
105,108 |
|
Vested
or expected to vest
|
|
|
76,194 |
|
|
$ |
22.68 |
|
6.00
years
|
|
$ |
105,108 |
|
Exercisable,
March 31, 2009
|
|
|
60,195 |
|
|
$ |
21.98 |
|
5.64
years
|
|
$ |
105,108 |
|
|
|
Number
of
|
|
|
|
|
Range
of Exercise Prices
|
|
Shares
|
|
|
Price
|
|
|
|
|
7,800 |
|
|
$ |
12.53 |
|
|
|
|
10,500 |
|
|
$ |
15.47 |
|
|
|
|
8,659 |
|
|
$ |
24.00 |
|
|
|
|
47,643 |
|
|
$ |
25.25 |
|
|
|
|
5,403 |
|
|
$ |
26.55-30.60 |
|
During
the three months ended March 31, 2009 and March 31, 2008, the Company granted
restricted stock awards of 29,392 shares and 42,470 shares,
respectively. These awards vest over five years with a third vesting
after three years, four years and five years from the date of
grant. Compensation expense attributable to restricted stock awards
was $138,000 and $72,000 for the three months ended March 31, 2009 and 2008,
respectively.
A summary
of the status of the Company’s unvested restricted stock as of March 31, 2009 is
as follows:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
Grant-Date
|
|
|
|
Shares
|
|
|
Fair
Value
|
|
Unvested,
December 31, 2008
|
|
|
95,570 |
|
|
$ |
21.55 |
|
Granted
|
|
|
29,392 |
|
|
$ |
18.99 |
|
Vested
|
|
|
(500 |
) |
|
$ |
26.55 |
|
Forfeited
|
|
|
- |
|
|
|
- |
|
Unvested,
March 31, 2009
|
|
|
124,462 |
|
|
$ |
20.93 |
|
5.
SECURITIES
A summary
of the amortized cost and estimated fair value of securities is as
follows:
|
|
March
31, 2009
|
|
|
December
31, 2008
|
|
(In
thousands)
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
Available
for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
GSE securities
|
|
$ |
13,881 |
|
|
$ |
14,104 |
|
|
$ |
29,855 |
|
|
$ |
30,134 |
|
State
and municipal obligations
|
|
|
45,184 |
|
|
|
46,469 |
|
|
|
47,848 |
|
|
|
48,588 |
|
Mortgage-backed
securities
|
|
|
218,805 |
|
|
|
225,420 |
|
|
|
227,325 |
|
|
|
231,973 |
|
Total
available for sale
|
|
|
277,870 |
|
|
|
285,993 |
|
|
|
305,028 |
|
|
|
310,695 |
|
Held
to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and municipal obligations
|
|
|
22,250 |
|
|
|
22,298 |
|
|
|
24,153 |
|
|
|
24,217 |
|
Mortgage-backed
securities
|
|
|
18,048 |
|
|
|
18,562 |
|
|
|
19,291 |
|
|
|
19,673 |
|
Total
held to maturity
|
|
|
40,298 |
|
|
|
40,860 |
|
|
|
43,444 |
|
|
|
43,890 |
|
Total
securities
|
|
$ |
318,168 |
|
|
$ |
326,853 |
|
|
$ |
348,472 |
|
|
$ |
354,585 |
|
Securities
having a fair value of approximately $193.9 million and $276.0 million at March
31, 2009 and December 31, 2008, respectively, were pledged to secure public
deposits and Federal Home Loan Bank and Federal Reserve Bank overnight
borrowings. The Bank did not hold any trading securities during the
three months ended March 31, 2009 or the year ended December 31,
2008.
The Bank
is a member of the Federal Home Loan Bank (“FHLB”) of New
York. Members are required to own a particular amount of stock based
on the level of borrowings and other factors, and may invest in additional
amounts. The Bank is also a member of the Federal Reserve Bank
(“FRB”) system and required to own FRB stock. FHLB and FRB stock is
carried at cost and periodically evaluated for impairment based on ultimate
recovery of par value. Both cash and stock dividends are reported as
income. The Bank owned approximately $0.9 million in FHLB and FRB
stock at March 31, 2009 and $3.8 million at December 31, 2008, respectively and
reported these amounts as restricted securities in the consolidated balance
sheet.
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement No. 157, Fair Value
Measurements. This Statement defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. This Statement establishes a fair value hierarchy about
the assumptions used to measure fair value and clarifies assumptions about risk
and the effect of a restriction on the sale or use of an asset. The
standard was effective for fiscal years beginning after November 15,
2007. In February 2008, the FASB issued Staff Position (FSP) 157-2,
Effective Date of FASB
Statement No. 157. This FSP delays the effective date of FAS
157 for all nonfinancial assets and nonfinancial liabilities, except those that
are recognized or disclosed at fair value on a recurring basis (at least
annually) to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years. The impact of adoption was not
material.
Statement
157 establishes a fair value hierarchy which requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. The standard describes three levels of inputs that may be
used to measure fair value:
Level 1:
Quoted prices (unadjusted) for identical assets or liabilities in active markets
that the entity has the ability to access as of the measurement
date.
Level 2:
Significant other observable inputs other than Level 1 prices such as quoted
prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable
market data.
Level 3:
Significant unobservable inputs that reflect a reporting entity’s own
assumptions about the assumptions that market participants would use in pricing
an asset or liability.
The fair
value of securities available for sale is determined by obtaining quoted prices
on nationally recognized securities exchanges (Level 1 inputs) or matrix
pricing, which is a mathematical technique widely used in the industry to value
debt securities without relying exclusively on quoted prices for the specific
securities but rather by relying on the securities’ relationship to other
benchmark quoted securities (Level 2 inputs).
Assets
and liabilities measured at fair value on a recurring basis are summarized
below:
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Measurements Using
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Quoted
Prices In
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Active
Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
March
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for sale securities
|
|
$ |
285,993 |
|
|
|
|
|
|
$ |
285,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available
for sale securities
|
|
$ |
310,695 |
|
|
|
|
|
|
$ |
310,695 |
|
|
|
|
|
6.
LOANS
The
following table sets forth the major classifications of loans:
|
|
March 31, 2009
|
|
|
December 31, 2008
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate mortgage loans
|
|
$ |
214,945 |
|
|
$ |
199,156 |
|
Residential
real estate mortgage loans
|
|
|
139,111 |
|
|
|
139,342 |
|
Commercial,
financial, and agricultural loans
|
|
|
63,622 |
|
|
|
63,468 |
|
Installment/consumer
loans
|
|
|
10,634 |
|
|
|
11,081 |
|
Real
estate-construction loans
|
|
|
12,694 |
|
|
|
16,370 |
|
Total
loans
|
|
|
441,006 |
|
|
|
429,417 |
|
Net
deferred loan costs and fees
|
|
|
223 |
|
|
|
266 |
|
|
|
|
441,229 |
|
|
|
429,683 |
|
Allowance
for loan losses
|
|
|
(4,560 |
) |
|
|
(3,953 |
) |
Net
loans
|
|
$ |
436,669 |
|
|
$ |
425,730 |
|
The
principal business of the Bank is lending, primarily in commercial real estate
loans, residential mortgage loans, construction loans, home equity loans,
commercial and industrial loans, land loans and consumer loans. The
Bank considers its primary lending area to be eastern Long Island in Suffolk
County, New York, and a substantial portion of the Bank’s loans are secured by
real estate in this area. Accordingly, the ultimate collectibility of
such a loan portfolio is susceptible to changes in market and economic
conditions in this region.
Nonaccrual
loans at March 31, 2009 and December 31, 2008 were $3.1 million,
respectively. There were no loans 90 days or more past due that were
still accruing at March 31, 2009 and December 31, 2008.
As of
March 31, 2009, management determined that one commercial mortgage loan for $2.5
million was an impaired loan as defined by SFAS No. 114, “Accounting by
Creditors for Impairment of a Loan – An Amendment of FASB Statement No. 5 and
15” (“SFAS 114”). For a loan to be considered impaired, management determines
after review whether it is probable that the Company will not be able to collect
all amounts due according to the original contractual terms of the loan
agreement. Additionally management applies its normal loan review procedures in
making these judgments. Recognition of interest income on impaired loans is
discontinued when reasonable doubt exists as to the ultimate collectability of
the interest and principal of the loan. The average recorded investment in the
impaired loan during the three months ended March 31, 2009 was $2.5 million. The
collateral underlying this loan is a first lien on real estate with an updated
appraised value of $8.4 million; therefore management believes that the ultimate
collection of principal and interest is reasonably assured. Since management
believes in the ultimate collection of the loan there is not a specific
allocation of the allowance for loan loss attributable to this loan. Currently
the loan is nonaccrual and is not accruing interest. As of December 31, 2008,
this same $2.5 million loan was the only loan considered impaired. The loan was
determined to be impaired on December 28, 2008 therefore the average recorded
investment in the impaired loan during the twelve months ended December 31, 2008
was immaterial to the financial statements. There were no impaired
loans as of March 31, 2008.
As of
March 31, 2009 and December 31, 2008, management determined that one commercial
mortgage loan for $3.2 million to a local not for profit organization was a
troubled debt restructuring as defined by SFAS No. 114. The related allowance
for loan loss associated with the loan as of March 31, 2009 and December 31,
2008 was $66,000 and $65,000, respectively. The average recorded investment in
the troubled debt restructured loan during the three months ended March 31, 2009
and the twelve months ended December 31, 2008 was $3.2 million and $0.8 million,
respectively. During the three months ended March 31, 2009 and the twelve months
ended December 31, 2008, $44,000 and $52,000 of interest income has been
recognized. The loan was determined to be impaired during the third
quarter of 2008. The troubled debt restructured loan is current as of March 31,
2009 and is secured with collateral that has a fair value of approximately $5.4
million as well as personal guarantors. Management believes that the ultimate
collection of principal and interest is reasonably assured and therefore
continues to recognize interest income on an accrual basis. In
addition, the Bank has no commitment to lend additional funds to this
debtor. There were no restructured loans at March 31,
2008.
7.
ALLOWANCE FOR LOAN LOSSES
Management
monitors its entire loan portfolio on a regular basis, with consideration given
to detailed analyses of classified loans, repayment patterns, probable incurred
losses, past loss experience, current economic conditions, and various types of
concentrations of credit. Additions to the allowance are charged to
expense and realized losses, net of recoveries, are charged to the
allowance. Based on the determination of management and the
Classification Committee, the overall level of reserves is periodically adjusted
to account for the inherent and specific risks within the entire
portfolio. Based on the Classification Committee’s review of the
classified loans and the overall reserve levels as they relate to the entire
loan portfolio at March 31, 2009, management determined the allowance for loan
losses to be adequate.
The
following table sets forth changes in the allowance for loan
losses.
(In
thousands)
|
|
For
the Three Months Ended
|
|
|
For
the Year Ended
|
|
|
|
March
31, 2009
|
|
|
March
31, 2008
|
|
|
December
31, 2008
|
|
Beginning
balance
|
|
$ |
3,953 |
|
|
$ |
2,954 |
|
|
$ |
2,954 |
|
Provision
for loan loss
|
|
|
900 |
|
|
|
200 |
|
|
|
2,000 |
|
Net
charge-offs
|
|
|
(293 |
) |
|
|
(32 |
) |
|
|
(1,001 |
) |
Ending
balance
|
|
$ |
4,560 |
|
|
$ |
3,122 |
|
|
$ |
3,953 |
|
8.
EMPLOYEE BENEFITS
The Bank
maintains a noncontributory pension plan through the New York State Bankers
Association Retirement System covering all eligible employees.
The
Bridgehampton National Bank Supplemental Executive Retirement Plan (“SERP”)
provides benefits to certain employees, as recommended by the Compensation
Committee of the Board of Directors and approved by the full Board of Directors,
whose benefits under the Pension Plan are limited by the applicable provisions
of the Internal Revenue Code. The benefit under the SERP is equal to
the additional amount the employee would be entitled to under the Pension Plan
and the 401(k) Plan in the absence of such Internal Revenue Code
limitations. The assets of the SERP are held in a rabbi trust to
maintain the tax-deferred status of the plan and are subject to the general,
unsecured creditors of the company. As a result, the assets of the
trust are reflected on the Consolidated Balance Sheets of the
Company. The effective date of the SERP was January 1,
2001.
The
Company made a $400,000 contribution to the pension plan during the three months
ended March 31, 2009. There were no contributions made to the SERP
during the three months ended March 31, 2009. The Company does not
anticipate making any additional contributions to the pension plan or the SERP
through the end of the year.
The
Company’s funding policy with respect to its benefit plans is to contribute at
least the minimum amounts required by applicable laws and
regulations.
The
following table sets forth the components of net periodic benefit cost and other
amounts recognized in Other Comprehensive Income.
(In
thousands)
|
|
Three
months ended March 31,
|
|
|
|
Pension
Benefits
|
|
|
SERP
Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Service
cost
|
|
$ |
119 |
|
|
$ |
110 |
|
|
$ |
40 |
|
|
$ |
17 |
|
Interest
cost
|
|
|
78 |
|
|
|
69 |
|
|
|
15 |
|
|
|
12 |
|
Expected
return on plan assets
|
|
|
(127 |
) |
|
|
(123 |
) |
|
|
- |
|
|
|
- |
|
Amortization
of net loss
|
|
|
22 |
|
|
|
- |
|
|
|
3 |
|
|
|
- |
|
Amortization
of unrecognized prior service cost
|
|
|
2 |
|
|
|
2 |
|
|
|
- |
|
|
|
- |
|
Amortization
of unrecognized transition (asset) obligation
|
|
|
- |
|
|
|
- |
|
|
|
7 |
|
|
|
7 |
|
Net
periodic benefit cost
|
|
$ |
94 |
|
|
$ |
58 |
|
|
$ |
65 |
|
|
$ |
36 |
|
9. SECURITIES
SOLD UNDER AGREEMENTS TO REPURCHASE
At March
31, 2009, December 31, 2008, and March 31, 2008, securities sold under
agreements to repurchase totaled $15.0 million and were secured by
mortgage-backed securities with a carrying amount of $22.6 million, $23.4
million and $22.9 million, respectively.
Securities
sold under agreements to repurchase are financing arrangements with $5.0 million
maturing during the first quarter of 2013 and $10.0 million maturing during the
first quarter of 2015. At maturity, the securities underlying the
agreements are returned to the Company. Information concerning the
securities sold under agreements to repurchase is summarized as
follows:
|
|
For
the three months ended
|
|
|
For
the year ended
|
|
|
|
March 31, 2009
|
|
|
March 31, 2008
|
|
|
December 31, 2008
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
Average
daily balance
|
|
$ |
15,000 |
|
|
$ |
7,692 |
|
|
$ |
13,183 |
|
Average
interest rate
|
|
|
2.35 |
% |
|
|
2.61 |
% |
|
|
2.39 |
% |
Maximum
month-end balance
|
|
$ |
15,000 |
|
|
$ |
15,000 |
|
|
$ |
15,000 |
|
Weighted
average interest rate
|
|
|
2.35 |
% |
|
|
2.61 |
% |
|
|
2.39 |
% |
10. FEDERAL
HOME LOAN BANK ADVANCES
As of
March 31, 2009, there were no term advances or overnight borrowings outstanding
from the Federal Home Loan Bank. As of December 31, 2008, there was
one term advance from the Federal Home Loan Bank for $30.0 million with a fixed
interest rate of 0.49% that matured in January 2009. The term advance was
payable at its maturity date and was subject to a prepayment
penalty. The term advance was collateralized by $35.3 million of
mortgage-backed securities as of December 31, 2008. In addition to
the term advance, there was $34.9 million of overnight borrowings from the
Federal Home Loan Bank outstanding as of December 31, 2008. The
overnight borrowings were collateralized by $15.8 million of securities and a
blanket lien on residential mortgages as of December 31, 2008. As of
March 31, 2008 there were no term advances or overnight borrowings outstanding
from the Federal Home Loan Bank.
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Private
Securities Litigation Reform Act Safe Harbor Statement
This
report may contain statements relating to the future results of the Company
(including certain projections and business trends) that are considered
“forward-looking statements” as defined in the Private Securities Litigation
Reform Act of 1995 (the “PSLRA”). Such forward-looking statements, in
addition to historical information, which involve risk and uncertainties, are
based on the beliefs, assumptions and expectations of management of the
Company. Words such as “expects,” “believes,” “should,” “plans,”
“anticipates,” “will,” “potential,” “could,” “intend,” “may,” “outlook,”
“predict,” “project,” “would,” “estimates,” “assumes,” “likely,” and variations
of such similar expressions are intended to identify such forward-looking
statements. Examples of forward-looking statements include, but are
not limited to, possible or assumed estimates with respect to the financial
condition, expected or anticipated revenue, and results of operations and
business of the Company, including earnings growth; revenue growth in retail
banking, lending and other areas; origination volume in the Company’s consumer,
commercial and other lending businesses; current and future capital management
programs; non-interest income levels, including fees from the abstract
subsidiary and banking services as well as product sales; tangible capital
generation; market share; expense levels; and other business operations and
strategies. For this presentation, the Company claims the protection
of the safe harbor for forward-looking statements contained in the
PSLRA.
Factors
that could cause future results to vary from current management expectations
include, but are not limited to: changes in economic conditions
including an economic recession that could affect the value of real estate
collateral and the ability for borrowers to repay their
loans; legislative and regulatory changes, including increases in
FDIC insurance rates; monetary and fiscal policies of the federal government;
changes in tax policies, rates and regulations of federal, state and local tax
authorities; changes in interest rates; deposit flows; the cost of funds; demand
for loan products and other financial services; competition; changes in the
quality and composition of the Bank’s loan and investment portfolios; changes in
management’s business strategies; changes in accounting principles, policies or
guidelines; changes in real estate values and other factors discussed elsewhere
in this report, factors set forth under Item 1A., Risk Factors, in our Annual
Report on Form 10-K for the year ended December 31, 2008 and in other reports
filed by the Company with the Securities and Exchange Commission. The
forward-looking statements are made as of the date of this report, and the
Company assumes no obligation to update the forward-looking statements or to
update the reasons why actual results could differ from those projected in the
forward-looking statements.
Overview
Who
We Are and How We Generate Income
Bridge
Bancorp, Inc. (“the Company”), a New York corporation, is a bank holding company
formed in 1989. On a parent-only basis, the Company has had minimal
results of operations. The Company is dependent on dividends from its
wholly owned subsidiary, The Bridgehampton National Bank (“the Bank”), its own
earnings, additional capital raised, and borrowings as sources of
funds. The information in this report reflects principally the
financial condition and results of operations of the Bank. The Bank’s
results of operations are primarily dependent on its net interest income, which
is mainly the difference between interest income on loans and investments and
interest expense on deposits and borrowings. The Bank also generates
non interest income, such as fee income on deposit accounts and merchant credit
and debit card processing programs, income from its title abstract subsidiary,
and net gains on sales of securities and loans. The level of its non
interest expenses, such as salaries and benefits, occupancy and equipment costs,
other general and administrative expenses, expenses from its title insurance
subsidiary, and income tax expense, further affects the Bank’s net
income. Certain reclassifications have been made to prior year
amounts and the related discussion and analysis to conform to the current year
presentation.
Quarterly
Highlights
·
|
Net
income of $2.2 million or $0.36 per diluted share for the first quarter of
2009 as compared to net income of $2.0 million or $0.32 per diluted share
for the first quarter in 2008.
|
·
|
Returns
on average equity and assets of 16.10% and 1.11%, respectively for the
first quarter of 2009.
|
·
|
Net
interest income increased to $9.1 million for the first quarter of 2009 as
compared to $6.6 million in 2008.
|
·
|
A
net interest margin of 5.00% for the first quarter of 2009 as compared to
4.68% for 2008.
|
·
|
Total
loans at March 31, 2009 of $441.2 million, an increase of $53.2 million or
13.7% over March 2008.
|
·
|
Total
assets of $813.0 million at March 31, 2009, an increase of $158.4 million
or 24.2% compared to $654.6 million at March 31,
2008.
|
·
|
Deposits
of $705.9 million at March 31, 2009, an increase of $132.1 million or
23.0% compared to March 2008
levels.
|
·
|
Demand
deposits of $183.5 million at March 31, 2009, representing 26.0% of total
deposits.
|
·
|
Increased
allowance for loan loss levels and continued solid credit quality with
stable non-performing assets.
|
·
|
The
declaration of a cash dividend of $0.23 per share for the first quarter of
2009.
|
Principal
Products and Services and Locations of Operations
The Bank
operates fifteen branches on eastern Long Island. Federally chartered
in 1910, the Bank was founded by local farmers and merchants. For
nearly a century, the Bank has maintained its focus on building customer
relationships in this market area. The mission of the Company is to
grow through the provision of exceptional service to its customers, its
employees, and the community. The Company strives to achieve
excellence in financial performance and build long term shareholder
value. The Bank engages in full service commercial and consumer
banking business, including accepting time, savings and demand deposits from the
consumers, businesses and local municipalities surrounding its branch
offices. These deposits, together with funds generated from
operations and borrowings, are invested primarily in: (1) commercial real estate
loans; (2) home equity loans; (3) construction loans; (4) residential mortgage
loans; (5) secured and unsecured commercial and consumer loans; (6) FHLB, FNMA,
GNMA and FHLMC mortgage-backed securities and collateralized mortgage
obligations; (7) New York State and local municipal obligations; and (8) U.S.
government sponsored entity (“U.S. GSE”) securities. The Bank also
offers the CDARS program, providing up to $50,000,000 of FDIC insurance to its
customers. In addition, the Bank offers merchant credit and debit
card processing, automated teller machines, cash management services, lockbox
processing, online banking services, safe deposit boxes, individual retirement
accounts and investment services through Bridge Investment Services, offering a
full range of investment products and services through a third party broker
dealer. Through its title insurance abstract subsidiary, the Bank
acts as a broker for title insurance services. The Bank’s customer
base is comprised principally of small businesses, municipal relationships and
consumer relationships.
Significant
Events
On
October 14, 2008, the Treasury, FRB and FDIC jointly announced a sweeping plan
to invest in banks and thrifts to help restore confidence in the U.S. banking
system. Some of the actions taken by these governmental agencies include: (i)
temporarily increasing FDIC insurance coverage to $250,000 from $100,000 through
December 31, 2009; (ii) reducing the targeted federal funds rate to 1.50% from
2.00% and the discount rate to 1.75% from 2.25%, respectively; (iii) temporarily
guaranteeing Money Market mutual funds (iv) introducing a capital purchase
program whereby the Treasury will purchase up to $250 billion in senior
preferred shares from healthy qualifying financial institutions; and (v)
introducing a Temporary Liquidity Guarantee Program (“TLGP”) whereby the FDIC
will guarantee newly issued senior unsecured debt on or before June 30, 2009 and
provide unlimited FDIC insurance coverage for non-interest bearing transaction
accounts for thirty days without charge followed by an annualized 10 basis point
assessment for the insurance coverage above $250,000 on such accounts effective
until December 31, 2009. In November 2008, the Bank opted to participate in the
TLGP. In December 2008, the Federal Reserve reduced the targeted federal fund
rate to between 0 and 0.25% from 1.50% and the discount rate to 0.25% from
1.75%. On February 27, 2009, the FDIC issued a final rule, to be effective April
1, 2009, to change the way that the FDIC’s assessment system differentiates for
risk and to set new assessment rates beginning with the second quarter of 2009.
At the same time, the FDIC issued an interim rule to impose an emergency special
assessment of 20 basis points on all banks, payable on September 30, 2009. The
30 day comment period has ended and the final ruling should be disseminated in
the near future. The Company believes that an emergency special assessment of 20
basis points will cost approximately $1.4 million.
Opportunities
and Challenges
The
economic and competitive landscape has changed dramatically over the past two
years. Recognizing that our market areas are generally affluent,
large money center banks increasingly meet their funding needs by aggressively
pricing deposits in the Bank’s markets. Competition for deposits and
loans is intense as various banks in the marketplace, large and small, promise
excellent service yet often price their products
aggressively. Deposit growth is essential to the Bank’s ability to
increase earnings; therefore branch expansion and building share in our existing
markets remain key strategic goals. Controlling funding costs yet protecting the
deposit base along with focusing on profitable growth, presents a unique set of
challenges in this operating environment.
Since the
second half of 2007 and continuing through 2009, the financial markets
experienced significant volatility resulting from the continued fallout of
sub-prime lending and the global liquidity crises. A multitude of government
initiatives along with eight rate cuts by the Federal Reserve totaling 500 basis
points have been designed to improve liquidity for the distressed financial
markets. The ultimate objective of these efforts has been to help the
beleaguered consumer, and reduce the potential surge of residential mortgage
loan foreclosures and stabilize the banking system. Despite these actions, many
of our competitors, due to liquidity concerns, have not yet fully adjusted their
deposit pricing. This contrasts with the impact on assets where yields on loans
and securities have declined. The squeeze between declining asset yields and
more slowly declining liability pricing could impact margins.
Growth
and service strategies have the potential to offset the tighter net interest
margin with volume as the customer base grows through expanding the Bank’s
footprint, while maintaining and developing existing relationships. During 2007,
the Bank opened three new branches. In January 2007, the Bank opened a
state-of-the-art branch facility in the Village of Southampton; in February
2007, the Bank opened a new full-service branch facility in Cutchogue; and in
September 2007, the Bank opened its first full-service branch facility in the
Town of Riverhead, located in Wading River. In April 2009, the Bank opened its
first full-service branch in Shirley, New York. The opening of the branch
facility in Westhampton Beach in December 2005, the branch in Wading River in
September 2007, and the branch in Shirley in March 2009, move the Bank
geographically westward and demonstrate the Bank’s commitment to traditional
growth through branch expansion.
In April
2008, the Bank received approval from the Office of the Comptroller of the
Currency (“OCC”) and expects that the opening of the new full service branch
facility in the Village of East Hampton will be a fourth quarter 2009 event. In
addition, in November 2008, the Bank received OCC approval to open a branch in
Deer Park, New York, and the Bank anticipates opening the location during the
first half of 2009.
The Bank
routinely adds to its menu of products and services, continually meeting the
needs of consumers and businesses. We believe positive outcomes in the future
will result from the expansion of our geographic footprint, investments in
infrastructure and technology, such as BridgeNEXUS, our remote deposit capture
product as well as the introduction of lockbox processing in the fourth quarter
of 2008, and continued focus on placing our customers first. In January 2009,
the Bank launched Bridge Investment Services, offering a full range of
investment products and services through a third party broker
dealer.
Corporate
objectives for 2009 include: leveraging our expanding branch network to build
customer relationships and grow loans and deposits; focusing on opportunities
and processes that continue to enhance the customer experience at the Bank;
improving operational efficiencies and prudent management of non-interest
expense; and maximizing non-interest income through Bridge Abstract as well as
other lines of business. The ability to attract, retain, train and cultivate
employees at all levels of the Company remains significant to meeting these
objectives. The Company has made great progress toward the achievement of these
objectives, and avoided many of the problems facing other financial institutions
as a result of maintaining discipline in its underwriting, expansion strategies,
investing and general business practices. The Company has capitalized on
opportunities presented by the market in 2008 and continues during 2009 to
diligently seek opportunities for growth and to strengthen the franchise. The
causes of the current economic crisis are many and have occurred over a
prolonged period and therefore cannot be expected to be resolved in days, weeks
or months. The Company recognizes the potential risks of the current economic
environment and will monitor the impact of market events as we consider growth
initiatives and evaluate loans and investments.
Critical
Accounting Policies
Allowance
for Loan Losses
Management
considers the accounting policy on the allowance for loan losses to be the most
critical and requires complex management judgment as discussed below. The
judgments made regarding the allowance for loan losses can have a material
effect on the results of operations of the Company.
The
allowance for loan losses is established and maintained through a provision for
loan losses based on probable incurred losses inherent in the Bank’s loan
portfolio. Management evaluates the adequacy of the allowance on a quarterly
basis. The allowance is comprised of both individual valuation allowances and
loan pool valuation allowances. If the allowance for loan losses is not
sufficient to cover actual loan losses, the Company’s earnings could
decrease.
The Bank
monitors its entire loan portfolio on a regular basis, with consideration given
to detailed analysis of classified loans, repayment patterns, probable incurred
losses, past loss experience, current economic conditions, and various types of
concentrations of credit. Additions to the allowance are charged to expense and
realized losses, net of recoveries, are charged to the allowance.
Individual
valuation allowances are established in connection with specific loan reviews
and the asset classification process including the procedures for impairment
testing under Statement of Financial Accounting Standard (“SFAS”) No. 114,
“Accounting by Creditors for
Impairment of a Loan, an Amendment of FASB Statements No. 5 and 15,” and
SFAS No. 118, “Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures, an
Amendment of SFAS No. 114.” Such valuation, which includes a review of
loans for which full collectibility in accordance with contractual terms is not
reasonably assured, considers the estimated fair value of the underlying
collateral less the costs to sell, if any, or the present value of expected
future cash flows, or the loan’s observable market value. Any shortfall that
exists from this analysis results in a specific allowance for the loan. Pursuant
to our policy, loan losses must be charged-off in the period the loans, or
portions thereof, are deemed uncollectible. Assumptions and judgments by
management, in conjunction with outside sources, are used to determine whether
full collectibility of a loan is not reasonably assured. These assumptions and
judgments also are used to determine the estimates of the fair value of the
underlying collateral or the present value of expected future cash flows or the
loan’s observable market value. Individual valuation allowances could differ
materially as a result of changes in these assumptions and judgments. Individual
loan analyses are periodically performed on specific loans considered impaired.
The results of the individual valuation allowances are aggregated and included
in the overall allowance for loan losses.
Loan pool
valuation allowances represent loss allowances that have been established to
recognize the inherent risks associated with our lending activities, but which,
unlike individual allowances, have not been allocated to particular problem
assets. Pool evaluations are broken down as follows: first, loans with
homogenous characteristics are pooled by loan type and include home equity
loans, residential mortgages, land loans and consumer loans. Then all remaining
loans are segregated into pools based upon the risk rating of each credit. Key
factors in determining a credit’s risk rating include management’s evaluation
of: cash flow, collateral, guarantor support, financial disclosures, industry
trends and strength of borrowers’ management. The determination of the adequacy
of the valuation allowance is a process that takes into consideration a variety
of factors. The Bank has developed a range of valuation allowances necessary to
adequately provide for probable incurred losses inherent in each pool of loans.
We consider our own charge-off history along with the growth in the portfolio as
well as the Bank’s credit administration and asset management philosophies and
procedures when determining the allowances for each pool. In addition, we
evaluate and consider the impact that economic and market conditions may have on
the portfolio as well as known and inherent risks in the portfolio. Finally, we
evaluate and consider the allowance ratios and coverage percentages of both peer
group and regulatory agency data. These evaluations are inherently subjective
because, even though they are based on objective data, it is management’s
interpretation of that data that determines the amount of the appropriate
allowance. If the evaluations prove to be incorrect, the allowance for loan
losses may not be sufficient to cover losses inherent in the loan portfolio,
resulting in additions to the allowance for loan losses.
The
Classification Committee is comprised of members of both management and the
Board of Directors. The adequacy of the allowance is analyzed quarterly, with
any adjustment to a level deemed appropriate by the Classification Committee,
based on its risk assessment of the entire portfolio. Based on the
Classification Committee’s review of the classified loans and the overall
allowance levels as they relate to the entire loan portfolio at March 31, 2009,
management believes the allowance for loan losses has been established at levels
sufficient to cover the probable incurred losses in the Bank’s loan portfolio.
Future additions or reductions to the allowance may be necessary based on
changes in economic, market or other conditions. Changes in estimates could
result in a material change in the allowance. In addition, various regulatory
agencies, as an integral part of the examination process, periodically review
the Bank’s allowance for loan losses. Such agencies may require the Bank to
recognize adjustments to the allowance based on their judgments of the
information available to them at the time of their examination.
Net
Income
Net
income for the three months ended March 31, 2009 totaled $2.2 million or $0.36
per diluted share as compared to $2.0 million or $0.32 per diluted share for the
same period in 2008. Changes for the three months ended March 31,
2009 compared to March 31, 2008 include: (i) $2.4 million or 36.6% increase in
net interest income; (ii) a provision for loan losses of $0.9 million was
recorded during the quarter due to the continued growth of our loan portfolio
and changes in economic conditions, as compared to $0.2 million during 2008;
(iii) $0.3 million or 18.5% decrease in total non interest income as a result of
lower service charges on deposit accounts, lower title insurance income and
merchant income and (iv) $1.1 million or 22.0% increase in total non interest
expenses, primarily due to increased salaries and employee benefits related to
expanding the Company’s infrastructure and the opening of new branch offices and
higher incentive based compensation, and increased other operating expense due
to higher FDIC insurance premiums related to growth in deposits and higher
rates, and higher professional fees. The effective income tax rate
increased to 32.5% from 32.2% for the same period last year.
Analysis
of Net Interest Income
Net
interest income, the primary contributor to earnings, represents the difference
between income on interest earning assets and expenses on interest bearing
liabilities. Net interest income depends upon the volume of interest
earning assets and interest bearing liabilities and the interest rates earned or
paid on them.
The
following table sets forth certain information relating to the Company’s average
consolidated balance sheets and its consolidated statements of income for the
periods indicated and reflect the average yield on assets and average cost of
liabilities for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown. Average balances
are derived from daily average balances and include nonaccrual
loans. The yields and costs include fees, which are considered
adjustments to yields. Interest on nonaccrual loans has been included
only to the extent reflected in the consolidated statements of
income. For purposes of this table, the average balances for
investments in debt and equity securities exclude unrealized
appreciation/depreciation due to the application of SFAS No. 115, “Accounting for Certain Investments
in Debt and Equity Securities.”
Three
months ended March 31,
|
|
2009
|
|
|
2008
|
|
(In
thousands)
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans,
net (including loan fee income)
|
|
$ |
429,164 |
|
|
$ |
7,220 |
|
|
|
6.82 |
% |
|
$ |
378,386 |
|
|
$ |
6,857 |
|
|
|
7.29 |
% |
Mortgage-backed
securities
|
|
|
242,933 |
|
|
|
3,038 |
|
|
|
5.07 |
|
|
|
131,484 |
|
|
|
1,600 |
|
|
|
4.89 |
|
Tax
exempt securities (1)
|
|
|
70,063 |
|
|
|
865 |
|
|
|
5.01 |
|
|
|
53,331 |
|
|
|
672 |
|
|
|
5.07 |
|
Taxable
securities
|
|
|
15,866 |
|
|
|
200 |
|
|
|
5.11 |
|
|
|
23,317 |
|
|
|
252 |
|
|
|
4.35 |
|
Federal
funds sold
|
|
|
1,450 |
|
|
|
1 |
|
|
|
0.28 |
|
|
|
4,048 |
|
|
|
30 |
|
|
|
2.98 |
|
Deposits
with banks
|
|
|
2,429 |
|
|
|
1 |
|
|
|
0.17 |
|
|
|
178 |
|
|
|
3 |
|
|
|
6.78 |
|
Total
interest earning assets
|
|
|
761,905 |
|
|
|
11,325 |
|
|
|
6.03 |
|
|
|
590,744 |
|
|
|
9,414 |
|
|
|
6.41 |
|
Non
interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
13,744 |
|
|
|
|
|
|
|
|
|
|
|
16,615 |
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
28,252 |
|
|
|
|
|
|
|
|
|
|
|
27,159 |
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
803,901 |
|
|
|
|
|
|
|
|
|
|
$ |
634,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings,
NOW and money market deposits
|
|
$ |
367,420 |
|
|
$ |
977 |
|
|
|
1.08 |
% |
|
$ |
293,915 |
|
|
$ |
1,577 |
|
|
|
2.16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit of $100,000 or more
|
|
|
80,069 |
|
|
|
482 |
|
|
|
2.44 |
|
|
|
55,553 |
|
|
|
531 |
|
|
|
3.84 |
|
Other
time deposits
|
|
|
60,003 |
|
|
|
360 |
|
|
|
2.43 |
|
|
|
35,232 |
|
|
|
324 |
|
|
|
3.70 |
|
Federal
funds purchased and repurchase agreements
|
|
|
52,739 |
|
|
|
120 |
|
|
|
0.92 |
|
|
|
14,697 |
|
|
|
110 |
|
|
|
3.01 |
|
Federal
Home Loan Bank advances
|
|
|
333 |
|
|
|
1 |
|
|
|
1.22 |
|
|
|
330 |
|
|
|
4 |
|
|
|
4.88 |
|
Total
interest bearing liabilities
|
|
|
560,564 |
|
|
|
1,940 |
|
|
|
1.40 |
|
|
|
399,727 |
|
|
|
2,546 |
|
|
|
2.56 |
|
Non
interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
183,203 |
|
|
|
|
|
|
|
|
|
|
|
176,274 |
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
4,493 |
|
|
|
|
|
|
|
|
|
|
|
4,531 |
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
748,260 |
|
|
|
|
|
|
|
|
|
|
|
580,532 |
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
55,641 |
|
|
|
|
|
|
|
|
|
|
|
53,986 |
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
803,901 |
|
|
|
|
|
|
|
|
|
|
$ |
634,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/interest rate spread (2)
|
|
|
|
|
|
|
9,385 |
|
|
|
4.63 |
% |
|
|
|
|
|
|
6,868 |
|
|
|
3.85 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest earning assets/net interest margin (3)
|
|
$ |
201,341 |
|
|
|
|
|
|
|
5.00 |
% |
|
$ |
191,017 |
|
|
|
|
|
|
|
4.68 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of interest earning assets to interest bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
135.92 |
% |
|
|
|
|
|
|
|
|
|
|
147.79 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Tax equivalent adjustment
|
|
|
|
|
|
|
(302 |
) |
|
|
|
|
|
|
|
|
|
|
(220 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$ |
9,083 |
|
|
|
|
|
|
|
|
|
|
$ |
6,648 |
|
|
|
|
|
(1)
|
The
above table is presented on a tax equivalent
basis.
|
(2)
|
Net
interest rate spread represents the difference between the yield on
average interest earning assets and the cost of average interest bearing
liabilities.
|
(3)
|
Net
interest margin represents net interest income divided by average interest
earning assets.
|
Rate/Volume
Analysis
Net
interest income can be analyzed in terms of the impact of changes in rates and
volumes. The following table illustrates the extent to which changes in interest
rates and in the volume of average interest earning assets and interest bearing
liabilities have affected the Bank’s interest income and interest expense during
the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rates
(changes in rates multiplied by prior volume); and (iii) the net
changes. For purposes of this table, changes which are not due solely
to volume or rate changes have been allocated to these categories based on the
respective percentage changes in average volume and rate. Due to the
numerous simultaneous volume and rate changes during the periods analyzed, it is
not possible to precisely allocate changes between volume and
rates. In addition, average earning assets include nonaccrual
loans.
|
|
Three
months ended March 31,
|
|
|
|
2009
Over 2008
|
|
(In
thousands)
|
|
Changes
Due To
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
Change
|
|
Interest
income on interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
(including loan fee income)
|
|
$ |
2,633 |
|
|
$ |
(2,270 |
) |
|
$ |
363 |
|
Mortgage-backed
securities
|
|
|
1,379 |
|
|
|
59 |
|
|
|
1,438 |
|
Tax
exempt securities (1)
|
|
|
248 |
|
|
|
(55 |
) |
|
|
193 |
|
Taxable
securities
|
|
|
(264 |
) |
|
|
212 |
|
|
|
(52 |
) |
Federal
funds sold
|
|
|
(12 |
) |
|
|
(17 |
) |
|
|
(29 |
) |
Deposits
with banks
|
|
|
10 |
|
|
|
(12 |
) |
|
|
(2 |
) |
Total
interest earning assets
|
|
|
3,994 |
|
|
|
(2,083 |
) |
|
|
1,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense on interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings,
NOW and money market deposits
|
|
|
1,915 |
|
|
|
(2,515 |
) |
|
|
(600 |
) |
Certificates
of deposit of $100,000 or more
|
|
|
826 |
|
|
|
(875 |
) |
|
|
(49 |
) |
Other
time deposits
|
|
|
624 |
|
|
|
(588 |
) |
|
|
36 |
|
Federal
funds purchased and repurchase agreements
|
|
|
492 |
|
|
|
(482 |
) |
|
|
10 |
|
Federal
Home Loan Bank Advances
|
|
|
- |
|
|
|
(3 |
) |
|
|
(3 |
) |
Total
interest bearing liabilities
|
|
|
3,857 |
|
|
|
(4,463 |
) |
|
|
(606 |
) |
Net
interest income
|
|
$ |
137 |
|
|
$ |
2,380 |
|
|
$ |
2,517 |
|
(1)
|
The
above table is presented on a tax equivalent
basis.
|
Net
interest income was $9.1 million for the quarter ended March 31, 2009 compared
to $6.6 million for the same period in 2008, an increase of $2.5 million or
37.9%. Net interest margin improved to 5.00% for the quarter ended
March 31, 2009 as compared to 4.68% for the quarter ended March 31, 2008. This
increase was primarily the result of an increase in average interest earnings
assets of $171.1 million and the decrease in the cost of the average total
interest bearing liabilities being greater than the decrease in the yield on
average total interest earning assets. The cost of interest bearing
liabilities decreased approximately 116 basis points during the first quarter of
2009 compared to 2008, which was partly offset by a decrease in yields of
approximately 38 basis points on interest earning assets.
For the
quarter ended March 31, 2009, average loans grew by $50.8 million or 13.4% to
$429.2 million as compared to $378.4 million for the same period in
2008. Real estate mortgage loans and commercial loans primarily
contributed to the growth. The Bank remains committed to growing
loans with prudent underwriting, sensible pricing and limited credit and
extension risk.
For the
quarter ended March 31, 2009, average total investments increased by $120.8
million or 58.0% to $328.9 million as compared to $208.1 million for the quarter
ended March 31, 2008. Average federal funds sold decreased to $1.5
million or 64.2% for the first quarter of 2009 from $4.0 million in 2008. The
decrease in the average federal funds sold for the first quarter of 2009 was
primarily due to growth in the average investments.
Average
total interest bearing liabilities totaled $560.6 million for the quarter ended
March 31, 2009 compared to $399.7 million for the same period in
2008. During the first quarter of 2009, the Bank reduced interest
rates on deposit products in response to the reductions in the federal funds and
discount rate by the Federal Reserve and the prudent management of deposit
pricing. The reduction in deposit rates along with lower borrowing costs
resulted in a decrease in the cost of interest bearing liabilities from 2.56%
for the quarter ended March 31, 2008 to 1.40% for the quarter ended March 31,
2009. Since the Company’s interest bearing liabilities generally
reprice or mature more quickly than its interest earning assets, a decrease in
short term interest rates initially result in an increase in net interest
income. Additionally, the large percentages of deposits in money
market accounts reprice at short term market rates making the balance sheet more
liability sensitive.
For the
quarter ended March 31, 2009, average total deposits increased by $129.7 million
or 23.1% to $690.7 million as compared to average total deposits for the quarter
ended March 31, 2008. Components of this increase include an increase
in average demand deposits for 2009 of $6.9 million or 3.9% to $183.2 million as
compared to average demand deposits for 2008. The average balances in
savings, NOW and money market accounts increased $73.5 million or 25.0% to
$367.4 million for the quarter ended March 31, 2009 compared to the same period
last year. Average balances in certificates of deposit of $100,000 or
more and other time deposits increased $49.3 million or 54.3% to $140.1 million
for 2009 as compared to 2008. Average public fund deposits comprised
22.3% of total average deposits during the first quarter of 2009 and 24.4% of
total average deposits for the same period in 2008. Average federal
funds purchased and repurchase agreements and average Federal Home Loan Bank
advances increased $38.0 million to $53.1 million for the quarter ended March
31, 2009 as compared to average balances for the same period in the prior
year.
Total
interest income increased $1.8 million or 19.9% to $11.0 million for the quarter
ended March 31, 2009 from $9.2 million for the same period in
2008. The ratio of interest earning assets to interest bearing
liabilities decreased to 135.9% in 2009 as compared to 147.8% in
2008. Interest income on loans increased $0.3 million or 5.3% to $7.2
million in 2009 compared to $6.9 million in 2008 primarily due to growth in the
loan portfolio partially offset by a decrease in yield on average loans. The
yield on average loans was 6.8% for 2008 as compared to 7.3% in
2008.
Interest
income on investment in mortgage-backed, taxable and tax exempt securities
increased to $1.5 million to $3.8 million for the three months ended March 31,
2009 compared to $2.3 million for the same period in 2008. Interest
income on securities included net accretion of discounts of $9,000 in the first
quarter of 2009 compared to accretion of discounts of $1,000 for the same period
in 2008. The tax adjusted average yield on total securities increased
to 5.1% in 2009 from 4.9% in 2008.
Interest
expense decreased $0.6 million or 23.8% to $1.9 million for the first quarter of
2009 compared to $2.5 million for the same period in 2008. The decrease in
interest expense in 2009 resulted from the Federal Reserve lowering the targeted
federal funds rate and discount rate and the prudent management of deposit
pricing which was partially offset by the growth in average balances for
deposits and borrowings.
Provision
and Allowance for Loan Losses
The
Bank’s loan portfolio consists primarily of real estate loans secured by
commercial and residential real estate properties located in the Bank’s
principal lending area on eastern Long Island. The interest rates
charged by the Bank on loans are affected primarily by the demand for such
loans, the supply of money available for lending purposes, the rates offered by
its competitors, the Bank’s relationship with the customer and the related
credit risks of the transaction. These factors are affected by
general and economic conditions including, but not limited to, monetary policies
of the federal government, including the Federal Reserve Board, legislative
policies and governmental budgetary matters.
The
performance of the loan portfolio remained strong for the quarter ended March
31, 2009. Non performing assets were $3.1 million at March 31, 2009
and at December 31, 2008 and $1.0 million at March 31, 2008 representing 0.69%
of total loans at March 31, 2009 compared to 0.71% at December 31, 2008 and
0.25% at March 31, 2008. At March 31, 2009, management determined that one
commercial mortgage loan for $2.5 million was an impaired loan as defined by
SFAS No. 114 “Accounting by Creditors for Impairment of a Loan – An Amendment of
FASB Statement No. 5 and 15” (“SFAS 114”). For a loan to be considered impaired,
management determines after review whether it is probable that the Bank will not
be able to collect all amounts due according to the contractual terms of the
loan agreement. Additionally management applies its normal loan review
procedures in making these judgments. The collateral underlying this loan is a
first lien on real estate with an updated appraised value of $8.4 million, and
no material losses are anticipated. As of December 31, 2008, the same loan for
$2.5 million was considered impaired. As of March 31, 2008, there were no
impaired loans as defined by SFAS No. 114.
Loans of
approximately $18.4 million or 4.2% of total loans at March 31, 2009 were
classified as potential problem loans which include nonaccrual loans, compared
to $9.8 million or 2.3% at December 31, 2008. These are loans for
which management has information that indicates the borrower may not be able to
comply with the present repayment terms. These loans are subject to increased
management attention and their classification is reviewed on at least a
quarterly basis. Due to the structure and nature of the credits,
management currently believes that the likelihood of sustaining a loss on these
relationships is remote.
As of
March 31, 2009, management determined that one commercial mortgage loan for $3.2
million to a local not for profit organization was considered to be a troubled
debt restructuring, as defined by SFAS No. 114. The identified loan had an
original principal balance of $4.0 million and during the third quarter of 2008
the Bank received principal payments of $660,000. During the fourth quarter of
2008, the terms of the loan were modified. This loan is current as of March 31,
2009 and performing in accordance with the modified terms. The loan is secured
with collateral that has a fair value of approximately $5.4 million as well as
personal guarantors. After review of the estimated fair value of the underlying
collateral less the costs to sell, management believed it would be able to
collect all amounts due without a shortfall according to the modified terms of
the loan agreement. Management believes that the ultimate collection of
principal and interest is reasonably assured and therefore continues to
recognize interest income on an accrual basis. This loan was considered to be
trouble debt restructurings at December 31, 2008. As of March 31, 2008 there
were no loans considered to be a troubled debt restructuring. The Bank had no
foreclosed real estate at March 31, 2009 and December 31, 2008.
Based on
our continuing review of the overall loan portfolio, the current asset quality
of the portfolio, the growth in our loan portfolio, and the net charge-offs, a
provision for loan losses of $0.9 million was recorded during the first three
months of 2009 compared to a provision for loan loss of $0.2 million that was
recorded during the first three months of 2008. The Bank recognized
net charge-offs in the amount of $293,000 for the three months ended March 31,
2009 as compared to $32,000 for the same period in 2008. The allowance for loan
losses increased to $4.6 million at March 31, 2009, as compared to $4.0 million
at December 31, 2008 and $3.1 million at March 31, 2008. As a
percentage of total loans, the allowance increased to 1.03% at March 31, 2009
compared to 0.92% at December 31, 2008 and 0.80% at March 31,
2008. Management continues to carefully monitor the loan portfolio as
well as real estate trends on eastern Long Island. The Bank’s consistent and
rigorous underwriting standards preclude sub prime lending, and management
remains cautious about the potential for an indirect impact on the local economy
and real estate values in the future.
Non
Interest Income
Total non
interest income decreased during the three months ended March 31, 2009 by $0.3
million or 18.5% from the same period last year. Fees for other
customer services totaled $0.3 million and service charges on deposit accounts
totaled $0.6 million for the three months ended March 31, 2009, compared to $0.3
million and $0.7 million, respectively, from the same three months in
2008. The decline in service charges on deposit accounts
represents lower overdraft fees. Bridge Abstract, the Bank’s title insurance
abstract subsidiary, generated title fee income of $0.2 million during the three
months ended March 31, 2009 compared to $0.4 million for the same three months
in 2008. The decrease was attributable to a decline in the number and value of
transactions processed by the subsidiary. Other operating income for the three
months ended March 31, 2009 totaled $16,000, a decrease of $15,000 from $31,000
for the three months ended March 31, 2008. The decline represents lower check
books fees and bank rental income.
Non
Interest Expense
Total non
interest expense increased during the three months ended March 31, 2009 by $1.1
million or 22.0% over the same period last year. The primary
components of this increase were higher salaries and employee benefits, net
occupancy expense, furniture and fixture expense and other operating
expenses. Salaries and employee benefits increased $0.6 million or
18.1% for the three months ended March 31, 2009 over the same period last
year. The increases
in salary and benefits reflect base salary increases for staff, filling vacant
positions, hiring new employees to support the Company’s expanding
infrastructure and new branch offices, increases in incentive based compensation
and an increase in employee benefit costs, particularly pension expense.
Net
occupancy expense increased $0.1 million or 24.6% to $0.6 million for the three
months ended March 31, 2009 from $0.5 million in 2008. Higher net occupancy
expenses were due to increases in maintenance and supplies, and rent expense
related to the new branch offices in 2009 as well as annual rent increases in
other branch locations. Furniture and fixture expense increased $21,000 or 10.5%
to $226,000 for the three months ended March 31, 2009 from $205,000 in 2008. The
increase in furniture and fixture expense in 2009 relates primarily to the new
branches. Other operating expenses increased $0.4 million or 32.6% to $1.7
million for the three months ended March 31, 2009 from $1.3 million in 2008. The
increase during 2009 was due primarily to higher FDIC assessments of
$0.3 million related to growth in deposits and higher rates, as well as
increased overdraft charge-offs and professional fees for legal work and
outsourced internal audits.
Income
Taxes
The
provision for income taxes increased during the three months ended March 31,
2009 by $0.1 million or 13.8% from the same period last year due to the increase
in income before income taxes and a slightly higher effective
rate. The effective tax rate for the three-month period ended March
31, 2009 increased to 32.5% from 32.2% or the same period last
year.
Financial
Condition
Assets
totaled $813.0 million at March 31, 2009, a decrease of $26.1 million or 3.1%
from $839.1 million at December 31, 2008. This change is primarily a
result of decreases in total securities of $30.8 million or 8.6% and cash and
cash equivalents of $8.2 million or 28.4% which was partially offset by
increases in total loans of $11.5 million or 2.7%. Total deposits
grew $46.9 million to $705.9 million at March 31, 2009, compared to $659.1
million at December 31, 2008. Demand deposits increased $2.3 million to $183.5
million compared to $181.2 million at December 31, 2008. Savings, NOW and money
market deposits increased $27.1 million to $372.0 million at March 31, 2009 from
$344.9 million at December 31, 2008. Certificates of deposit of
$100,000 or more and other time deposits also increased $17.5 million or
13.1%. The increase in deposits and the decline in the investment
portfolio resulted in a decrease in borrowings at March 31, 2009. Federal funds
purchased and Federal Home Loan Bank overnight borrowings decreased $46.9
million to $24.0 million at March 31, 2009 compared to $70.9 million at December
31, 2008. Federal Home Loan Bank term advances were $0 at March 31,
2009 compared to $30.0 million at December 31, 2008. Other
liabilities increased $1.6 million to $9.5 million at March 31, 2009 from $7.9
million at December 31, 2008. The increase in other liabilities related to
higher accrued taxes payable as a tax payment had not been made as of March 31,
2009 and an increase in deferred tax liabilities as a result of higher
unrealized gains on the security portfolio.
Total
stockholders’ equity was $58.6 million at March 31, 2009, an increase of $2.4
million or 4.3% from December 31, 2008, primarily due to net income of $2.2
million and an increase in net unrealized gains on securities of $1.5 million,
partially offset by the declaration of dividends totaling $1.4
million.
In March
2009, the Company declared a quarterly dividend of $0.23 per
share. The Company continues its long term trend of uninterrupted
dividends.
Liquidity
The
objective of liquidity management is to ensure the sufficiency of funds
available to respond to the needs of depositors and borrowers, and to take
advantage of unanticipated earnings enhancement opportunities for Company
growth. Liquidity management addresses the ability of the Company to
meet financial obligations that arise in the normal course of
business. Liquidity is primarily needed to meet customer borrowing
commitments, deposit withdrawals either on demand or contractual maturity, to
repay other borrowings as they mature, to fund current and planned expenditures
and to make new loans and investments as opportunities arise.
The
Company’s principal sources of liquidity included cash and cash equivalents of
$7.4 million as of March 31, 2009, and dividends from the Bank. Cash available
for distribution of dividends to shareholders of the Company is primarily
derived from dividends paid by the Bank to the Company. During 2009, the Bank
declared and paid $4.5 million in cash dividends to the Company. At March 31,
2009, the Bank had $1.3 million of retained net income available for dividends
to the Company. Prior regulatory approval is required if the total of all
dividends declared by the Bank in any calendar year exceeds the total of the
Bank’s net income of that year combined with its retained net income of the
preceding two years. In the event that the Company subsequently expands its
current operations, in addition to dividends from the Bank, it will need to rely
on its own earnings, additional capital raised and other borrowings to meet
liquidity needs.
The
Bank’s most liquid assets are cash and cash equivalents, securities available
for sale and securities held to maturity due within one year. The
levels of these assets are dependent upon the Bank’s operating, financing,
lending and investing activities during any given period. Other
sources of liquidity include loan and investment securities principal repayments
and maturities, lines of credit with other financial institutions
including the Federal Home Loan Bank and the Federal Reserve Bank, growth in
core deposits and sources of wholesale funding such as brokered certificates of
deposits. While scheduled loan amortization, maturing securities and
short term investments are a relatively predictable source of funds, deposit
flows and loan and mortgage-backed securities prepayments are greatly influenced
by general interest rates, economic conditions and competition. The
Bank adjusts its liquidity levels as appropriate to meet funding needs such as
seasonal deposit outflows, loans, and asset and liability management
objectives. Historically, the Bank has relied on its deposit base,
drawn through its full-service branches that serve its market area and local
municipal deposits, as its principal source of funding. The Bank
seeks to retain existing deposits and loans and maintain customer relationships
by offering quality service and competitive interest rates to its customers,
while managing the overall cost of funds needed to finance its
strategies.
The
Bank’s Asset/Liability and Funds Management Policy allows for wholesale
borrowings of up to 25% of total assets. At March 31, 2009, the Bank
had aggregate lines of credit of $217.5 million with unaffiliated correspondent
banks to provide short term credit for liquidity requirements. Of
these aggregate lines of credit, $197.5 million is available on an unsecured
basis. The Bank also has the ability, as a member of the Federal Home
Loan Bank (“FHLB”) system, to borrow against unencumbered residential and
commercial mortgages owned by the Bank. The Bank also has a master
repurchase agreement with the FHLB, which increases its borrowing
capacity. In addition, the Bank has an approved broker relationship
for the purpose of issuing brokered certificates of deposit. As of
March 31, 2009 and December 31, 2008, the Bank had issued $5.0 million of
brokered certificates of deposit, respectively. As of March 31, 2009 and
December 31, 2008, the Bank had $24.0 million and $70.9 million, respectively,
in overnight borrowings. The Bank had $15.0 million of securities
sold under agreements to repurchase outstanding as of March 31, 2009 and
December 31, 2008. The Bank had a $30.0 million advance that was collateralized
by securities outstanding as of December 31, 2008 with the FHLB. There were no
advances outstanding as of March 31, 2009.
Management
continually monitors the liquidity position and believes that sufficient
liquidity exists to meet all of our operating requirements. Based on
the objectives determined by the Asset and Liability Committee, the Bank’s
liquidity levels may be affected by the use of short term and wholesale
borrowings, and the amount of public funds in the deposit mix. The
Asset and Liability Committee is comprised of members of senior management and
the Board. Excess short term liquidity is invested in overnight
federal funds sold. As of March 31, 2009, the Bank had $6.6 million
of overnight federal funds sold.
Capital
Resources
The
Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can result in certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company’s and the Bank’s financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must meet
specific capital guidelines that involve quantitative measures of the Company’s
and Bank’s assets, liabilities, and certain off-balance sheet items calculated
under regulatory accounting practices. The Company’s and the Bank’s
capital amounts and classification also are subject to qualitative judgments by
the regulators about components, risk weightings, and other
factors.
Quantitative
measures established by regulation to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier 1 capital (as defined in the regulations) to
risk weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of March 31, 2009, that
the Company and the Bank meet all capital adequacy requirements with which it
must comply.
At March
31, 2009 and December 31, 2008, actual capital levels and minimum required
levels for the Company and the Bank were as follows:
Bridge
Bancorp, Inc. (Consolidated)
|
|
as
of March 31,
|
|
2009
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To
Be Well
|
|
|
|
|
|
|
|
|
|
For
Capital
|
|
|
Capitalized
Under
|
|
|
|
|
|
|
|
|
|
Adequacy
|
|
|
Prompt
Corrective
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Action
Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Total
Capital (to risk weighted assets)
|
|
$ |
59,890 |
|
|
|
11.3 |
% |
|
$ |
42,310 |
|
|
|
8.0 |
% |
|
|
n/a |
|
|
|
n/a |
|
Tier
1 Capital (to risk weighted assets)
|
|
|
55,211 |
|
|
|
10.4 |
% |
|
|
21,155 |
|
|
|
4.0 |
% |
|
|
n/a |
|
|
|
n/a |
|
Tier
1 Capital (to average assets)
|
|
|
55,211 |
|
|
|
6.9 |
% |
|
|
32,123 |
|
|
|
4.0 |
% |
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as
of December 31,
|
|
2008
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To
Be Well
|
|
|
|
|
|
|
|
|
|
|
|
For
Capital
|
|
|
Capitalized
Under
|
|
|
|
|
|
|
|
|
|
|
|
Adequacy
|
|
|
Prompt
Corrective
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Action
Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Total
Capital (to risk weighted assets)
|
|
$ |
58,360 |
|
|
|
11.1 |
% |
|
$ |
42,137 |
|
|
|
8.0 |
% |
|
|
n/a |
|
|
|
n/a |
|
Tier
1 Capital (to risk weighted assets)
|
|
|
54,288 |
|
|
|
10.3 |
% |
|
|
21,068 |
|
|
|
4.0 |
% |
|
|
n/a |
|
|
|
n/a |
|
Tier
1 Capital (to average assets)
|
|
|
54,288 |
|
|
|
6.9 |
% |
|
|
31,304 |
|
|
|
4.0 |
% |
|
|
n/a |
|
|
|
n/a |
|
Bridgehampton
National Bank
|
|
as
of March 31,
|
|
2009
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To
Be Well
|
|
|
|
|
|
|
|
|
|
For
Capital
|
|
|
Capitalized
Under
|
|
|
|
|
|
|
|
|
|
Adequacy
|
|
|
Prompt
Corrective
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Action
Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Total
Capital (to risk weighted assets)
|
|
$ |
53,901 |
|
|
|
10.2 |
% |
|
$ |
42,302 |
|
|
|
8.0 |
% |
|
$ |
52,878 |
|
|
|
10.0 |
% |
Tier
1 Capital (to risk weighted assets)
|
|
|
49,222 |
|
|
|
9.3 |
% |
|
|
21,151 |
|
|
|
4.0 |
% |
|
|
31,727 |
|
|
|
6.0 |
% |
Tier
1 Capital (to average assets)
|
|
|
49,222 |
|
|
|
6.1 |
% |
|
|
32,114 |
|
|
|
4.0 |
% |
|
|
40,142 |
|
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as
of December 31,
|
|
2008
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
To
Be Well
|
|
|
|
|
|
|
|
|
|
|
|
For
Capital
|
|
|
Capitalized
Under
|
|
|
|
|
|
|
|
|
|
|
|
Adequacy
|
|
|
Prompt
Corrective
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Action
Provisions
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
Total
Capital (to risk weighted assets)
|
|
$ |
55,431 |
|
|
|
10.5 |
% |
|
$ |
42,130 |
|
|
|
8.0 |
% |
|
$ |
52,662 |
|
|
|
10.0 |
% |
Tier
1 Capital (to risk weighted assets)
|
|
|
51,359 |
|
|
|
9.8 |
% |
|
|
21,065 |
|
|
|
4.0 |
% |
|
|
31,597 |
|
|
|
6.0 |
% |
Tier
1 Capital (to average assets)
|
|
|
51,359 |
|
|
|
6.6 |
% |
|
|
31,279 |
|
|
|
4.0 |
% |
|
|
39,099 |
|
|
|
5.0 |
% |
Impact
of Inflation and Changing Prices
The
Unaudited Consolidated Financial Statements and notes thereto presented herein
have been prepared in accordance with U.S. generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation. The
primary effect of inflation on the operations of the Company is reflected in
increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, changes in interest rates have a
more significant effect on the performance of a financial institution than do
the effects of changes in the general rate of inflation and changes in
prices. Changes in interest rates could aversely affect our results
of operations and financial condition. Interest rates do not
necessarily move in the same direction, or in the same magnitude, as the prices
of goods and services. Interest rates are highly sensitive to many
factors, which are beyond the control of the Company, including the influence of
domestic and foreign economic conditions and the monetary and fiscal policies of
the United States government and federal agencies, particularly the Federal
Reserve Bank.
Recent
Regulatory and Accounting Developments
In April
2009, the FASB issued FASB Staff Position (“FSP”) FAS 157-4, “Determining Fair
Value When the Volume and Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly”. This
FSP emphasizes that even if there has been a significant decrease in the volume
and level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the
same. It also provides guidance to determine whether transactions are
orderly. FSP FAS 157-4 is effective for interim and annual periods
ending after June 15, 2009, with early adoption permitted for periods ending
after March 15, 2009, if FSP FAS 115-2 and FAS 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairment” and FSP FAS 107-1 and APB 28-1,
“Interim Disclosures about Fair Value of Financial Instruments”, are adopted
simultaneously. The Company has not elected early adoption of this
FSP.
In April
2009, the FASB issued FASB Staff Position (“FSP”) FAS 107-1 and APB 28-1,
“Interim Disclosures about Fair Value of Financial Information”. This
FSP amends FASB Statement No. 107, “Disclosures about the Fair Value of
Financial Instruments” to require disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well
as in annual financial statements. This FSP also amends APB Opinion
No. 28, “Interim Financial Reporting” to require those disclosures in summarized
financial information at interim reporting periods. This FSP shall be
effective for interim reporting periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009. An entity
may early adopt this FSP only if it also elects to early adopt FSP FAS 157-4,
“Determining Fair Value When the Volume and Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are Not Orderly”,
and FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments”. The Company has not elected early adoption of
this FSP.
In April
2009, the FASB issued FASB Staff Position (“FSP”) FAS 115-2 and FAS 124-2,
“Recognition and Presentation of Other-Than-Temporary
Impairments”. This FSP amends the other-than-temporary impairment
guidance in U.S. GAAP for debt securities to make the guidance more operational
and to improve the presentation and disclosure of other-than-temporary
impairments on debt and equity securities in the financial statements. The FSP
shall be effective for interim and annual reporting periods ending after June
15, 2009, with early adoption permitted for periods ending after March 15, 2009.
Earlier adoption for periods ending before March 15, 2009, is not permitted. If
an entity elects to adopt early either FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, or FSP FAS
107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments, the entity also is
required to adopt early this FSP. Additionally, if an entity elects to adopt
early this FSP, it is required to adopt FSP FAS 157-4. The Company
has not elected early adoption of this FSP.
In June
2008, the FASB issued FASB Staff Position (“FSP”) EITF 03-6-1, “Determining
Whether Instruments Granted in Shared-Based Payment Transactions Are
Participating Securities”. This FSP addresses whether instruments
granted in share-based payment transactions are participating securities prior
to vesting and, therefore, need to be included in the earnings allocation in
computing earnings per share (“EPS”). This FSP is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those years. All prior-period EPS data
presented shall be adjusted retrospectively. The Company adopted this FSP for
the quarter ending March 31, 2009 and determined that there was no material
impact to earnings per share.
In April
2009, the FASB issued FASB Staff Position (“FSP”) FAS 141(R)-1, “Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies”. This FSP shall be effective for assets or
liabilities arising from contingencies in business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The adoption of this FSP did not
have a significant impact on the Company’s financial statements.
On
December 21, 2007, the SEC issued Staff Accounting Bulletin No. 110 (“SAB 110”)
that amends and replaces Question 6 of Section D.2 of Topic 14, Share Based Payment, of the
Staff Accounting Bulletin Series. SAB 110 states that the continued use of the
simplified method in developing an estimate of the expected term of “plain
vanilla” share options in accordance with SFAS No. 123(R), “Accounting for Stock-Based
Compensation, Revised,” that was outlined in Staff Accounting Bulletin
No. 107 is acceptable.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
Asset/Liability
Management
Management
considers interest rate risk to be the most significant market risk for the
Company. Market risk is the risk of loss from adverse changes in
market prices and rates. Interest rate risk is the exposure to
adverse changes in the net income of the Company as a result of changes in
interest rates.
The
Company’s primary earnings source is net interest income, which is affected by
changes in the level of interest rates, the relationship between rates, the
impact of interest rate fluctuations on asset prepayments, the level and
composition of deposits and liabilities, and the credit quality of earning
assets. The Company’s objectives in its asset and liability
management are to maintain a strong, stable net interest margin, to utilize its
capital effectively without taking undue risks, to maintain adequate liquidity,
and to reduce vulnerability of its operations to changes in interest
rates.
The
Company’s Asset and Liability Committee evaluates periodically, but at least
four times a year, the impact of changes in market interest rates on assets and
liabilities, net interest margin, capital and liquidity. Risk
assessments are governed by policies and limits established by senior
management, which are reviewed and approved by the full Board of Directors at
least annually. The economic environment continually presents
uncertainties as to future interest rate trends. The Asset and
Liability Committee regularly utilizes a model that projects net interest income
based on increasing or decreasing interest rates, in order to be better able to
respond to changes in interest rates.
At March
31, 2009, $275.6 million or 84.3% of the Company’s securities had fixed interest
rates. Changes in interest rates affect the value of the Company’s
interest earning assets and in particular its securities
portfolio. Generally, the value of securities fluctuates inversely
with changes in interest rates. Increases in interest rates could
result in decreases in the market value of interest earning assets, which could
adversely affect the Company’s results of operations if sold. The
Company is also subject to reinvestment risk associated with changes in interest
rates. Changes in interest rates may affect the average life of loans
and mortgage related securities. In periods of decreasing interest
rates, the average life of loans and securities held by the Company may be
shortened to the extent increased prepayment activity occurs during such periods
which, in turn, may result in the investment of funds from such prepayments in
lower yielding assets. Under these circumstances the Company is
subject to reinvestment risk to the extent that it is unable to reinvest the
cash received from such prepayments at rates that are comparable to the rates on
existing loans and securities. Additionally, increases in interest
rates may result in decreasing loan prepayments with respect to fixed rate
loans, (and therefore an increase in the average life of such loans), may result
in a decrease in loan demand, and make it more difficult for borrowers to repay
adjustable rate loans.
The
Company utilizes the results of a detailed and dynamic simulation model to
quantify the estimated exposure to net interest income to sustained interest
rate changes. Management routinely monitors simulated net interest
income sensitivity over a rolling two-year horizon. The simulation
model captures the seasonality of the Company’s deposit flows and the impact of
changing interest rates on the interest income received and the interest expense
paid on all assets and liabilities reflected on the Company’s Balance
Sheet. This sensitivity analysis is compared to the asset and
liability policy limits that specify a maximum tolerance level for net interest
income exposure over a one-year horizon given a 100 and 200 basis point upward
shift in interest rates and a 100 basis point downward shift in interest
rates. A parallel and pro rata shift in rates over a twelve-month
period is assumed.
The
following reflects the Company’s net interest income sensitivity analysis at
March 31, 2009:
Change
in Interest Rates in Basis
Points
|
|
|
|
|
|
March
31, 2009 Potential
Change in
Net Interest
Income
|
|
|
|
|
|
December
31, 2008 Potential
Change in
Net Interest
Income
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
Change
|
|
|
%
Change
|
|
|
$
Change
|
|
|
%
Change
|
|
|
200 |
|
|
$ |
(1,856 |
) |
|
|
(5.23 |
)% |
|
$ |
(2,617 |
) |
|
|
(7.27 |
)% |
|
100 |
|
|
$ |
(882 |
) |
|
|
(2.48 |
)% |
|
$ |
(1,250 |
) |
|
|
(3.47 |
)% |
Static
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
(100 |
) |
|
$ |
(26 |
) |
|
|
(0.07 |
)% |
|
$ |
249 |
|
|
|
0.69 |
% |
The
preceding sensitivity analysis does not represent a Company forecast and should
not be relied upon as being indicative of expected operating
results. These hypothetical estimates are based upon numerous
assumptions including, but not limited to, the nature and timing of interest
rate levels and yield curve shapes, prepayments on loans and securities, deposit
decay rates, pricing decisions on loans and deposits, and reinvestment and
replacement of asset and liability cash flows. While assumptions are
developed based upon perceived current economic and local market conditions, the
Company cannot make any assurances as to the predictive nature of these
assumptions including how customer preferences or competitor influences may
change.
Also, as
market conditions vary from those assumed in the sensitivity analysis, actual
results will also differ due to prepayment and refinancing levels likely
deviating from those assumed, the varying impact of interest rate change caps or
floors on adjustable rate assets, the potential effect of changing debt service
levels on customers with adjustable rate loans, depositor early withdrawals,
prepayment penalties and product preference changes and other internal and
external variables. Furthermore, the sensitivity analysis does not
reflect actions that management might take in responding to, or anticipating
changes in interest rates and market conditions.
Item 4. Controls and Procedures
An
evaluation was performed under the supervision and with the participation of the
Company’s management, including the Principal Executive Officer and Principal
Financial Officer, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures (as defined in Rule 13a-15(e)
promulgated under the Securities and Exchange Act of 1934, as amended) as of
March 31, 2009. Based on that evaluation, the Company’s Principal
Executive Officer and Principal Financial Officer concluded that the Company’s
disclosure controls and procedures were effective as of the end of the period
covered by this quarterly report. There has been no change in the
Company’s internal control over financial reporting during the quarter that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
PART
II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
There
have been no material changes to the factors disclosed in Item 1A., Risk
Factors, in our Annual Report on Form 10-K for the year ended December 31,
2008.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
Item 3. Defaults upon Senior Securities
Not
applicable.
Item 4. Submission of Matters to a Vote of Security
Holders
Not
applicable.
Item 5. Other Information
Not
applicable.
Item 6. Exhibits and Reports on Form 8-K
|
Certification
of Principal Executive Officer pursuant to Rule
13a-14(a)
|
|
Certification
of Principal Financial Officer pursuant to Rule
13a-14(a)
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Rule
13a-14(b) and 18 U.S.C. Section
1350
|
In
accordance with the requirement of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
BRIDGE BANCORP, INC.
|
|
Registrant
|
|
|
|
|
May
7, 2009
|
/s/ Kevin M. O’Connor
|
|
Kevin
M. O’Connor
|
|
President
and Chief Executive Officer
|
|
|
May
7, 2009
|
/s/ Howard H. Nolan
|
|
Howard
H. Nolan
|
|
Senior
Executive Vice President, Chief Financial Officer and
Treasurer
|
26