Form 10-K 12-31-05
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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For
the fiscal year ended December 31, 2005
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Commission
File No. 000-18546
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BRIDGE
BANCORP, INC.
(Exact
name of registrant as specified in its charter)
NEW
YORK
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11-2934195
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(State
or other jurisdiction of incorporation or organization)
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(IRS
Employer Identification Number)
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2200
MONTAUK HIGHWAY, BRIDGEHAMPTON, NEW YORK
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11932
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (631) 537-1000
Securities
registered under Section 12 (b) of the Exchange Act:
Title
of each class
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Name
of each exchange on which registered
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None
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None
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Securities
registered under Section 12 (g) of the Exchange Act:
Common
Stock, Par Value of $0.01 Per Share
(Title
of
Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
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 [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405) of this chapter is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
Indicate
by check mark whether the registrant is a large accelerated 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 [ ] Accelerated filer [X] Non-accelerated filer
[
]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes [ ] No [X]
The
approximate aggregate market value of the voting stock held by non-affiliates
of
the Registrant, based upon the closing price of the Common Stock on June 30,
2005, was $151,032,625.
The
number of shares of the Registrant’s common stock outstanding on March 7, 2006
was 6,203,587.
Portions
of the following documents are incorporated into the Parts of this Report on
Form 10-K indicated below:
The
Registrant’s definitive Proxy Statement for the 2006 Annual Meeting to be filed
pursuant to Regulation 14A filed on or before April 30, 2006 (Part
III).
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Business
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1
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Risk
Factors
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3
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Unresolved
Staff Comments
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4
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Properties
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4
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Legal
Proceedings
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4
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Submission
of Matters to a Vote of Security Holders
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5
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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6
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Selected
Financial Data
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7
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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8
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Quantitative
and Qualitative Disclosures About Market Risk
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22
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Financial
Statements and Supplementary Data
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24
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Changes
in and Disagreements with Accountants on Accounting and Financial
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Disclosure
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48
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Controls
and Procedures
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48
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Other
Information
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48
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Directors
and Executive Officers of the Registrant
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49
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Executive
Compensation
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49
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Security
Ownership of Certain Beneficial Owners and Management and
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Related
Stockholder Matters
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49
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Certain
Relationships and Related Transactions
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49
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Principal
Accounting Fees and Services
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49
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Exhibits,
Financial Statement Schedules
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50
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51
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52
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DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Proxy Statement for the Annual Meeting of Shareholders to be held April
28, 2006, dated March 24, 2006, are incorporated by reference into Part
III.
Bridge
Bancorp, Inc. (the “Registrant” or “Company”) is a registered bank holding
company and is the holding company for The Bridgehampton National Bank (the
“Bank”). The Bank was established in 1910 as a national banking association and
is headquartered in Bridgehampton, New York. The Registrant was organized as
a
New York business corporation and incorporated under the laws of the State
of
New York in 1988, at the direction of the Board of Directors of the Bank for
the
purpose of becoming a bank holding company pursuant to a plan of reorganization;
under which the former shareholders of the Bank became the shareholders of
the
Company. Since commencing business in March 1989, after the reorganization,
the
Registrant has functioned primarily as the holder of all of the Bank’s common
stock. In May 1999, the Bank established a real estate investment trust
subsidiary, Bridgehampton Community, Inc. (“BCI”). The assets transferred to BCI
are viewed by the regulators as part of the Bank’s assets in consolidation. The
operations of the Bank also include a financial subsidiary, a 100% ownership
in
an investment in Bridge Abstract LLC (“Bridge Abstract”). Prior
to
April 1, 2004, Bridgehampton Abstract Holding LLC, which was 100% owned by
the
Bank and was dissolved January 1, 2005, had a 51% ownership interest in Bridge
Abstract. The mission of the Company is to achieve excellence in financial
performance and build long-term shareholder value through a steadfast commitment
to its employees, its customer relationships, and the community.
The
Bank
operates twelve 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 on eastern
Long
Island. The Bank engages in full service commercial and consumer banking
business, including accepting time 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 mortgages; (5) secured and unsecured
commercial and consumer loans; (6) FHLB, FNMA, and FHLMC mortgage-backed
securities; (7) New York State and local municipal obligations; and (8) U.S.
Treasury and government agency securities. In addition, the Bank offers merchant
credit and debit card processing, automated teller machines, cash management
services, online banking services, safe deposit boxes and individual retirement
accounts. 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 as well as consumer relationships.
At
present, the Registrant has no paid employees. The Bank employs 131 people
on a
full-time and part-time basis. The Bank provides a variety of employment
benefits and considers its relationship with its employees to be
positive.
All
phases of the Bank’s business are highly competitive. The Bank faces direct
competition from a significant number of financial institutions operating in
its
market area, many with a statewide or regional presence, and in some cases,
a
national presence. Most of these competitors are significantly larger than
the
Bank, and therefore have greater financial and marketing resources and lending
limits than those of the Bank. The fixed cost of regulations remains high for
community banks as compared to their larger competitors when spread over the
much smaller customer base of a community bank. The Bank considers its major
competition to be local commercial banks as well as other commercial banks
with
branches in the Bank’s market area. Other competitors include mortgage brokers
and financial services firms other than financial institutions such as
investment and insurance companies. Increased competition within the Bank’s
market areas may limit growth and profitability. Additionally, as the Bank’s
market area expands westward, competitive pressure in new markets is expected
to
be strong. The title insurance abstract subsidiary also faces competition from
other brokers of title insurance as well as directly from the companies that
underwrite title insurance. In New York State, title insurance is obtained
on
most transfers of real estate and most mortgage transactions.
The
Bank’s market area is located on eastern Long Island. Although the Bank does
maintain some customer relationships in Riverhead, Brookhaven and Shelter Island
towns at this time, the majority of its customer base and all of its existing
branches are located in the towns of Southampton, East Hampton, and Southold.
In
December 2005, the Company opened a branch facility in Westhampton Beach.
Geographically this location moves the Bank westward and demonstrates the
commitment to traditional growth through branch expansion. The Bank purchased
property to construct new branch facilities in the Village of Southampton,
the
Village of East Hampton, and the Town of Southold. During the third quarter
of
2005, the Company broke ground on a state-of-the-art branch facility in the
Village of Southampton. Plans for a new East Hampton branch are in the municipal
approval process. The Bank continues to add to its menu of products and services
that meet the needs of consumers and businesses. During the third quarter of
2005, the Bank introduced payroll services for its commercial customers through
a third-party provider. Management continues to
make
strategic decisions that position the Company for managed balance sheet growth
going forward and that further support the return of long term value to
shareholders.
Eastern
Long Island is semi-rural. Surrounded by water and including the Hamptons and
North Fork, the region is a recreational destination for the New York
metropolitan area, and a highly regarded resort locale world-wide.
Traditionally, the local economy has flourished in the summer months as a result
of the influx of tourists and second homeowners. In recent years, the year-round
population has grown considerably resulting in less seasonal fluctuations in
the
economy. Industries represented in the marketplace include retail
establishments; construction and trades; restaurants and bars; lodging and
recreation; professional entities; real estate; health services; passenger
transportation and agricultural and related businesses. During the last decade,
the Long Island wine industry has matured with an increasing number of new
wineries and vineyards locating in the region each year. The vast majority
of
businesses are considered small businesses employing fewer than ten full-time
employees. In recent years, more national chains have opened retail stores
within the villages on the north and south forks of the island. Major employers
in the region include the municipalities, school districts, hospitals, and
financial institutions.
The
Company, the Bank and its subsidiaries with the exception of the real estate
investment trust, which files its own federal and state tax return, report
their
income on a consolidated basis using the accrual method of accounting and are
subject to federal and state income taxation. In general, banks are subject
to
federal income tax in the same manner as other corporations. However, gains
and
losses realized by banks from the sale of available for sale securities are
generally treated as ordinary income, rather than capital gains or losses.
Additionally, the Company can exclude from its income 100% of dividends received
from the Bank as a member of the same affiliated group. The Bank is subject
to
the New York State Franchise Tax on Banking Corporations based on certain
criteria. The taxation of net income is similar to federal taxable income
subject to certain modifications.
REGULATION
AND SUPERVISION
The
Bridgehampton National Bank is chartered by and is subject to extensive
regulation, examination and supervision by the Office of the Comptroller of
the
Currency (the “OCC”). The Bank is a member of the Federal Home Loan Bank of New
York and its deposit accounts are insured up to applicable limits by the Federal
Deposit Insurance Corporation (the “FDIC”). The Bank also is a member of the
Federal Reserve System. The Bank must file reports with the OCC concerning
its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with,
or
acquisitions of, other financial institutions. There are periodic examinations
by the OCC to test the compliance with various regulatory
requirements.
The
Bank
is subject to various statutory requirements and rules and regulations
promulgated and enforced primarily by the OCC and to a lesser extent the FDIC.
These statutes, rules and regulations relate to insurance of deposits, minimum
capital requirements, allowable investments, lending authority, mergers,
consolidations, issuance of securities, payment of dividends, establishment
of
branches and other aspects of our business.
This
regulation and supervision establishes a comprehensive framework of activities
in which the Bank may engage and is intended primarily for the protection of
the
insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves.
Bridge
Bancorp, Inc., as a bank holding company controlling the Bank, is subject to
the
Bank Holding Company Act of 1956, as amended (“BHCA”), and the rules and
regulations of the Federal Reserve Board under the BHCA applicable to bank
holding companies. The Company is required to file reports with, and otherwise
comply with the rules and regulations of the Federal Reserve Board. Such
regulation and supervision govern the activities in which a bank and its holding
company may engage and are intended primarily for the protection of the
insurance fund and depositors. These regulatory authorities have extensive
discretion in connection with their supervisory and enforcement activities,
including the imposition of restrictions on the operation of a bank, the
classification of assets by a bank and the adequacy of a bank’s allowance for
loan losses. Any change in such laws and regulations, whether by the OCC, the
FDIC, the Federal Reserve Board or through legislation, could have a material
adverse impact on the Bank and the Company and their operations and
stockholders. Additional
information on regulatory requirements is set forth in Note 11 to the
Consolidated Financial Statements.
Bridge
Bancorp, Inc. had nominal results of operations for 2005, 2004 and 2003 on
a
parent-only basis. Equity incentive plan grants of stock options and stock
awards are recorded directly to the holding company. In the event the Company
subsequently expands its current operations, its sources of funds will be
dependent on dividends from the Bank, its own earnings, additional capital
raised and borrowings. 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. The Bank also
generates other income, such as fee income on deposit accounts and merchant
credit and debit card processing programs, income from its title insurance
abstract subsidiary, and net gains on sales of securities and loans. The level
of its other expenses, such as salaries and benefits, occupancy and equipment
costs,
other general and administrative expenses, expenses from its title insurance
abstract subsidiary, and income tax expense, further affects the Bank’s net
income.
The
Company files certain reports with the Securities and Exchange Commission under
the federal securities laws. The Company’s operations are also subject to
extensive regulation by other federal, state and local governmental authorities
and it is subject to various laws and judicial and administrative decisions
imposing requirements and restrictions on part or all of its operations.
Management believes that the Company is in substantial compliance, in all
material respects, with applicable federal, state and local laws, rules and
regulations. Because the Company’s business is highly regulated, the laws, rules
and regulations applicable to it are subject to regular modification and change.
There can be no assurance that these proposed laws, rules and regulations,
or
any other laws, rules or regulations, will not be adopted in the future, which
could make compliance more difficult or expensive or otherwise adversely affect
the Company’s business, financial condition or prospects.
EXECUTIVE
OFFICERS
Name
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Positions
held with the Company
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Thomas
J. Tobin
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President
and Chief Executive Officer
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Janet
T. Verneuille
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Senior
Vice President and Chief Financial Officer
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and
Treasurer
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Biographical
information of executive officers of the Company who are not directors is as
follows:
Janet
T.
Verneuille, age 45, has served as the Company’s Senior Vice President since
January 2000 and Chief Financial Officer since January 2001 and as Treasurer
of
the Company since March 2003. Ms. Verneuille served as Vice President and
Controller of the Company from October 1995 to 2001.
OTHER
INFORMATION
Through
a
link on the Investor Relations section of the Bank’s website of www.bridgenb.com,
copies
of the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) for 15(d) of the Exchange Act, are made available,
free of charge, as soon as reasonably practicable after electronically filing
such material with, or furnishing it to, the Securities and Exchange Commission.
Copies of such reports and other information also are available at no charge
to
any person who requests them or at www.sec.gov.
Such
requests may be directed to Bridge Bancorp, Inc., Investor Relations, 2200
Montauk Highway, PO Box 3005, Bridgehampton, NY 11932, (631)
537-1000.
CORPORATE
GOVERNANCE
The
Company has a Code of Ethics, which applies to all directors, officers, and
employees. The Code of Ethics is posted on the Bank’s website at www.bridgenb.com.
Concentration
of Loan Portfolio
The
Bank
generally invests a greater proportion of our assets in loans secured by
commercial and residential real estate properties located in eastern Long
Island. A downturn in real estate values and economic conditions on eastern
Long
Island could have a significant impact on the value of collateral securing
the
loans as well as the ability for the repayment of loans. See a further
discussion in “Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition - Loans.”
Changes
in Interest Rates Could Affect Profitability
The
ability to earn a profit, like most financial institutions, depends on the
net
interest income, which is the difference between the interest income that the
Bank earns on its interest-bearing assets, such as loans and investments, and
the interest expense which we pay on our interest-bearing liabilities, such
as
deposits. Our profitability depends on our ability to manage our assets and
liabilities during periods of changing market interest rates.
A
sustained decrease in market interest rates could adversely affect our earnings.
When interest rates decline, borrowers tend to refinance higher-rate, fixed-rate
loans at lower rates. Under those circumstances, we would not be able to
reinvest those prepayments in assets earning interest rates as high as the
rates
on those prepaid loans or in investment securities. In addition, the majority
of
our loans are at variable interest rates, which would adjust to lower
rates.
In
a
period of rising interest rates, the interest income earned on our assets may
not increase as rapidly as the interest paid on our
liabilities.
We are vulnerable to volatility in our earnings as a result of an increase
in
interest rates as the Bank has an asset-sensitive balance sheet. In an
increasing interest rate environment, our cost of funds is expected to increase
more rapidly than interest earned on our loan and investment portfolio as the
primary source of funds is deposits with generally shorter maturities than
those
on our loans and investments.
Geographic
Location
The
Bank’s market area is in the eastern end of Long Island and its customer base is
mainly located in the towns of East Hampton, Southampton and Southold.
Competition in the banking and financial services industry is intense. The
profitability of the Bank depends on the continued ability to successfully
compete. The Bank competes with commercial banks, savings banks, insurance
companies, and brokerage and investment banking firms. Many of our competitors
have substantially greater resources and lending limits than the Bank and may
offer certain services that the Bank does not provide. In addition competitors
recently have been offering loans with lower fixed rates and loans with more
attractive terms and a loose credit structure than the Bank has been willing
to
offer. Additionally, the high cost of living on the twin forks of eastern Long
Island creates staff recruitment and retention challenges.
The
Loss of Key Personnel Could Impair our Future Success
Our
future success depends in part on the continued service of our executive
officers, other key management, as well as our staff, and on our ability to
continue to attract, motivate, and retain additional highly qualified employees.
The loss of services of one or more of our key personnel or our inability to
timely recruit replacements for such personnel, or to otherwise attract,
motivate, or retain qualified personnel could have an adverse effect on our
business, operating results, and financial condition.
Highly
Regulated Environment
We
are
subject to extensive regulation, supervision and examination by the OCC, FDIC,
the Federal Reserve Board and the Securities and Exchange Commission. Such
regulation and supervision govern the activities in which a financial
institution and its holding company may engage and are intended primarily for
the protection of the consumer. Recently regulators have intensified their
focus
on the USA PATRIOT Act’s anti-money laundering and Bank Secrecy Act compliance
requirements. In order to comply with regulations, guidelines and examination
procedures in this area as well as other areas of the Bank, we have been
required to adopt new policies and procedures and to install new systems. We
cannot be certain that the policies, procedures, and systems we have in place
are flawless and there is no assurance that in every instance we are in full
compliance with these requirements. Regulatory authorities have extensive
discretion in connection with their supervisory and enforcement activities,
including the imposition of restrictions on the operation of an institution.
Any
change in such regulation and oversight, whether in the form of regulatory
policy, regulations, or legislation, may have a material impact on our
operations.
None.
At
present, the Registrant does not own or lease any property. The Registrant
uses
the Bank’s space and employees without separate payment. Headquarters are
located at 2200 Montauk Highway, Bridgehampton, New York 11932. The Bank’s
internet address is www.bridgenb.com
The
Bank’s Main Office is owned. The Bank also owns buildings that house its Montauk
Branch located at 1 The Plaza, Montauk, New York; its Southold Branch located
at
54790 Main Road, Southold, New York; and its Westhampton Beach Office at 194
Mill Road, Westhampton Beach, New York. The Bank currently leases out a portion
of the Montauk building. The Bank leases seven additional properties as branch
locations at 26 Park Place, East Hampton, New York; 218 Front Street, Greenport,
New York; 48
East
Montauk Highway, Hampton Bays, New York; Mattituck
Plaza, Main Road, Mattituck, New York; 2 Bay Street, Sag Harbor, New York;
425
County Road 39A, Southampton, New York; and 94
Main
Street, Southampton, New York. Additionally, the Bank utilizes space for a
branch in Peconic Landing, 1500
Brecknock Road,
Greenport, New York.
In
2002,
the Bank purchased property in the Village of Southampton and construction
began
in December 2005 on a new facility. In 2003, the Bank purchased property in
the
Village of East Hampton. The Bank entered into a contract for the purchase
of
real estate in the Town of Southold. The Bank plans to construct new branches
at
these locations.
The
Registrant and its subsidiary are subject to certain pending and threatened
legal actions that arise out of the normal course of business. In the opinion
of
management at the present time, the resolution of any pending or threatened
litigation will not have a material adverse effect on its financial condition
or
results of operations.
Item
4. Submission of Matters to a Vote of Security
Holders
No
matters were submitted to a vote of the shareholders during the fourth quarter
of the fiscal year covered by this report.
Item
5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
COMMON
STOCK INFORMATION
The
Company’s common stock is traded on the NASDAQ® over the counter bulletin board
market under the symbol, “BDGE.” The following table details the quarterly high
and low bid prices of the Company’s common stock and the dividends declared for
such periods.
At
December 31, 2005 the Company had approximately 663 shareholders of record,
not
including the number of persons or entities holding stock in nominee or the
street name through various banks and brokers.
COMMON
STOCK INFORMATION
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Stock
Prices
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Dividends
|
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High
|
Low
|
Declared
|
By
Quarter 2005
|
|
|
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First
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$32.60
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$30.20
|
$0.22
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Second
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$31.75
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$26.20
|
$0.23
|
Third
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$29.50
|
$26.10
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$0.23
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Fourth
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$26.50
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$24.25
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$0.23
|
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Stock
Prices
|
Dividends
|
|
High
|
Low
|
Declared
|
By
Quarter 2004
|
|
|
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First
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$27.23
|
$22.50
|
$0.16
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Second
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$30.83
|
$25.47
|
$0.17
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Third
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$30.25
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$27.00
|
$0.18
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Fourth
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$30.75
|
$28.75
|
$0.21
|
Amounts
have been restated for a three-for-two stock split, in
the
|
form
of a stock dividend, effective July 9,
2004.
|
ISSUER
PURCHASES OF EQUITY SECURITIES
Period
|
Total
Number of Shares Purchased in Month
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs-2004 (1)
|
Maximum
Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased
Under the Plans or Programs
|
October
2005
|
|
|
83,106
|
97,704
|
November
2005
|
9,820
|
$24.61
|
92,926
|
87,884
|
December
2005
|
4,500
|
$26.05
|
97,426
|
83,384
|
(1)
|
The
Board of Directors reaffirmed the stock repurchase program on May
17,
2004.
|
|
|
-
|
The
Board of Directors approved repurchase of shares up to 180,810
shares.
|
-
|
There
is no expiration date for the stock repurchase plan.
|
-
|
There
is no stock repurchase plan that has expired nor been terminated
during
the period ended December 31, 2005.
|
Item
6. Selected Financial Data
Five-Year
Summary of Operations
(In
thousands, except per share data and financial ratios)
Set
forth
below are selected consolidated financial and other data of the Company. The
Company’s business is primarily the business of the Bank. This financial data is
derived in part from, and should be read in conjunction with, the Consolidated
Financial Statements of the Company.
December
31,
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
Selected
Financial Data:
|
|
|
|
|
|
|
|
|
|
Securities
available for sale
|
$184,178
|
|
$204,021
|
|
$195,341
|
|
$182,416
|
|
$127,102
|
Securities
held to maturity
|
10,012
|
|
21,213
|
|
14,396
|
|
11,023
|
|
16,159
|
Total
loans
|
302,264
|
|
296,134
|
|
273,188
|
|
248,388
|
|
215,362
|
Total
assets
|
533,444
|
|
547,200
|
|
511,613
|
|
463,986
|
|
393,523
|
Total
deposits
|
468,025
|
|
469,311
|
|
457,159
|
|
406,409
|
|
357,155
|
Total
stockholders’ equity
|
46,651
|
|
47,213
|
|
42,794
|
|
39,971
|
|
32,861
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
|
|
Selected
Operating Data:
|
|
|
|
|
|
|
|
|
|
Total
interest income
|
$
28,713
|
|
$
26,923
|
|
$
25,968
|
|
$
26,486
|
|
$
27,009
|
Total
interest expense
|
4,319
|
|
2,351
|
|
2,601
|
|
4,490
|
|
7,868
|
Net
interest income
|
24,394
|
|
24,572
|
|
23,367
|
|
21,996
|
|
19,141
|
Provision
for loan losses
|
300
|
|
300
|
|
-
|
|
220
|
|
323
|
|
|
|
|
|
|
|
|
|
|
Net
interest income after provision for loan losses
|
24,094
|
|
24,272
|
|
23,367
|
|
21,776
|
|
18,818
|
Total
other income
|
5,105
|
|
5,440
|
|
4,716
|
|
3,405
|
|
2,419
|
Total
other expenses
|
14,647
|
|
13,564
|
|
12,997
|
|
11,942
|
|
11,198
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
14,552
|
|
16,148
|
|
15,086
|
|
13,239
|
|
10,039
|
Provision
for income taxes
|
4,929
|
|
5,771
|
|
5,488
|
|
4,722
|
|
3,292
|
Net
income
|
$
9,623
|
|
$
10,377
|
|
$
9,598
|
|
$
8,517
|
|
$
6,747
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
|
|
Selected
Financial Ratios and Other Data:
|
|
|
|
|
|
|
|
|
|
Return
on average equity
|
20.15%
|
|
22.82%
|
|
22.58%
|
|
23.93%
|
|
21.41%
|
Return
on average assets
|
1.76%
|
|
1.89%
|
|
1.91%
|
|
1.90%
|
|
1.73%
|
Average
equity to average assets
|
8.71%
|
|
8.30%
|
|
8.46%
|
|
7.96%
|
|
8.06%
|
Dividend
payout ratio (1)
|
58.88%
|
|
43.39%
|
|
50.98%
|
|
29.57%
|
|
34.27%
|
Diluted
earnings per share
|
$1.53
|
|
$1.64
|
|
$1.53
|
|
$1.37
|
|
$1.07
|
Basic
earnings per share
|
$1.54
|
|
$1.66
|
|
$1.55
|
|
$1.38
|
|
$1.07
|
Cash
dividends declared per common share (1)
|
$0.91
|
|
$0.72
|
|
$0.78
|
|
$0.41
|
|
$0.37
|
(1) |
On
December 15, 2003, the Company declared a special dividend of
approximately $1,660,000, or $0.27 per
share.
|
Amounts
have been restated for a three-for-two stock split, in the form of a stock
dividend, effective July 9, 2004.
Item
7. 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, changing economic conditions; legislative
and
regulatory changes; 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; demand for 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, 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
Net
income for 2005 was $9,623,000 or diluted earnings per share of $1.53 as
compared to $10,377,000 or $1.64 per share for 2004. Net earnings declined
from
the prior year-end by 7.3% or $754,000. Return on average equity and return
on
average assets were 20.15% and 1.76% for 2005 respectively as compared to 22.82%
and 1.89% for 2004.
2005
proved most challenging of recent years for the Company. The flat yield curve
caused pressure on the net interest margin and, consequently, the Company
continued its strategy to limit balance sheet growth and let the more volatile
and increasingly expensive deposits run off the balance sheet. As anticipated,
total assets at year-end 2005 decreased slightly from the prior year-end to
$533,444,000. Average assets were relatively flat year over year.
Significant
accomplishments during 2005 include:
· |
Continued
high performance with return on average equity of 20.15% and return
on
average assets of 1.76%
|
· |
Balance
sheet management to avoid further declines of the net interest margin
|
· |
Demand
deposit increase of 20.2%
|
· |
Maintenance
of superior credit quality
|
· |
Efficiency
ratio of 48.03%
|
· |
Gross
revenue growth in the title insurance abstract subsidiary of
49.3%
|
· |
Opening
of the Westhampton Beach branch
|
· |
Effective
capital management
|
The
flattening of the yield curve caused by rising short-term rates combined with
falling long-term rates during 2005 resulted in net interest margin compression
and a decrease in earnings. As expected, the net interest margin declined to
4.9% for the year ended December 31, 2005 from 5.0% for the year ended December
31, 2004. The flattening yield curve caused an increase in the cost of funds
without a commensurate increase in the yield on assets. Because the Company’s
interest bearing liabilities repriced or matured more quickly than its interest
earning assets, an increase in interest rates generally resulted in a decrease
in net interest income. As additional competitors vied for deposit growth during
2005, interest rates on deposits in the market place increased. The high cost
of
deposits as a funding source, coupled with flat yields at the long-end of the
curve resulted in less attractive investment opportunities.
Net
interest income was $24,394,000 in 2005 compared to $24,572,000 in 2004 and
$23,367,000 in 2003. The decrease of only 0.7% over 2004 reflects the
stabilization of the net interest margin despite the continued flat yield
curve.
Competition
in our market areas continued to intensify throughout 2005. Merger and
acquisition activity and expansion of financial institutions in our region
brought new financial institutions into our market area in recent years. The
majority of our competitors are larger than the Bank, and many execute different
business strategies. Although Bank products and services are competitively
priced, the Bank continues to focus on a relationship-based business model
that
underscores the value of individualized service.
Building
long term relationships with our customers remains essential to the Bank’s
brand. Key to the Bank’s ability to attract and retain customer relationships is
the accessibility and responsiveness of our officers and staff. Expanding our
branch network and developing lines of business that complement the Bank’s core
products are fundamental objectives of the Bank’s overall business development
strategy. Commitment to community involvement further differentiates the Bank
in
existing and new markets and continues to be integral to the Company’s corporate
culture.
Although
total deposits decreased 0.3% at year-end 2005 from the same date the prior
year, demand deposits increased $32,060,000 year over year, bringing demand
deposits as a percentage of total deposits to 40.7%. Average total deposits
decreased slightly by 1.0% in 2005 versus the prior year. Average cost of
interest bearing liabilities increased to 1.4% for 2005, from 0.7% for the
year
ended December 31, 2004.
The
rate
of loan growth for 2005 was slower than the prior two years reflecting increased
competition for quality credits within our market area. However, the Bank
experienced growth in its core business, with increases in average net loans
of
5.2% in 2005 compared to 2004. The Company recently redeployed and expanded
its
team of lenders to foster loan growth going forward. Notwithstanding intense
competition for commercial and consumer credits in the market place, the Company
grew total loans 2.1% or $6,130,000 for the year ended December 31, 2005 over
December 31, 2004.
The
Bank
added $300,000 to the allowance for loan losses during 2005. The loan loss
reserve remains healthy relative to existing nonperforming assets as compared
to
our peers, and the provision for loan loss for 2005 was consistent with the
provision in 2004. The Bank’s loan portfolio is heavily weighted toward real
estate and real estate collateralized loans. As such, management carefully
monitors the loan portfolio as well as real estate trends on eastern Long
Island. By maintaining conservative underwriting criteria, the Company believes
it will be better positioned against declining credit quality should there
be a
weakening of the local real estate market.
While
the
Bank continues to expand its market presence and product offerings, efficiency
of operations remains a priority. The efficiency ratio was 48.03% for 2005.
Through branch expansion and growth in existing markets, the Company expects
increasing low cost stable deposits to fuel asset growth resulting in
improvements to net interest income. The fourth quarter 2005 opening of the
Bank’s Westhampton Beach facility introduced the Bank’s first branch to
incorporate an on-premises café. In addition, the Bank has four new market
opportunities currently in various stages of development with projected
completion dates over the next two years. The Bank’s branch expansion plans
include entry into high growth markets that meet its competitive niche. Other
investments include improvement of facilities in the Bank’s existing markets to
facilitate growth objectives. During the fourth quarter of 2005, the Company
started construction on a state-of-the-art branch facility in Southampton
Village. Plans for a new East Hampton branch are in the municipal approval
process.
The
Bank
continues to add to its menu of products and services that meet the needs of
consumers and businesses. During the third quarter of 2005, payroll services
for
commercial customers were introduced via a third party provider.
Other
financial results include a 6.2% decrease in other income for 2005. For the
year
ended December 31, 2005, net gains from sales of securities available for sale
totaled $116,000 as compared to $734,000 in 2004. Bridge Abstract continues
to
represent strong potential for non interest income, and the Bank continues
to
broaden its client base to protect its revenue stream in the event of a
softening of the local real estate market. Total other expenses increased by
$1,083,000 or 8.0% over last year. These increases resulted primarily from
increased salaries and benefit expenses in 2005, as well as increased
professional fees primarily from the costs associated with the review of
executive compensation. Salaries and benefits increases reflected unusually
low
costs in 2004 from unfilled management positions that were subsequently filled
in 2005, coupled with additional staff to support the expansion of the branch
network and growth in business lines such as the title insurance abstract
subsidiary in 2005. In addition, with the unanticipated departure of the Chief
Operating Officer in the fourth quarter of 2005, an accrual for related
severance was recorded at that time. The Board of Directors intends to fill
the
unanticipated vacancy of the Chief Operating Officer position.
Stockholders’
equity totaled $46,651,000 at December 31, 2005 as compared to $47,213,000
at
December 31, 2004. With a Tier 1 Capital to Average Assets ratio of 9.1%, the
Company’s strong capital level allowed it to benefit from opportunities to buy
back shares of Company stock under its Board approved stock repurchase program.
Although the average equity to average assets is high as compared to the prior
four years, capital management strategies consider the support of expected
asset
growth in the near and long term as well as the sustainability of
dividends.
The
Company continued its trend of uninterrupted dividends through 2005. Dividends
declared in 2005 of $0.91 per share increased
26.4%
over the prior year. The dividend was raised in the first quarter and remained
constant for the second, third and fourth quarters resulting in a payout ratio
of 58.9%. Increasing the payout ratio returns shareholders’ capital investment
at a more rapid rate while maintaining the safety and soundness of the
Company. The
dividend provided an annual yield of 3.68% at December 31, 2005. During 2004,
the Company re-approved its stock repurchase plan, which permits the repurchase
of up to 5.0% of its outstanding shares or 180,810 shares. During 2005, 75,926
shares were repurchased. Cash dividends of $5,666,000 were declared during
2005.
The
Company’s shareholder base consists mainly of retail shareholders and the
Company is unaware of any stockholder owning more than 5% of the outstanding
shares. Many shareholders have held shares of Bridge Bancorp, Inc. over the
long
term. Throughout economic cycles, we encourage shareholders to evaluate total
return over incremental periods of time. Total return on the Company’s stock for
the one year ended December 31, 2005 was a negative 16.5%. Total return over
the
three year period ended December 31, 2005 was 82.0%, and for the five year
period ended December 31, 2005 the total return on shares of Bridge Bancorp,
Inc. was 165.7%. The total return earned over these periods assumes all realized
dividends are reinvested into the security. As with many small cap public bank
holding companies, the Company’s average daily trading volume remains lower when
compared to larger more actively traded public companies.
During
2006, we are realistic yet positive as we anticipate continued pressure on
the
net interest margin and therefore on earnings. Management’s focus remains on
disciplined balance sheet growth primarily from the increases in consumer and
commercial deposits; net interest margin management; maintenance of a strong
credit culture; and operational efficiency while optimizing opportunities for
near term and future growth.
The
discussion and analysis in this report should be read in conjunction with the
Consolidated Financial Statements, the notes thereto and the other financial
information included elsewhere in this filing. Certain reclassifications have
been made to prior year amounts, and the related discussion and analysis, to
conform to the current year presentation. The Company’s results of operations
are significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies, changes
in
accounting standards, and actions of regulatory agencies.
CRITICAL
ACCOUNTING POLICIES
Note
1 to
our Consolidated Financial Statements for the year ended December 31, 2005
contains a summary of our significant accounting policies. Various elements
of
our accounting policies, by their nature, are inherently subject to estimation
techniques, valuation assumptions and other subjective assessments. Our policy
with respect to the methodologies used to determine the allowance for loan
losses is our most critical accounting policy. This policy is important to
the
presentation of our financial condition and results of operations, and it
involves a higher degree of complexity and requires management to make difficult
and subjective judgments, which often require assumptions or estimates about
highly uncertain matters. The use of different judgments, assumptions and
estimates could result in material differences in our results of operations
or
financial condition.
The
following is a description of our critical accounting policy and an explanation
of the methods and assumptions underlying its application.
ALLOWANCE
FOR LOAN LOSSES
Management
considers the accounting policy on loans and the related 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 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 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 existing and projected 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 both members of management and the
Board of Directors. The adequacy of the reserves 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 reserve levels as
they relate to the entire loan portfolio at December 31, 2005, 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.
For
additional information regarding our allowance for loan losses, see Note 3
to
the Consolidated Financial Statements.
NET
INCOME
Net
income for 2005 totaled $9,623,000 or $1.53 per diluted share while net income
for 2004 totaled $10,377,000, or $1.64 per diluted share, as compared to net
income of $9,598,000 or $1.53 per diluted share for the year ended December
31,
2003. Net income decreased $754,000 or 7.3% as compared to 2004 and net income
for 2004 increased $779,000 or 8.1% over 2003. Significant trends for 2005
include: (i) a $178,000 or 0.7% decrease in net interest income; (ii) a $335,000
or 6.2% decrease in total other income and (iii) a $1,083,000 or 8.0% increase
in total other expenses. The provision for income taxes decreased $842,000
or
14.6%.
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 statements of financial condition and its consolidated statements
of income for the years indicated and reflect the average yield on assets and
average cost of liabilities for the years indicated. Such yields and costs
are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the years shown. Average balances are derived
from daily average balances and include non-performing accrual 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.”
Year
Ended December 31,
|
|
|
|
2005
|
|
|
|
|
|
2004
|
|
|
|
|
|
2003
|
|
|
|
(Dollars
in thousands)
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Yield/
|
|
Average
|
|
|
|
Yield/
|
|
Average
|
|
|
|
Yield/
|
|
|
|
Balance
|
|
Interest
|
|
Cost
|
|
Balance
|
|
Interest
|
|
Cost
|
|
Balance
|
|
Interest
|
|
Cost
|
|
Interest
earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans,
net (including loan fee income)
|
|
$
|
299,950
|
|
$
|
20,724
|
|
|
6.9
|
%
|
$
|
285,058
|
|
$
|
18,850
|
|
|
6.6
|
%
|
$
|
257,301
|
|
$
|
17,971
|
|
|
7.0
|
%
|
Mortgage-backed
securities
|
|
|
102,460
|
|
|
4,160
|
|
|
4.0
|
|
|
107,146
|
|
|
4,137
|
|
|
3.8
|
|
|
98,278
|
|
|
4,012
|
|
|
4.1
|
|
Taxable
securities
|
|
|
41,485
|
|
|
1,520
|
|
|
3.6
|
|
|
57,170
|
|
|
2,187
|
|
|
3.8
|
|
|
59,942
|
|
|
2,285
|
|
|
3.8
|
|
Tax
exempt securities (1)
|
|
|
60,005
|
|
|
2,944
|
|
|
4.8
|
|
|
53,552
|
|
|
2,514
|
|
|
4.6
|
|
|
43,357
|
|
|
2,449
|
|
|
5.7
|
|
Federal
funds sold
|
|
|
7,971
|
|
|
265
|
|
|
3.3
|
|
|
7,776
|
|
|
98
|
|
|
1.2
|
|
|
6,581
|
|
|
74
|
|
|
1.1
|
|
Securities,
restricted
|
|
|
2,034
|
|
|
95
|
|
|
4.7
|
|
|
1,895
|
|
|
34
|
|
|
1.8
|
|
|
1,635
|
|
|
66
|
|
|
4.0
|
|
Deposits
with banks
|
|
|
93
|
|
|
2
|
|
|
2.2
|
|
|
176
|
|
|
2
|
|
|
1.1
|
|
|
118
|
|
|
1
|
|
|
0.9
|
|
Total
interest earning assets
|
|
|
513,998
|
|
|
29,710
|
|
|
5.8
|
|
|
512,773
|
|
|
27,822
|
|
|
5.4
|
|
|
467,212
|
|
|
26,858
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
15,871
|
|
|
|
|
|
|
|
|
16,591
|
|
|
|
|
|
|
|
|
16,279
|
|
|
|
|
|
|
|
Other
assets
|
|
|
18,186
|
|
|
|
|
|
|
|
|
18,671
|
|
|
|
|
|
|
|
|
18,972
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
548,055
|
|
|
|
|
|
|
|
$
|
548,035
|
|
|
|
|
|
|
|
$
|
502,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings,
N.O.W. and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
money
market deposits
|
|
$
|
249,382
|
|
|
3,022
|
|
|
1.2
|
%
|
$
|
258,100
|
|
$
|
1,331
|
|
|
0.5
|
%
|
$
|
248,520
|
|
$
|
1,478
|
|
|
0.6
|
%
|
Certificates
of deposit of $100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or
more
|
|
|
28,777
|
|
|
550
|
|
|
1.9
|
|
|
36,249
|
|
|
475
|
|
|
1.3
|
|
|
29,284
|
|
|
477
|
|
|
1.6
|
|
Other
time deposits
|
|
|
27,805
|
|
|
470
|
|
|
1.7
|
|
|
31,907
|
|
|
457
|
|
|
1.4
|
|
|
33,010
|
|
|
597
|
|
|
1.8
|
|
Federal
funds purchased
|
|
|
1,999
|
|
|
72
|
|
|
3.6
|
|
|
2,136
|
|
|
33
|
|
|
1.5
|
|
|
2,931
|
|
|
44
|
|
|
1.5
|
|
Other
borrowings
|
|
|
6,688
|
|
|
205
|
|
|
3.1
|
|
|
3,131
|
|
|
55
|
|
|
1.8
|
|
|
332
|
|
|
5
|
|
|
1.5
|
|
Total
interest bearing liabilities
|
|
|
314,651
|
|
|
4,319
|
|
|
1.4
|
|
|
331,523
|
|
|
2,351
|
|
|
0.7
|
|
|
314,077
|
|
|
2,601
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
183,260
|
|
|
|
|
|
|
|
|
167,765
|
|
|
|
|
|
|
|
|
142,269
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
2,386
|
|
|
|
|
|
|
|
|
3,277
|
|
|
|
|
|
|
|
|
3,608
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
500,297
|
|
|
|
|
|
|
|
|
502,565
|
|
|
|
|
|
|
|
|
459,954
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
47,758
|
|
|
|
|
|
|
|
|
45,470
|
|
|
|
|
|
|
|
|
42,509
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
548,055
|
|
|
|
|
|
|
|
$
|
548,035
|
|
|
|
|
|
|
|
$
|
502,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
rate
spread (2)
|
|
|
|
|
|
25,391
|
|
|
4.4
|
%
|
|
|
|
|
25,471
|
|
|
4.7
|
%
|
|
|
|
|
24,257
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest earning assets/net interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
margin
(3)
|
|
$
|
199,347
|
|
|
4.9
|
%
|
|
|
|
$
|
181,250
|
|
|
5.0
|
%
|
|
|
|
$
|
153,135
|
|
|
5.2
|
%
|
|
|
|
Ratio
of interest earning assets to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
bearing liabilities
|
|
|
163.4
|
%
|
|
|
|
|
|
|
|
154.7
|
%
|
|
|
|
|
|
|
|
148.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Tax equivalent adjustment
|
|
|
|
|
|
(997
|
)
|
|
|
|
|
|
|
|
(899
|
)
|
|
|
|
|
|
|
|
(890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
$
|
24,394
|
|
|
|
|
|
|
|
$
|
24,572
|
|
|
|
|
|
|
|
$
|
23,367
|
|
|
|
|
(1)
|
The
above table is presented on a tax equivalent basis.
|
(2)
|
Net
interest rate spread represents the difference between the yield
on
interest earning assets and the cost of interest bearing
liabilities.
|
(3)
|
Net
interest margin represents net interest income divided by average
interest
earning assets.
|
RATE/VOLUME
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.
Year
Ended December 31,
|
|
2005
Over 2004
|
|
2004
Over 2003
|
|
(In
thousands)
|
|
Changes
Due To
|
|
Changes
Due To
|
|
|
|
Volume
|
|
Rate
|
|
Net
Change
|
|
Volume
|
|
Rate
|
|
Net
Change
|
|
Interest
income on interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
(including loan fee income)
|
|
$
|
1,004
|
|
$
|
870
|
|
$
|
1,874
|
|
$
|
1,676
|
|
$
|
(797
|
)
|
$
|
879
|
|
Mortgage-backed
securities
|
|
|
(186
|
)
|
|
209
|
|
|
23
|
|
|
353
|
|
|
(228
|
)
|
|
125
|
|
Taxable
securities
|
|
|
(584
|
)
|
|
(83
|
)
|
|
(667
|
)
|
|
(100
|
)
|
|
2
|
|
|
(98
|
)
|
Tax
exempt securities (1)
|
|
|
309
|
|
|
121
|
|
|
430
|
|
|
516
|
|
|
(451
|
)
|
|
65
|
|
Federal
funds sold
|
|
|
3
|
|
|
164
|
|
|
167
|
|
|
15
|
|
|
9
|
|
|
24
|
|
Securities,
restricted
|
|
|
3
|
|
|
58
|
|
|
61
|
|
|
9
|
|
|
(41
|
)
|
|
(32
|
)
|
Deposits
with banks
|
|
|
(2
|
)
|
|
2
|
|
|
-
|
|
|
1
|
|
|
-
|
|
|
1
|
|
Total
interest earning assets
|
|
|
547
|
|
|
1,341
|
|
|
1,888
|
|
|
2,470
|
|
|
(1,506
|
)
|
|
964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense on interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings,
N.O.W. and money market deposits
|
|
|
(47
|
)
|
|
1,738
|
|
|
1,691
|
|
|
55
|
|
|
(202
|
)
|
|
(147
|
)
|
Certificates
of deposit of $100,000 or more
|
|
|
(112
|
)
|
|
187
|
|
|
75
|
|
|
101
|
|
|
(103
|
)
|
|
(2
|
)
|
Other
time deposits
|
|
|
(63
|
)
|
|
76
|
|
|
13
|
|
|
(19
|
)
|
|
(121
|
)
|
|
(140
|
)
|
Federal
funds purchased
|
|
|
(2
|
)
|
|
41
|
|
|
39
|
|
|
(12
|
)
|
|
1
|
|
|
(11
|
)
|
Other
borrowings
|
|
|
91
|
|
|
59
|
|
|
150
|
|
|
49
|
|
|
1
|
|
|
50
|
|
Total
interest bearing liabilities
|
|
|
(133
|
)
|
|
2,101
|
|
|
1,968
|
|
|
174
|
|
|
(424
|
)
|
|
(250
|
)
|
Net
interest income
|
|
$
|
680
|
|
$
|
(760
|
)
|
$
|
(80
|
)
|
$
|
2,296
|
|
$
|
(1,082
|
)
|
$
|
1,214
|
|
(1)
The above table
is presented on a tax equivalent basis.
The
net
interest margin compression continued in 2005. The decrease in the net interest
margin resulted from the continued historically low interest rate environment,
as well as a narrowing between short and long-term rates. Net interest income
was $24,394,000 in 2005 compared to $24,572,000 in 2004 and $23,367,000 in
2003.
The decrease of 0.7% as compared to 2004 reflects the stabilization of the
net
interest margin despite the continued flat yield curve. Yields on interest
bearing liabilities increased 66 basis points during 2005 compared to the prior
year, which were partly offset by increased yields of 36 basis points on
interest earning assets. Average interest bearing liabilities were $314,651,000
in 2005 representing a 5.1% decrease versus 2004. Average interest bearing
assets grew slightly by $1,225,000 in 2005, an increase of 0.2% compared to
2004. The 5.2% increase in net interest income of 2004 over 2003 represents
the
increase in average interest earning assets. Average interest earning assets
grew to $512,773,000 in 2004 from $467,212,000 in 2003, representing a 9.8%
increase. Average interest bearing liabilities totaled $331,523,000 in 2004
and
$314,077,000 in 2003. The percentage increase year over year was 5.6%. The
tax
adjusted net interest margin was 4.9% in 2005, 5.0% in 2004, and 5.2% in
2003.
Total
interest income increased to $28,713,000 in 2005 from $26,923,000 in 2004 and
from $25,968,000 in 2003, an increase of 6.6% between 2005 and 2004 and 3.7%
increase to 2004 from 2003. The average yield on total interest earning assets
for 2005 increased to 5.8% from 5.4 % in 2004 and the average yield for 2004
decreased to 5.4% from 5.7% for 2003. The ratio of interest earning assets
to
interest bearing liabilities increased to 163.4% in 2005 as compared to 154.7%
in 2004 and 148.8% in 2003. Growth of interest earning assets is partially
attributed to funding from non-interest bearing deposits which positively
impacted the net interest margin. Interest income on loans increased $1,874,000
in 2005 over 2004 and $879,000 in 2004 over 2003 while average loans increased
5.2% to $299,950,000 in 2005 versus 2004 and 10.8% to $285,058,000 in 2004
from
2003. The yield on average loans for 2005 increased to 6.9% from 6.6% in 2004
and the average yield for 2004 decreased to 6.6% from 7.0% for
2003.
Interest
income on investment in debt and equity securities decreased $251,000 or 3.2%
in
2005 from 2004 and 2004 increased $51,000 or 0.6% from 2003. Amortization of
premiums on mortgage-backed securities totaled approximately $786,000,
$1,261,000, and $2,244,000 in 2005, 2004, and 2003, respectively. Average total
securities decreased 6.3% to $205,984,000 in 2005 from 2004 and increased 8.1%
to $219,763,000 in 2004 from 2003. The tax adjusted average yield on total
securities increased to 4.2% in 2005 from
2004
and
decreased to 4.0% in 2004 from 4.3% in 2003. Average federal funds sold
increased $195,000 or 2.5% in 2005 from 2004 and increased $1,195,000 or 18.2%
in 2004 from 2003.
Interest
expense increased $1,968,000 to $4,319,000 in 2005 from 2004 and decreased
$250,000 to $2,351,000 in 2004 from $2,601,000 in 2003. The increase of 83.7%
in
2005 and the decrease of 9.6% in 2004 in interest expense were caused by the
upward trend in the cost of average interest bearing liabilities. The cost
of
average interest bearing liabilities was 1.4% in 2005, 0.7% in 2004 and 0.8%
during 2003. Average federal funds purchased and overnight borrowings totaled
$8,687,000 and $5,267,000 in 2005 and 2004, respectively. While average federal
funds purchased decreased, the average balance for overnight borrowings
increased.
Provision
for Loan Losses
Total
loans grew $6,130,000 or 2.1% during 2005 and $22,946,000 or 8.4% during 2004.
Average net loans grew $14,892,000 or 5.2% during 2005 over 2004 and $27,757,000
or 10.8% during 2004 when compared to the prior year. Real estate mortgage
loans
were the largest contributor of the growth for both 2005 and 2004 and increased
$6,116,000 or 2.6% and $23,556,000 or 11.1%, respectively. Growth in real estate
loans is primarily attributed to an increase in commercial mortgages and
increases in the home equity loan portfolio. Increases in installment/consumer
loans were the next largest contributor and grew $3,142,000 or 47% during 2005
and $580,000 or 9.5% during 2004. Commercial, financial and agricultural loans
decreased $2,698,000 or 7.9% in 2005 from 2004 and increased $532,000 or 1.6%
in
2004 from 2003. Fixed rate loans represented 13.8%, 14.9%, and 16.5% of total
loans at December 31, 2005, 2004, and 2003, respectively.
The
performance of the loan portfolio continued to be strong for the years ended
December 31, 2005 and 2004. Nonaccrual loans decreased $1,037,000 to $658,000
in
2005 from 2004. In 2004, nonaccrual loans increased $1,543,000 to $1,695,000.
This represents 0.2% and 0.6% of net loans at December 31, 2005 and 2004,
respectively. Subsequent to December 31, 2004, three loans having a total
principal amount of $1,288,000 were removed from the nonaccrual list. Of these
loans, two loans returned to accrual status and one loan was repaid. The Company
had no foreclosed real estate at December 31, 2005 and 2004.
Net
charge-offs were $105,000, $256,000 and $150,000 for the years ended December
31, 2005, 2004 and 2003, respectively. The ratio of allowance for loan losses
to
nonaccrual loans was 362.2%, 129.1%, and 1410.5% at December 31, 2005, 2004,
and
2003, respectively.
Loans
of
approximately $5,085,000, $7,679,000 and $8,706,000 at December 31, 2005, 2004,
and 2003, respectively were classified as potential problem loans. This
represents 1.7%, 2.6%, and 3.2% of total loans at December 31, 2005, 2004,
and
2003, respectively. Subsequent to December 31, 2005, two potential problem
loans
in the amount of $1,266,000 have been repaid. 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 material loss on these
relationships is remote.
Based
on
our continuing review of the overall loan portfolio, of the current asset
quality of the portfolio, and the net charge-offs, a provision for loan losses
of $300,000 was recorded in 2005 and in 2004. No
provision was recorded in 2003. The allowance for loan losses increased to
$2,383,000 at December 31, 2005, and $2,188,000 at December 31, 2004, as
compared to $2,144,000 at December 31, 2003. As a percentage of total loans,
the
allowance was 0.79% and 0.74% at December 31, 2005 and 2004,
respectively.
The
following table sets forth changes in the allowance for loan
losses.
December
31,
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
balance
at beginning of period
|
|
$
|
2,188
|
|
$
|
2,144
|
|
$
|
2,294
|
|
$
|
2,249
|
|
$
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate mortgage loans
|
|
|
7
|
|
|
3
|
|
|
38
|
|
|
4
|
|
|
-
|
|
Real
estate construction loans
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Commercial,
financial and agricultural loans
|
|
|
153
|
|
|
302
|
|
|
163
|
|
|
212
|
|
|
108
|
|
Installment/consumer
loans
|
|
|
129
|
|
|
65
|
|
|
148
|
|
|
22
|
|
|
59
|
|
Total
|
|
|
289
|
|
|
370
|
|
|
349
|
|
|
238
|
|
|
167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate mortgage loans
|
|
|
17
|
|
|
23
|
|
|
13
|
|
|
8
|
|
|
29
|
|
Real
estate construction loans
|
|
|
100
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Commercial,
financial and agricultural loans
|
|
|
37
|
|
|
61
|
|
|
90
|
|
|
44
|
|
|
12
|
|
Installment/consumer
loans
|
|
|
30
|
|
|
30
|
|
|
96
|
|
|
31
|
|
|
51
|
|
Total
|
|
|
184
|
|
|
114
|
|
|
199
|
|
|
83
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs (recoveries)
|
|
|
105
|
|
|
256
|
|
|
150
|
|
|
155
|
|
|
75
|
|
Provision
for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
charged
to operations
|
|
|
300
|
|
|
300
|
|
|
-
|
|
|
220
|
|
|
323
|
|
Balance
before reclass to other liabilities
|
|
|
2,383
|
|
|
2,188
|
|
|
2,144
|
|
|
2,314
|
|
|
2,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in other liabilities portion allocated to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
off
balance sheet items
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(20
|
)
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
$
|
2,383
|
|
$
|
2,188
|
|
$
|
2,144
|
|
$
|
2,294
|
|
$
|
2,249
|
|
Ratio
of net charge-offs during period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
average loans outstanding
|
|
|
0.04
|
%
|
|
0.09
|
%
|
|
0.06
|
%
|
|
0.07
|
%
|
|
0.04
|
%
|
Allocation
of Allowance for Loan Losses
The
following table sets forth the allocation of the total allowance for loan losses
by loan type.
Year
Ended December 31,
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
(In
thousands)
|
|
|
|
Percentage
|
|
|
|
Percentage
|
|
|
|
Percentage
|
|
|
|
Percentage
|
|
|
|
Percentage
|
|
|
|
|
|
of
Loans
|
|
|
|
of
Loans
|
|
|
|
of
Loans
|
|
|
|
of
Loans
|
|
|
|
of
Loans
|
|
|
|
|
|
to
Total
|
|
|
|
to
Total
|
|
|
|
to
Total
|
|
|
|
To
Total
|
|
|
|
to
Total
|
|
|
|
Amount
|
|
Loans
|
|
Amount
|
|
Loans
|
|
Amount
|
|
Loans
|
|
Amount
|
|
Loans
|
|
Amount
|
|
Loans
|
|
Commercial,
financial and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agricultural
loans
|
|
$
|
273
|
|
|
10.5
|
%
|
$
|
315
|
|
|
11.6
|
%
|
$
|
272
|
|
|
12.4
|
%
|
$
|
591
|
|
|
15.6
|
%
|
$
|
505
|
|
|
13.1
|
%
|
Real
estate construction loans
|
|
|
183
|
|
|
5.9
|
|
|
148
|
|
|
6.2
|
|
|
148
|
|
|
7.3
|
|
|
227
|
|
|
5.0
|
|
|
337
|
|
|
4.1
|
|
Real
estate mortgage loans
|
|
|
1,817
|
|
|
80.4
|
|
|
1,659
|
|
|
80.0
|
|
|
1,663
|
|
|
78.1
|
|
|
1,160
|
|
|
76.2
|
|
|
1,160
|
|
|
79.9
|
|
Installment/consumer
loans
|
|
|
110
|
|
|
3.2
|
|
|
66
|
|
|
2.2
|
|
|
61
|
|
|
2.2
|
|
|
316
|
|
|
3.2
|
|
|
247
|
|
|
2.9
|
|
Total
|
|
$
|
2,383
|
|
|
100.0
|
%
|
$
|
2,188
|
|
|
100.0
|
%
|
$
|
2,144
|
|
|
100.0
|
%
|
$
|
2,294
|
|
|
100.0
|
%
|
$
|
2,249
|
|
|
100.0
|
%
|
Non
Interest Income
Total
other income decreased by $335,000 or 6.2% in 2005 to $5,105,000 as compared
to
an increase of $724,000 or 15.4% to $5,440,000 in 2004 compared to $4,716,000
in
2003. The decline in total other income during 2005 compared to 2004 was due
to
decreases in net gains on sales of securities of $618,000 and lower service
charges on deposit accounts of $224,000 partly offset by increased title fee
income of $427,000 from Bridge Abstract. Higher total other income during 2004
versus 2003 was primarily attributable to the increase in title fee income
of
$524,000 from Bridge Abstract and the increase in fees for other customer
services of $156,000.
Net
gains
on securities of $116,000, $734,000 and $826,000 were recognized in 2005, 2004
and 2003, respectively. Service charges on deposit accounts for the year ended
December 31, 2005 totaled $2,104,000, a decrease of $224,000 as compared to
2004. For the year
ended
December 31, 2004, service charges were $2,328,000, an increase of $50,000
or
2.2% from 2003. The Company believes that the decline is attributable to the
change in customer behavior to avoid paying fees for overdrafts and uncollected
account balances, which partially stems from changes in our fee policies.
Published research indicates that this is an industry pattern. Fees for other
customer services totaled $1,484,000 in 2005, $1,341,000 in 2004, and $1,185,000
in 2003, reflecting steady increases. The higher income predominately related
to
increased merchant processing revenue.
Bridge
Abstract, the Bank’s title insurance abstract subsidiary, generated title fee
income of $1,293,000, $866,000, and $342,000 in 2005, 2004, and 2003,
respectively. Increases were due primarily to increased volume of transactions
as a result of business development efforts that supported the continuing
growth.
Other
operating income for the year ended December 31, 2005 totaled $108,000, a
decrease of $63,000 or 36.8% from the prior year. Other operating income for
2004 totaled $171,000, an increase of $86,000 or 101.2% over 2003.
Non
Interest Expense
Other
expenses increased by $1,083,000 or 8.0% in 2005 to $14,647,000 from $13,564,000
in 2004 and 2004 increased $567,000 or 4.4% from $12,997,000 in 2003. Increases
occurred in most of the components of other expenses due to higher costs as
well
as overall growth due to increased volume of transactions for processing. The
primary component of this change was an increase in salaries and employee
benefits of $891,000 or 12.0% in 2005 and $556,000 or 8.1% in 2004. Salaries
and
benefits increases reflect unfilled management positions from 2004 that were
subsequently filled in the current year, coupled with additional staff to
support the expansion of the branch network and growth in business lines such
as
the title insurance abstract subsidiary in 2005. In addition, the unanticipated
departure of the Chief Operating Officer in the fourth quarter of 2005 and
an
accrual for related severance was recorded at that time. The change between
2004
and 2003 was a result of increases in staff for the expansion of branch
operations, as well as to comply with the increased regulatory burden as the
Company met thresholds in both asset size and market
capitalization.
Other
operating expenses for the year ended December 31, 2005 totaled $3,411,000,
an
increase of $296,000 or 9.5% compared to 2004, and 2004 totaled $3,115,000,
a
decrease of $43,000 or 1.4% over 2003. The increase in 2005 resulted from
increased professional fees primarily from costs associated with the review
of
the executive compensation policies which are reviewed every three
years.
Provision
for Income Taxes
The
provision for income taxes for December 31, 2005, 2004, and 2003 was $4,929,000,
$5,771,000, and $5,488,000, respectively. The decrease in 2005 was due to income
before income taxes declining to $14,552,000 from $16,148,000 in 2004. This
reduction also is partially attributed to a reduction in the New York State
tax.
The increase in provision for income taxes during 2004 was due to income before
income taxes increasing to $16,148,000 in 2004 from $15,086,000 in 2003. The
effective tax rate was 33.9%, 35.7% and 36.4% for the years ended December
31,
2005, 2004, and 2003, respectively.
FINANCIAL
CONDITION
The
assets of the Company totaled $533,444,000 at December 31, 2005, a decrease
of
$13,756,000 or 2.5% from the previous year-end. This decline mainly resulted
from a decrease in total securities of $31,044,000 or 13.8% partly offset by
an
increase in total loans of $6,130,000 or 2.1% and an increase in total cash
and
cash equivalents of $6,813,000 or 76.9%.
Total
stockholders’ equity was $46,651,000 at December 31, 2005, a decrease of
$562,000 or 1.2% from December 31, 2004 due to repurchases of treasury stock
of
$2,134,000 and to a net unrealized loss on securities of $2,376,000 at December
31, 2005 as compared to a net unrealized gain on securities of $403,000 at
December 31, 2004.
Loans
The
concentration of loans in our primary market areas may increase risk. Unlike
larger banks that are more geographically diversified, 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 local economic conditions on eastern Long Island have a
significant impact on the volume of loan originations and the quality of our
loans, the ability of borrowers to repay these loans, and the value of
collateral securing these loans. A significant decline in the general economic
conditions caused by inflation, recession, unemployment or other factors beyond
the Company’s control would impact these local economic conditions and could
negatively affect the financial results of the Company’s operations.
Additionally, while the Company has a significant amount of commercial real
estate loans, the majority which are owner-occupied, decreases in tenant
occupancy may also have a negative effect on the ability of borrowers to make
timely repayments of their loans, which would have an adverse impact on the
Company’s earnings.
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
Bank
targets its business lending and marketing strategy towards loans that primarily
meet the needs of small to medium-sized businesses. These small- to medium-sized
businesses generally have fewer financial resources in terms of capital or
borrowing capacity than larger entities. If general economic conditions
negatively impact these businesses, the results of operations and financial
condition may be adversely affected.
With
respect to the underwriting of loans, there are certain risks, including the
risk of non-payment that is associated with each type of loan that the Bank
markets. Approximately 46.2% of the Bank’s loan portfolio at December 31, 2005
is comprised of commercial real estate loans. Home equity lines of
credit comprise approximately 19.5%, construction mortgage loans comprise
approximately 10.8%, residential mortgages comprise approximately 9.8%, and
land
loans comprise approximately 1.1%. Risks associated with concentration in real
estate loans include potential losses from fluctuating values of land and
improved properties. Largest loan concentrations by industry are loans granted
to lessors of commercial property both nonowner occupied and owner occupied.
The
Bank uses conservative underwriting criteria to better insulate itself from
a
downturn in real estate values and economic conditions on eastern Long Island
that could have a significant impact on the value of collateral securing the
loans as well as the ability of customers to repay loans.
The
remainder of the loan portfolio is comprised of commercial and consumer loans,
which comprises approximately 12.8% of the Bank’s loan portfolio. The primary
risks associated with commercial loans are the cash flow of the business, the
experience and quality of the borrowers’ management, the business climate, and
the impact of economic factors. The primary risks associated with consumer
loans
relate to the borrower, such as the risk of a borrowers’ unemployment as a
result of deteriorating economic conditions or the amount and nature of a
borrowers’ other existing indebtedness, and the value of the collateral securing
the loans if the Bank must take possession of the collateral. Consumer loans
also have risks associated with concentrations of loans in a single type of
loan.
The
Company’s policy for charging off loans is a multi-step process. A loan is
considered a potential charge-off when it is in default of either principal
or
interest for a period of 90, 120 or 180 days, depending upon the loan type,
as
of the end of the prior month. In addition to date criteria, other triggering
events may include, but are not limited to, notice of bankruptcy by the borrower
or guarantor, death of the borrower, and deficiency balance from the sale of
collateral. These loans identified are presented for evaluation at the regular
meeting of the Classification Committee. The recovery of charged-off balances
is
actively pursued until the potential for recovery has been exhausted, or until
the expense of collection does not justify the recovery efforts.
Total
loans grew $6,130,000 or 2.1% since year end 2004. Average net loans grew by
$14,892,000 or 5.2% when compared to the prior year. Certain components of
the
loan portfolio contributed to the growth: real estate mortgage loans increased
$6,116,000 or 2.6%, installment/consumer loans increased $3,142,000, while
commercial, financial and agricultural loans decreased $2,698,000 or 7.9% and
real estate construction loans decreased $492,000 since December 31, 2004.
The
rate of loan growth for 2005 was slower than in prior years reflecting increased
competition for quality credits within our market area.
The
following table sets forth the major classifications of loans:
|
|
|
|
|
|
|
|
|
|
December
31,
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
Real
estate mortgage loans
|
$242,928
|
|
$236,812
|
|
$213,256
|
|
$189,226
|
|
$172,214
|
Commercial,
financial, and agricultural loans
|
31,644
|
|
34,342
|
|
33,810
|
|
38,692
|
|
28,281
|
Installment/consumer
loans
|
9,827
|
|
6,685
|
|
6,105
|
|
8,011
|
|
6,149
|
Real
estate construction loans
|
17,960
|
|
18,452
|
|
20,037
|
|
12,520
|
|
8,784
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
302,359
|
|
296,291
|
|
273,208
|
|
248,449
|
|
215,428
|
Unearned
income
|
(95)
|
|
(157)
|
|
(20)
|
|
(61)
|
|
(66)
|
|
302,264
|
|
296,134
|
|
273,188
|
|
248,388
|
|
215,362
|
Allowance
for loan losses
|
(2,383)
|
|
(2,188)
|
|
(2,144)
|
|
(2,294)
|
|
(2,249)
|
Net
loans
|
$299,881
|
|
$293,946
|
|
$271,044
|
|
$246,094
|
|
$213,113
|
Selected
Loan Maturity Information
The
following table sets forth the approximate maturities and sensitivity to changes
in interest rates of certain loans, exclusive of real estate mortgages and
consumer loans to individuals as of December 31, 2005:
|
|
|
|
After
One
|
|
|
|
|
|
|
|
Within
One
|
|
But
Within
|
|
After
|
|
|
|
|
|
Year
|
|
Five
Years
|
|
Five
Years
|
|
Total
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans
|
|
$
|
11,966
|
|
$
|
14,315
|
|
$
|
5,363
|
|
$
|
31,644
|
|
Construction
loans (1)
|
|
|
7,132
|
|
|
1,000
|
|
|
9,828
|
|
|
17,960
|
|
Total
|
|
$
|
19,098
|
|
$
|
15,315
|
|
$
|
15,191
|
|
$
|
49,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate
provisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
with fixed interest rates
|
|
$
|
1,854
|
|
$
|
7,617
|
|
$
|
1,493
|
|
$
|
10,964
|
|
Amounts
with variable interest rates
|
|
|
17,244
|
|
|
7,698
|
|
|
13,698
|
|
|
38,640
|
|
Total
|
|
$
|
19,098
|
|
$
|
15,315
|
|
$
|
15,191
|
|
$
|
49,604
|
|
(1)
|
Included
in the “After Five Years” column, are one-step construction loans that
contain a preliminary
|
|
construction
period (interest only) that automatically convert to amortization
at the
end of
|
|
the
construction phase.
|
Past
Due, Nonaccrual and Restructured Loans
The
following table sets forth selected information about past due, nonaccrual
and
restructured loans.
December
31,
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
90 days or more past due and still accruing
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Nonaccrual
loans
|
|
|
658
|
|
|
1,695
|
|
|
152
|
|
|
200
|
|
|
532
|
|
Restructured
loans
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Other
real estate owned, net
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
|
|
$
|
658
|
|
$
|
1,695
|
|
$
|
152
|
|
$
|
200
|
|
$
|
532
|
|
Year
Ended December 31,
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
2001
|
|
(In
thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
interest income that would have been recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
during
the year under original terms:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual
loans
|
|
$
|
38
|
|
$
|
16
|
|
$
|
9
|
|
$
|
13
|
|
$
|
66
|
|
Restructured
loans
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
interest income recorded during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual
loans
|
|
$
|
17
|
|
$
|
12
|
|
$
|
6
|
|
$
|
4
|
|
$
|
17
|
|
Restructured
loans
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
for additional funds
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Securities
Total
securities decreased to $194,190,000 at December 31, 2005 from $225,234,000
at
December 31, 2004. The reduction in the investment securities portfolio is
primarily attributed to reduced cash flows from deposits, and the deployment
of
existing cash flows into different assets. The high costs of deposits as a
funding source, coupled with flat yields at the long end of the curve, resulted
in less attractive investment opportunities. The available for sale portfolio
decreased 9.5% to $182,801,000 and the securities held to maturity declined
52.8% to $10,012,000. Securities held as available for sale may be sold in
response to, or in anticipation of, changes in interest rates and resulting
prepayment risk, or other factors. U.S. Treasury and government agency
securities decreased to $37,662,000 at December 31, 2005 from $54,039,000 at
December 31, 2004 and mortgage-backed securities decreased by $13,040,000,
while
state and municipal obligations increased by $10,176,000. Fixed rate securities
represent 92.5% of total securities at December 31, 2005. The Bank continued
to
maintain its levels of mortgage-backed securities, which represented
approximately 51.4% of the available for sale balance at December 31, 2005
as
compared to 52.9% at the prior year-end. A change in market rates was the
primary reason for the net decrease in unrealized depreciation in securities
available for sale, which decreased other comprehensive income.
A
summary
of the amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of securities is as follows:
December
31,
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
2003
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
Available
for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury and government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agency
securities
|
|
$
|
38,443
|
|
$
|
7
|
|
$
|
(788
|
)
|
$
|
37,662
|
|
$
|
53,736
|
|
$
|
519
|
|
$
|
(216
|
)
|
$
|
54,039
|
|
$
|
52,855
|
|
$
|
1,479
|
|
$
|
(165
|
)
|
$
|
54,169
|
|
State
and municipal obligations
|
|
|
51,392
|
|
|
387
|
|
|
(559
|
)
|
|
51,220
|
|
|
40,027
|
|
|
1,098
|
|
|
(81
|
)
|
|
41,044
|
|
|
35,495
|
|
|
1,619
|
|
|
(70
|
)
|
|
37,044
|
|
Mortgage-backed
securities
|
|
|
96,938
|
|
|
27
|
|
|
(3,046
|
)
|
|
93,919
|
|
|
107,609
|
|
|
483
|
|
|
(1,133
|
)
|
|
106,959
|
|
|
102,463
|
|
|
1,124
|
|
|
(1,101
|
)
|
|
102,486
|
|
Total
available for sale
|
|
|
186,773
|
|
|
421
|
|
|
(4,393
|
)
|
|
182,801
|
|
|
201,372
|
|
|
2,100
|
|
|
(1,430
|
)
|
|
202,042
|
|
|
190,813
|
|
|
4,222
|
|
|
(1,336
|
)
|
|
193,699
|
|
Securities,
restricted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
Reserve Bank Stock
|
|
|
36
|
|
|
-
|
|
|
-
|
|
|
36
|
|
|
36
|
|
|
-
|
|
|
-
|
|
|
36
|
|
|
36
|
|
|
-
|
|
|
-
|
|
|
36
|
|
Federal
Home Loan Bank Stock
|
|
|
1,341
|
|
|
-
|
|
|
-
|
|
|
1,341
|
|
|
1,943
|
|
|
-
|
|
|
-
|
|
|
1,943
|
|
|
1,606
|
|
|
-
|
|
|
-
|
|
|
1,606
|
|
Total
securities, restricted
|
|
|
1,377
|
|
|
-
|
|
|
-
|
|
|
1,377
|
|
|
1,979
|
|
|
-
|
|
|
-
|
|
|
1,979
|
|
|
1,642
|
|
|
-
|
|
|
-
|
|
|
1,642
|
|
Held
to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and municipal obligations
|
|
|
10,012
|
|
|
-
|
|
|
(23
|
)
|
|
9,989
|
|
|
21,213
|
|
|
-
|
|
|
(82
|
)
|
|
21,131
|
|
|
14,396
|
|
|
-
|
|
|
(17
|
)
|
|
14,379
|
|
Total
held to maturity
|
|
|
10,012
|
|
|
-
|
|
|
(23
|
)
|
|
9,989
|
|
|
21,213
|
|
|
-
|
|
|
(82
|
)
|
|
21,131
|
|
|
14,396
|
|
|
-
|
|
|
(17
|
)
|
|
14,379
|
|
Total
debt and equity securities
|
|
$
|
198,162
|
|
$
|
421
|
|
$
|
(4,416
|
)
|
$
|
194,167
|
|
$
|
224,564
|
|
$
|
2,100
|
|
$
|
(1,512
|
)
|
$
|
225,152
|
|
$
|
206,851
|
|
$
|
4,222
|
|
$
|
(1,353
|
)
|
$
|
209,720
|
|
Deposits
and Borrowings
Overnight
borrowings decreased $12,200,000 to $14,500,000 from the prior year-end as
the
Bank effectively managed liquidity during seasonal deposit outflows. Total
deposits decreased $1,286,000 or 0.3% as compared to 2004. The decrease in
public funds continued during 2005 from the prior year. Demand deposits
increased $32,060,000 or 20.2%. Savings, N.O.W. and money market deposits
decreased $9,086,000 or 3.7%. Certificates of deposit of $100,000 or more
decreased $16,285,000 or 46.1% from December 31, 2004 and other time deposits
decreased $7,975,000 or 24.3% as compared to the prior year. The decline of
more
volatile and expensive deposits was part of the management of the balance sheet
during 2005 as well as a result of increased competition for deposits and other
banks offering higher rates.
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 to meet deposit withdrawals
either on demand or contractual maturity, to repay other borrowings as they
mature and to make new loans and investments as opportunities
arise.
The
Company’s principal source of liquidity is dividends from the Bank. Due to
regulatory restrictions (see Note 1(l) to the Consolidated Financial
Statements), dividends from the Bank to the Company at December 31, 2005 were
limited to $15,076,000, which represents the Bank’s 2005 retained net income and
the net undivided profits from the previous two years. The dividends received
from the Bank are used primarily for dividends to the shareholders and stock
repurchases. 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 security principal repayments and maturities, lines of credit with
other financial
institutions including the Federal Home Loan Bank, and growth in core 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, 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 15% of total assets. At December 31, 2005, the Bank had aggregate lines
of
credit of $47,000,000 with unaffiliated correspondent banks to provide
short-term credit for liquidity requirements. Of these aggregate lines of
credit, $27,000,000 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 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 December 31, 2005,
the amount of overnight borrowings was $14,500,000.
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. 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.
The
following represents commitments outstanding at December 31, 2005:
|
|
Total
Amounts Committed
|
|
Less
than One Year
|
|
One
to
Three
Years
|
|
Four
to Five Years
|
|
Over
Five Years
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases
|
|
$
|
2,424
|
|
$
|
493
|
|
$
|
781
|
|
$
|
183
|
|
$
|
967
|
Purchase
obligation
|
|
|
250
|
|
|
250
|
|
|
-
|
|
|
-
|
|
|
-
|
Standby
letters of credit
|
|
|
1,955
|
|
|
1,433
|
|
|
522
|
|
|
-
|
|
|
-
|
Loan
commitments outstanding
(1)
|
|
|
11,839
|
|
|
11,839
|
|
|
-
|
|
|
-
|
|
|
-
|
Unused
equity lines
|
|
|
42,432
|
|
|
3,313
|
|
|
16,085
|
|
|
9,405
|
|
|
13,629
|
Unused
construction lines
|
|
|
1,324
|
|
|
145
|
|
|
-
|
|
|
-
|
|
|
1,179
|
Unused
lines of credit
|
|
|
23,154
|
|
|
11,396
|
|
|
6,562
|
|
|
734
|
|
|
4,462
|
Unused
overdraft lines
|
|
|
12,268
|
|
|
9,194
|
|
|
2,441
|
|
|
628
|
|
|
5
|
Total
commitments outstanding
|
|
$
|
95,646
|
|
$
|
38,063
|
|
$
|
26,391
|
|
$
|
10,950
|
|
$
|
20,242
|
(1)
|
Of
the $11,839,000 of loan commitments outstanding, $987,000 are fixed
rate
commitments and
|
|
$10,852,000
are variable rate commitments.
|
CAPITAL
RESOURCES
Stockholders’
equity decreased to $46,651,000 at December 31, 2005 from $47,213,000 at
December 31, 2004 as a result of undistributed net income; less the change
in
net unrealized appreciation in securities available for sale, net of tax; and
the repurchase of treasury shares net of the issuance of shares of common stock
pursuant to the equity incentive plan. The ratio of average stockholders’ equity
to average total assets increased to 8.71% at year end 2005 from 8.30% at year
end 2004.
The
Company’s capital strength is paralleled by the solid capital position of the
Bank, as reflected in the excess of its regulatory capital ratios over the
minimum risk-based capital adequacy ratio levels required for classification
as
a “well capitalized” institution by the FDIC (see Note 11 to the Consolidated
Financial Statements). Management believes that the current capital levels
along
with future retained earnings will allow the Bank to maintain a position
exceeding required capital levels and which is sufficient to support Company
growth. Additionally, the Company has the ability to issue additional common
stock and/or trust preferred securities should the need arise.
The
Company had returns on average equity of 20.15%, 22.82%, and 22.58% and returns
on average assets of 1.76%, 1.89%, and 1.91% for the years ended December 31,
2005, 2004, and 2003, respectively.
The
Company utilizes cash dividends and stock repurchases to manage capital levels.
Cash paid for dividends totaled $5,561,000 in 2005 as compared to dividends
paid
in 2004 of $5,790,000 that included the special dividend and dividends paid
of
$2,943,000 in 2003. The dividend payout ratio for 2005 was 58.88%. The Company
continues its trend of uninterrupted dividends.
On
May
17, 2004, the Company re-approved its stock repurchase plan allowing the
repurchase of up to 5% of its current outstanding shares, 180,810 shares. There
is no expiration date for the share repurchase plan. The Company considers
opportunities for stock repurchases carefully, although opportunities to
repurchase shares at the volumes required by law have been limited over the
past
years. During 2005, 75,926 shares were repurchased at a total cost of
approximately $2,134,000 or an average price per share of $28.12.
On
June
21, 2004, the Company declared a three-for-two stock split. The stock split
was
payable in the form of a stock dividend to shareholders of record as of July
9,
2004. The stock split increased outstanding common shares from 4,257,597 to
6,386,306.
IMPACT
OF INFLATION AND CHANGING PRICES
The
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.
IMPACT
OF PROSPECTIVE ACCOUNTING STANDARDS
For
discussion regarding the impact of new accounting standards, refer to Note
1(r)
of Notes to Consolidated Financial Statements.
Item
7A. Quantitative and Qualitative Disclosures About Market
Risk
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.
Significant
increases in the level of market interest rates may adversely affect the fair
value of securities and other interest earning assets. At December 31, 2005,
$179,672,000 or 92.5% 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. Decreases in
the
fair value of securities available for sale, therefore, could have an adverse
effect on stockholder’s equity. 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. Increases in
market interest rates also could affect the type (fixed-rate or adjustable-rate)
and amount of loans originated by the Company and the average life of loans
and
securities, which can impact the yields earned on the Company’s loans and
securities. 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
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
Statement of Condition. 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 both a 200 basis point upward
and
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 December 31, 2005:
|
|
2005
|
|
Change
in Interest
|
|
Potential
Change
|
|
Rates
in Basis Points
|
|
in
Net
|
|
(RATE
SHOCK)
|
|
Interest
Income
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
$
Change
|
|
%
Change
|
|
200
|
|
$
|
(1,620
|
)
|
|
(6.16
|
)%
|
Static
|
|
|
-
|
|
|
-
|
|
(200)
|
|
$
|
(438
|
)
|
|
(1.67
|
)%
|
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
8. Financial Statements and Supplementary
Data
(In
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
December
31,
|
|
December
31,
|
|
|
|
2005
|
|
2004
|
|
ASSETS
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
15,649
|
|
$
|
8,744
|
|
Interest
earning deposits with banks
|
|
|
26
|
|
|
118
|
|
Total
cash and cash equivalents
|
|
|
15,675
|
|
|
8,862
|
|
|
|
|
|
|
|
|
|
Securities
available for sale, at fair value
|
|
|
182,801
|
|
|
202,042
|
|
Securities,
restricted
|
|
|
1,377
|
|
|
1,979
|
|
Securities
held to maturity (fair value of $9,989 and $21,131,
respectively)
|
|
|
10,012
|
|
|
21,213
|
|
Total
securities, net
|
|
|
194,190
|
|
|
225,234
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
302,264
|
|
|
296,134
|
|
Less:
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(2,383
|
)
|
|
(2,188
|
)
|
Loans,
net
|
|
|
299,881
|
|
|
293,946
|
|
|
|
|
|
|
|
|
|
Banking
premises and equipment, net
|
|
|
15,640
|
|
|
13,817
|
|
Accrued
interest receivable
|
|
|
2,624
|
|
|
2,469
|
|
Other
assets
|
|
|
5,434
|
|
|
2,872
|
|
Total
Assets
|
|
$
|
533,444
|
|
$
|
547,200
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Demand
deposits
|
|
$
|
190,426
|
|
$
|
158,366
|
|
Savings,
N.O.W. and money market deposits
|
|
|
233,728
|
|
|
242,814
|
|
Other
time deposits
|
|
|
24,850
|
|
|
32,825
|
|
Certificates
of deposit of $100,000 or more
|
|
|
19,021
|
|
|
35,306
|
|
Total
deposits
|
|
|
468,025
|
|
|
469,311
|
|
|
|
|
|
|
|
|
|
Overnight
borrowings
|
|
|
14,500
|
|
|
26,700
|
|
Accrued
interest payable
|
|
|
328
|
|
|
273
|
|
Other
liabilities and accrued expenses
|
|
|
3,940
|
|
|
3,703
|
|
Total
Liabilities
|
|
|
486,793
|
|
|
499,987
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Common
stock, par value $0.01 per share:
|
|
|
|
|
|
|
|
Authorized:
20,000,000 shares; 6,386,306 issued; 6,206,539 and 6,254,489
shares,
|
|
|
|
|
|
|
|
outstanding
at December 31, 2005 and 2004, respectively
|
|
|
64
|
|
|
64
|
|
Surplus
|
|
|
21,631
|
|
|
21,462
|
|
Undivided
profits
|
|
|
31,813
|
|
|
27,856
|
|
Less:
Treasury stock at cost, 179,767 and 131,617 shares at December 31,
2005
and 2004, respectively
|
|
|
(4,285
|
)
|
|
(2,330
|
)
|
Unearned
stock awards
|
|
|
(108
|
)
|
|
(121
|
)
|
|
|
|
49,115
|
|
|
46,931
|
|
Accumulated
other comprehensive income (loss):
|
|
|
|
|
|
|
|
Net
unrealized (loss) gain on securities, net of taxes of ($1,596) and
$267 at
December 31, 2005 and 2004,
|
|
|
|
|
|
|
|
respectively
|
|
|
(2,376
|
)
|
|
403
|
|
Net
minimum pension liability, net of taxes of $59 and $81 at December
31,
2005 and 2004, respectively
|
|
|
(88
|
)
|
|
(121
|
)
|
Total
Stockholders’ Equity
|
|
|
46,651
|
|
|
47,213
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
533,444
|
|
$
|
547,200
|
|
See
accompanying notes to Consolidated Financial Statements.
CONSOLIDATED
STATEMENTS OF INCOME
(In
thousands, except per share amounts)
Year
Ended December 31,
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
|
Loans
(including fee income)
|
|
$
|
20,724
|
|
$
|
18,850
|
|
$
|
17,971
|
|
Mortgage-backed
securities
|
|
|
4,160
|
|
|
4,137
|
|
|
4,012
|
|
State
and municipal obligations
|
|
|
1,947
|
|
|
1,615
|
|
|
1,559
|
|
U.S.
Treasury and government agency securities
|
|
|
1,520
|
|
|
2,187
|
|
|
2,285
|
|
Federal
funds sold
|
|
|
265
|
|
|
98
|
|
|
74
|
|
Other
securities
|
|
|
95
|
|
|
34
|
|
|
66
|
|
Deposits
with banks
|
|
|
2
|
|
|
2
|
|
|
1
|
|
Total
interest income
|
|
|
28,713
|
|
|
26,923
|
|
|
25,968
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
Savings,
N.O.W. and money market deposits
|
|
|
3,022
|
|
|
1,331
|
|
|
1,478
|
|
Certificates
of deposit of $100,000 or more
|
|
|
550
|
|
|
475
|
|
|
477
|
|
Other
time deposits
|
|
|
470
|
|
|
457
|
|
|
597
|
|
Other
borrowed money
|
|
|
205
|
|
|
55
|
|
|
5
|
|
Federal
funds purchased
|
|
|
72
|
|
|
33
|
|
|
44
|
|
Total
interest expense
|
|
|
4,319
|
|
|
2,351
|
|
|
2,601
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
24,394
|
|
|
24,572
|
|
|
23,367
|
|
Provision
for loan losses
|
|
|
300
|
|
|
300
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income after provision for loan losses
|
|
|
24,094
|
|
|
24,272
|
|
|
23,367
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income:
|
|
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts
|
|
|
2,104
|
|
|
2,328
|
|
|
2,278
|
|
Fees
for other customer services
|
|
|
1,484
|
|
|
1,341
|
|
|
1,185
|
|
Title
fee income
|
|
|
1,293
|
|
|
866
|
|
|
342
|
|
Net
securities gains
|
|
|
116
|
|
|
734
|
|
|
826
|
|
Other
operating income
|
|
|
108
|
|
|
171
|
|
|
85
|
|
Total
other income
|
|
|
5,105
|
|
|
5,440
|
|
|
4,716
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses:
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
8,347
|
|
|
7,456
|
|
|
6,900
|
|
Net
occupancy expense
|
|
|
1,234
|
|
|
1,283
|
|
|
1,226
|
|
Furniture
and fixture expense
|
|
|
857
|
|
|
980
|
|
|
1,013
|
|
Advertising
|
|
|
401
|
|
|
356
|
|
|
378
|
|
Data/Item
processing
|
|
|
397
|
|
|
374
|
|
|
322
|
|
Other
operating expenses
|
|
|
3,411
|
|
|
3,115
|
|
|
3,158
|
|
Total
other expenses
|
|
|
14,647
|
|
|
13,564
|
|
|
12,997
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
|
14,552
|
|
|
16,148
|
|
|
15,086
|
|
Provision
for income taxes
|
|
|
4,929
|
|
|
5,771
|
|
|
5,488
|
|
Net
income
|
|
$
|
9,623
|
|
$
|
10,377
|
|
$
|
9,598
|
|
Basic
earnings per share
|
|
$
|
1.54
|
|
$
|
1.66
|
|
$
|
1.55
|
|
Diluted
earnings per share
|
|
$
|
1.53
|
|
$
|
1.64
|
|
$
|
1.53
|
|
All
per share amounts have been adjusted for the stock split.
See
accompanying notes to Consolidated Financial Statements.
(In
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
Comprehensive
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Comprehensive
|
|
Undivided
|
|
Treasury
|
|
Stock
|
|
Income
|
|
|
|
|
|
Outstanding
|
|
Amount
|
|
Surplus
|
|
Income
(1)
|
|
Profits
|
|
Stock
|
|
Awards
|
|
(Loss)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2002
|
|
|
4,117,986
|
|
$
|
43
|
|
$
|
21,125
|
|
|
|
|
$
|
17,239
|
|
$
|
(2,524
|
)
|
|
|
|
$
|
4,088
|
|
$
|
39,971
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
9,598
|
|
|
9,598
|
|
|
|
|
|
|
|
|
|
|
|
9,598
|
|
Stock
awards vested
|
|
|
4,872
|
|
|
|
|
|
42
|
|
|
|
|
|
|
|
|
81
|
|
$
|
40
|
|
|
|
|
|
163
|
|
Stock
awards granted
|
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
87
|
|
|
(121
|
)
|
|
|
|
|
-
|
|
Exercise
of stock options, net of tax benefit
|
|
|
32,737
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
38
|
|
|
447
|
|
|
|
|
|
|
|
|
478
|
|
Cash
dividends declared, $0.78 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,893
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,893
|
)
|
Other
comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
net losses in securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
(2,597
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,597
|
)
|
|
(2,597
|
)
|
Minimum
pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
74
|
|
|
74
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
7,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2003
|
|
|
4,155,595
|
|
|
43
|
|
|
21,194
|
|
|
|
|
|
21,982
|
|
|
(1,909
|
)
|
|
(81
|
)
|
|
1,565
|
|
|
42,794
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
10,377
|
|
|
10,377
|
|
|
|
|
|
|
|
|
|
|
|
10,377
|
|
Stock
awards vested
|
|
|
5,040
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
66
|
|
|
73
|
|
|
|
|
|
169
|
|
Stock
awards granted
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
55
|
|
|
(113
|
)
|
|
|
|
|
-
|
|
Exercise
of stock options, net of tax benefit
|
|
|
24,417
|
|
|
|
|
|
201
|
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
|
270
|
|
Treasury
stock purchases
|
|
|
(20,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(611
|
)
|
|
|
|
|
|
|
|
(611
|
)
|
Cash
dividends declared, $0.72 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,503
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,503
|
)
|
Effect
of three-for-two stock split (in the form of a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
dividend)
|
|
|
2,089,437
|
|
|
21
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Other
comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
net losses in securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
(1,333
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,333
|
)
|
|
(1,333
|
)
|
Minimum
pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
50
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
9,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004
|
|
|
6,254,489
|
|
|
64
|
|
|
21,462
|
|
|
|
|
|
27,856
|
|
|
(2,330
|
)
|
|
(121
|
)
|
|
282
|
|
|
47,213
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
9,623
|
|
|
9,623
|
|
|
|
|
|
|
|
|
|
|
|
9,623
|
|
Stock
awards vested
|
|
|
6,155
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
28
|
|
|
65
|
|
|
|
|
|
129
|
|
Stock
awards granted
|
|
|
|
|
|
|
|
|
52
|
|
|
|
|
|
|
|
|
38
|
|
|
(90
|
)
|
|
|
|
|
-
|
|
Stock
awards forfeited
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
(21
|
)
|
|
38
|
|
|
|
|
|
-
|
|
Exercise
of stock options, net of tax benefit
|
|
|
21,821
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
|
134
|
|
|
|
|
|
|
|
|
232
|
|
Treasury
stock purchases
|
|
|
(75,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,134
|
)
|
|
|
|
|
|
|
|
(2,134
|
)
|
Cash
dividends declared, $0.91 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,666
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,666
|
)
|
Other
comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Unrealized
net losses in securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
(2,779
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,779
|
)
|
|
(2,779
|
)
|
Minimum
pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
33
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
6,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
6,206,539
|
|
$
|
64
|
|
$
|
21,631
|
|
|
|
|
$
|
31,813
|
|
$
|
(4,285
|
)
|
$
|
(108
|
)
|
$
|
(2,464
|
)
|
$
|
46,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Disclosure of reclassification amount:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss arising during the period, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
$1,820, $591 and $1,357 in 2005, 2004 and 2003
|
|
$
|
(2,708
|
)
|
$
|
(891
|
)
|
$
|
(2,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
reclassification adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
$46, $293, $327 in 2005, 2004 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
losses included in income
|
|
|
71
|
|
|
442
|
|
|
499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(2,779
|
)
|
$
|
(1,333
|
)
|
$
|
(2,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
per share amounts have been adjusted for the stock split.
See
accompanying notes to Consolidated Financial Statements.
(In
thousands)
Year
Ended December 31,
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
9,623
|
|
$
|
10,377
|
|
$
|
9,598
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
300
|
|
|
300
|
|
|
-
|
|
Depreciation
and amortization
|
|
|
847
|
|
|
950
|
|
|
956
|
|
Amortization
and accretion, net
|
|
|
786
|
|
|
1,261
|
|
|
2,059
|
|
Earned
or allocated expense of restricted stock awards
|
|
|
65
|
|
|
73
|
|
|
40
|
|
SERP
expense
|
|
|
153
|
|
|
149
|
|
|
142
|
|
Net
securities gains
|
|
|
(116
|
)
|
|
(734
|
)
|
|
(826
|
)
|
(Increase)
decrease in accrued interest receivable
|
|
|
(155
|
)
|
|
(110
|
)
|
|
249
|
|
Benefit
(provision) for deferred income taxes
|
|
|
21
|
|
|
(179
|
)
|
|
(37
|
)
|
(Increase)
decrease in other assets
|
|
|
(986
|
)
|
|
1,118
|
|
|
(2,526
|
)
|
Increase
in accrued and other liabilities
|
|
|
405
|
|
|
436
|
|
|
243
|
|
Net
cash provided by operating activities
|
|
|
10,943
|
|
|
13,641
|
|
|
9,898
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases
of securities available for sale
|
|
|
(32,463
|
)
|
|
(96,157
|
)
|
|
(146,393
|
)
|
Purchases
of securities held to maturity
|
|
|
(13,262
|
)
|
|
(21,213
|
)
|
|
(14,421
|
)
|
Proceeds
from sales of securities available for sale
|
|
|
21,965
|
|
|
56,005
|
|
|
71,637
|
|
Proceeds
from maturing securities available for sale
|
|
|
2,995
|
|
|
4,750
|
|
|
4,752
|
|
Proceeds
from maturing securities held to maturity
|
|
|
24,463
|
|
|
14,396
|
|
|
11,022
|
|
Proceeds
from principal payments on mortgage-backed securities
|
|
|
22,032
|
|
|
23,980
|
|
|
51,592
|
|
Net
increase in loans
|
|
|
(6,235
|
)
|
|
(23,202
|
)
|
|
(24,950
|
)
|
Purchases
of banking premises and equipment
|
|
|
(2,670
|
)
|
|
(3,144
|
)
|
|
(2,752
|
)
|
Net
cash provided (used) by investing activities
|
|
|
16,825
|
|
|
(44,585
|
)
|
|
(49,513
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in deposits
|
|
|
(1,286
|
)
|
|
12,165
|
|
|
50,750
|
|
(Decrease)
increase in other borrowings
|
|
|
(12,200
|
)
|
|
20,800
|
|
|
(6,400
|
)
|
Payment
for the purchase of Treasury stock
|
|
|
(2,134
|
)
|
|
(611
|
)
|
|
-
|
|
Net
proceeds from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
issued
pursuant to equity incentive plan
|
|
|
216
|
|
|
203
|
|
|
440
|
|
Cash
dividends paid
|
|
|
(5,551
|
)
|
|
(5,790
|
)
|
|
(2,943
|
)
|
Net
cash (used) provided by financing activities
|
|
|
(20,955
|
)
|
|
26,767
|
|
|
41,847
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
6,813
|
|
|
(4,177
|
)
|
|
2,232
|
|
Cash
and cash equivalents beginning of year
|
|
|
8,862
|
|
|
13,039
|
|
|
10,807
|
|
Cash
and cash equivalents end of year
|
|
$
|
15,675
|
|
$
|
8,862
|
|
$
|
13,039
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Information-Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
4,264
|
|
$
|
2,344
|
|
$
|
2,726
|
|
Income
taxes
|
|
$
|
5,023
|
|
$
|
5,336
|
|
$
|
5,501
|
|
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared and unpaid
|
|
$
|
1,428
|
|
$
|
1,313
|
|
$
|
2,609
|
|
See
accompanying notes to Consolidated Financial Statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2005, 2004 and 2003
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bridge
Bancorp, Inc. (the “Company”) is incorporated under the laws of the State of New
York as a single 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 includes its real estate investment trust
subsidiary, Bridgehampton Community, Inc. and a financial subsidiary; the now
dissolved Bridgehampton Abstract Holding LLC, which had a 100% ownership in
an
investment in Bridge Abstract LLC (“Bridge Abstract”).
Effective April 1, 2004, Bridgehampton Abstract Holding LLC ownership interest
in Bridge Abstract increased to 100% from 51% ownership. Subsequent to December
31, 2004, Bridgehampton Abstract Holding LLC was dissolved. The
financial statements have been prepared in accordance with U.S. generally
accepted accounting principles
and to
general practices within the financial institution industry. The following
is a
description of the significant accounting policies that the Company follows
in
preparing its Consolidated Financial Statements.
a)
Basis
of Financial Statement Presentation
The
accompanying Consolidated Financial Statements are prepared on the accrual
basis
of accounting and include the accounts of the Company and its wholly-owned
subsidiary, the Bank. All material intercompany transactions and balances have
been eliminated.
The
preparation of financial statements, in conformity with U.S. generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of each consolidated statement
of condition and the related consolidated statement of income for the years
then
ended. Future results could differ from those estimates. The allowance for
loan
losses, fair values of financial instruments, deferred taxes, prepayment speeds
on mortgage-backed securities, and pension are particularly subject to
change.
b)
Cash
and Cash Equivalents
For
purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and federal funds sold, which mature overnight.
Cash flows are reported net for customer loan and deposit transactions and
overnight borrowings.
c)
Securities
The
Company is required to report readily-marketable equity and debt securities
in
one of the following categories: (i) “held-to-maturity” (management has a
positive intent and ability to hold to maturity), which are to be reported
at
amortized cost and (ii) “available for sale” (all other debt and marketable
equity securities), which are to be reported at fair value, with unrealized
gains and losses reported net of tax, as accumulated other comprehensive income,
a separate component of stockholders’ equity. Restricted securities, as
disclosed on the balance sheet including Federal Home Loan Bank stock and
Federal Reserve Bank stock, are carried at cost.
Premiums
and discounts on securities are amortized to expense and accreted to income
over
the estimated life of the respective securities using the interest method.
Gains
and losses on the sales of securities are recognized upon realization based
on
the specific identification method. Declines in the fair value of securities
below their cost that are other than temporary are reflected as realized losses.
In estimating other-than-temporary losses, management considers: (1) the length
of time and extent that fair value has been less than cost, (2) the financial
condition and near term prospects of the issuer, and (3) the Company’s ability
and intent to hold the security for a period sufficient to allow for any
anticipated recovery in fair value.
d)
Loans
and Loan Interest Income Recognition
Loans
are
stated at the principal amount outstanding, less net deferred origination fees.
Loan origination and commitment fees and certain direct and indirect costs
incurred in connection with loan originations are deferred and amortized to
income over the life of the related loans as an adjustment to yield. When a
loan
prepays, the remaining unamortized net deferred origination fees are recognized
in the current year. Interest on loans is credited to income based on the
principal outstanding during the period. Loans that are 90 days past due are
automatically placed on nonaccrual and previously accrued interest is reversed
and charged against interest income. However, if the Bank has reasonable
assurance that loan will be fully collectible based upon individual loan
evaluation assessing such factors as collateral and collectibility, accrued
interest will be recognized as earned. Loans
are
returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably
assured.
A
loan is
considered impaired when, based on current information and events, it is
probable that the Company will be unable to collect the scheduled payments
of
principal or interest when due according to the contractual terms of the loan
agreement. Factors considered
by
management in determining impairment include payment status, collateral value
and the probability of collecting scheduled principal and interest payments
when
due. Loans that experience minor payment delays and payment shortfall generally
are not classified as impaired.
e)
Allowance for Loan Losses
The
Bank
monitors its entire loan portfolio on a regular basis, with consideration given
to detailed analyses of classified loans, repayment patterns, current
delinquencies, 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 December
31, 2005, management believes the allowance for loan losses is
adequate.
A
loan is
considered a potential charge-off when it is in default of either principal
or
interest for a period of 90, 120 or 180 days, depending upon the loan type,
as
of the end of the prior month. In addition to date criteria, other triggering
events may include, but are not limited to, notice of bankruptcy by the borrower
or guarantor, death of the borrower, and deficiency balance from the sale of
collateral.
While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in conditions.
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 additions to, or charge-offs against, the
allowance based on their judgment about information available to them at the
time of their examination.
f)
Banking Premises and Equipment
Buildings,
furniture and fixtures and equipment are stated at cost less accumulated
depreciation. Buildings and related components are depreciated using the
straight-line method using a useful life of fifty years for buildings and a
range of two to ten years for equipment, furniture and fixtures. Leasehold
improvements are amortized over the lives of the respective leases or the
service lives of the improvements whichever is shorter. Land is recorded at
cost.
Improvements
and major repairs are capitalized, while the cost of ordinary maintenance,
repairs and minor improvements is charged to operations.
g)
Other
Real Estate Owned
Other
real estate owned consists of real estate acquired by foreclosure or deed in
lieu of foreclosure and is recorded at the lower of the net unpaid principal
balance at the foreclosure date plus acquisition costs or fair value. Subsequent
valuation adjustments are made if fair value less estimated costs to sell the
property falls below the carrying amount. At December 31, 2005 and 2004, the
Company carried no other real estate owned.
h)
Loan
Commitments and Related Financial Instruments
Financial
instruments include off-balance sheet credit instruments, such as commitments
to
make loans and commercial letters of credit, issued to meet customer-financing
needs. The face amount for these items represents the exposure to loss, before
considering customer collateral or ability to repay.
i)
Income
Taxes
The
Company follows the asset and liability approach, which requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences
of temporary differences between the carrying amounts and the tax bases of
assets and liabilities, computed using enacted tax rates. Deferred tax assets
are recognized if it is more likely than not that a future benefit will be
realized. It is management’s position, as currently supported by the facts and
circumstances, that no valuation allowance is necessary against any of the
Company’s deferred tax assets.
j)
Treasury Stock
Repurchases
of common stock are recorded as treasury stock at cost. Treasury stock is
reissued using the first in, first out method.
k)
Earnings Per Share
Diluted
earnings per share, which reflects the potential dilution that could occur
if
outstanding stock options were exercised and if 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.
l)
Dividends
Cash
available for dividend distribution to shareholders of the Company must
initially come from dividends paid by the Bank to the Company. The approval
of
the Regional Administrator of National Banks 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. The Bank had approximately $15,076,000
available as of December 31, 2005, which may be paid to the Company as a
dividend without prior approval.
m)
Stock
Activity
On
June
21, 2004, the Board of Directors declared a three-for-two stock split, in the
form of a stock dividend, payable July 23, 2004 to stockholders of record as
of
July 9, 2004. The stock split increased outstanding common shares from 4,257,597
to 6,386,306. All references in the Consolidated Financial Statements and Notes
thereto for per share amounts, and market prices of the common stock have been
restated giving retroactive recognition to the stock split.
The
transactions affecting common stock issued and outstanding and treasury stock
are reflected in the table below:
|
|
Common
Stock
|
|
|
|
|
|
Shares
Issued
|
|
Shares
Issued and Outstanding
|
|
Treasury
Stock
|
|
Balance
at December 31, 2003
|
|
|
4,257,597
|
|
|
4,155,595
|
|
|
102,002
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
awards vested
|
|
|
|
|
|
5,040
|
|
|
(5,040
|
)
|
Exercise
of stock options
|
|
|
|
|
|
21,417
|
|
|
(21,417
|
)
|
Purchase
of Treasury stock
|
|
|
|
|
|
(3,000
|
)
|
|
3,000
|
|
Effect
of three-for-two stock split
|
|
|
2,128,798
|
|
|
2,089,526
|
|
|
39,272
|
|
Fractional
shares
|
|
|
(89
|
)
|
|
(89
|
)
|
|
|
|
Exercise
of stock options
|
|
|
|
|
|
3,000
|
|
|
(3,000
|
)
|
Purchase
of Treasury stock
|
|
|
|
|
|
(17,000
|
)
|
|
17,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004
|
|
|
6,386,306
|
|
|
6,254,489
|
|
|
131,817
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
awards vested
|
|
|
|
|
|
6,155
|
|
|
(6,155
|
)
|
Stock
awards granted
|
|
|
|
|
|
|
|
|
|
|
Stock
awards forfeited
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
|
|
|
|
|
|
21,821
|
|
|
(21,821
|
)
|
Purchase
of Treasury stock
|
|
|
|
|
|
(75,926
|
)
|
|
75,926
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
6,386,306
|
|
|
6,206,539
|
|
|
179,767
|
|
n)
Segment Reporting
While
management monitors the revenue streams of the various products and services,
the identifiable segments are not material and operations are managed and
financial performance is evaluated on a Company-wide basis. Accordingly, all
of
the financial service operations are considered by management to be aggregated
in one reportable operating segment.
o)
Stock
Based Compensation Plans
Employee
compensation expense under stock options is reported using the intrinsic value
method. No stock-based compensation cost is reflected in net income, as all
the
options granted had an exercise price equal to the market price of the
underlying common stock at date of grant. The following table illustrates the
effect on net income and earnings per share if expense was measured using the
fair value recognition provisions of Statement of Financial Accounting Standard
(SFAS) No. 123 (revised 2004), “Accounting
for Stock-Based Compensation.”
For
the Year Ended
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income:
|
|
|
As
Reported:
|
|
$
|
9,623
|
|
$
|
10,377
|
|
$
|
9,598
|
|
Pro
Forma:
|
|
|
|
|
|
9,606
|
|
|
10,332
|
|
|
9,514
|
|
Diluted
EPS:
|
|
|
As
Reported:
|
|
$
|
1.53
|
|
$
|
1.64
|
|
$
|
1.53
|
|
Pro
Forma:
|
|
|
|
|
|
1.53
|
|
|
1.64
|
|
|
1.52
|
|
Basic
EPS:
|
|
|
As
Reported:
|
|
$
|
1.54
|
|
$
|
1.66
|
|
$
|
1.55
|
|
Pro
Forma:
|
|
|
|
|
|
1.54
|
|
|
1.65
|
|
|
1.53
|
|
The
fair
value of each option granted is estimated on the date of the grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for the following years:
For
the Year Ended
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk
free interest rate
|
|
|
3.66
|
%
|
|
3.02
|
%
|
|
3.10
|
%
|
Expected
dividend yield
|
|
|
3.76
|
%
|
|
2.75
|
%
|
|
3.19
|
%
|
Expected
volatility
|
|
|
21.3
|
%
|
|
23.5
|
%
|
|
44.4
|
%
|
p)
Comprehensive Income
Comprehensive
income includes net income and all other changes in equity during a period,
except those resulting from investments by owners and distributions to owners.
Other comprehensive income includes revenues, expenses, gains and losses that
under generally accepted accounting principles are included in comprehensive
income but excluded from net income. Comprehensive income and accumulated other
comprehensive income are reported net of related income taxes. Accumulated
other
comprehensive income for the Company includes unrealized holding gains or losses
on available for sale securities and the minimum pension liability. Such gains
or losses are net of reclassification adjustments for realized gains (losses)
on
sales of available for sale securities.
q)
Fair
Value of Financial Instruments
Fair
values of financial instruments are estimated using relevant market information
and other assumptions, as more fully disclosed in a separate note. Fair value
estimates involve uncertainties and matters of significant judgment regarding
interest rates, credit risk, prepayments, and other factors, especially in
the
absence of broad markets for particular items. Changes in assumptions or in
market conditions could significantly affect the estimates.
r)
New
Accounting Standards
In
June
2005, the FASB decided not to provide additional guidance on the meaning of
other-than-temporary impairment, and issued FASB Staff Position (“FSP FAS”)
115-1 with references to existing other-than-temporary impairment guidance,
such
as SFAS No. 115, “Accounting
for Certain Investments in Debt and Equity Securities,”
SEC
Staff Accounting Bulletin No. 59, “Accounting
for Noncurrent Marketable Equity Securities,”
and
APB Opinion No. 18, “The
Equity Method of Accounting for Investments in Common Stock.”
FSP
FAS 115-1 will codify the guidance set forth in Emerging Issues Task Force
Topic
D-44 and clarify that an investor should recognize an impairment loss no later
than when the impairment is deemed other than temporary, even if a decision
to
sell has not been made. FSP FAS 115-1 will be effective for other-than-temporary
impairment analysis conducted in periods beginning after December 15,
2005.
SFAS
123R, “Accounting
for Stock-Based Compensation, Revised,”
requires
all public companies to record compensation cost for stock options provided
to
employees in return for employee service. The cost is measured at the fair
value
of the options when granted, and this cost is expensed over the employee service
period, which is normally the vesting period of the options. The Securities
and
Exchange Commission in April 2005 amended the compliance dates for SFAS 123R
from periods beginning after September 15, 2005 to the beginning of the next
fiscal year. Historically substantially all of the options granted by the
Company have vested immediately; compensation expense would be recorded on
the
date of grant. The effect on results of operations will depend on the level
of
future option grants and the calculation of the fair value of the options
granted at such future date and so cannot currently be predicted.
The
effect of these new standards on the Company’s financial position and results of
operations is not expected to be material upon and after
adoption.
s)
Reclassifications
Certain
reclassifications have been made to prior year amounts to conform to the current
year presentation.
2.
SECURITIES
A
summary
of the amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of securities is as follows:
December
31,
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
2004
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
Gross
|
|
Gross
|
|
Estimated
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
Available
for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury and government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agency
securities
|
|
$
|
38,443
|
|
$
|
7
|
|
$
|
(788
|
)
|
$
|
37,662
|
|
$
|
53,736
|
|
$
|
519
|
|
$
|
(216
|
)
|
$
|
54,039
|
|
State
and municipal obligations
|
|
|
51,392
|
|
|
387
|
|
|
(559
|
)
|
|
51,220
|
|
|
40,027
|
|
|
1,098
|
|
|
(81
|
)
|
|
41,044
|
|
Mortgage-backed
securities
|
|
|
96,938
|
|
|
27
|
|
|
(3,046
|
)
|
|
93,919
|
|
|
107,609
|
|
|
483
|
|
|
(1,133
|
)
|
|
106,959
|
|
Total
available for sale
|
|
|
186,773
|
|
|
421
|
|
|
(4,393
|
)
|
|
182,801
|
|
|
201,372
|
|
|
2,100
|
|
|
(1,430
|
)
|
|
202,042
|
|
Restricted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
Reserve Bank Stock
|
|
|
36
|
|
|
-
|
|
|
-
|
|
|
36
|
|
|
36
|
|
|
-
|
|
|
-
|
|
|
36
|
|
Federal
Home Loan Bank Stock
|
|
|
1,341
|
|
|
-
|
|
|
-
|
|
|
1,341
|
|
|
1,943
|
|
|
-
|
|
|
-
|
|
|
1,943
|
|
Total
restricted
|
|
|
1,377
|
|
|
-
|
|
|
-
|
|
|
1,377
|
|
|
1,979
|
|
|
-
|
|
|
-
|
|
|
1,979
|
|
Held
to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and municipal obligations
|
|
|
10,012
|
|
|
-
|
|
|
(23
|
)
|
|
9,989
|
|
|
21,213
|
|
|
-
|
|
|
(82
|
)
|
|
21,131
|
|
Total
held to maturity
|
|
|
10,012
|
|
|
-
|
|
|
(23
|
)
|
|
9,989
|
|
|
21,213
|
|
|
-
|
|
|
(82
|
)
|
|
21,131
|
|
Total
debt and equity securities
|
|
$
|
198,162
|
|
$
|
421
|
|
$
|
(4,416
|
)
|
$
|
194,167
|
|
$
|
224,564
|
|
$
|
2,100
|
|
$
|
(1,512
|
)
|
$
|
225,152
|
|
Securities
with unrealized losses at year-end 2005 and 2004, aggregated by category and
length of time that individual securities have been in a continuous unrealized
loss position, are as follows:
December
31,
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
2004
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
than 12 months
|
|
Greater
than 12 months
|
|
Less
than 12 months
|
|
Greater
than 12 months
|
|
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Unrealized
|
|
|
|
Fair
Value
|
|
Losses
|
|
Fair
Value
|
|
Losses
|
|
Fair
Value
|
|
Losses
|
|
Fair
Value
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury and government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agency
securities
|
|
$
|
14,132
|
|
$
|
243
|
|
$
|
18,048
|
|
$
|
546
|
|
$
|
26,832
|
|
$
|
216
|
|
$
|
-
|
|
$
|
-
|
|
State
and municipal obligations
|
|
|
31,635
|
|
|
266
|
|
|
9,214
|
|
|
316
|
|
|
26,343
|
|
|
127
|
|
|
1,070
|
|
|
35
|
|
Mortgage-backed
securities
|
|
|
42,354
|
|
|
860
|
|
|
50,736
|
|
|
2,185
|
|
|
35,146
|
|
|
336
|
|
|
30,816
|
|
|
798
|
|
Total
temporarily impaired securities
|
|
$
|
88,121
|
|
$
|
1,369
|
|
$
|
77,998
|
|
$
|
3,047
|
|
$
|
88,321
|
|
$
|
679
|
|
$
|
31,886
|
|
$
|
833
|
|
Unrealized
losses on securities have not been recognized into income, as the
losses on these securities would be expected to dissipate as they approach
their
maturity dates.
The
Company evaluates securities for other-than-temporary impairment periodically
with increased frequency when economic or market concerns warrant such
evaluation. Consideration is given to the length of time and the extent to
which
the fair value has been less than cost, the financial condition and near-term
prospects of the issuer, and the intent and ability of the Company to retain
its
investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value. In analyzing an issuer’s financial
condition, the Company may consider whether the securities are issued by the
federal government or its agencies, whether downgrades by bond rating agencies
have occurred, and the results of reviews of the issuer’s financial
condition.
The
following table sets forth the fair value, amortized cost, maturities and
approximated weighted average yield (based on the estimated annual income
divided by the average book value) at December 31, 2005. Expected maturities
will differ from contractual maturities because borrowers may have the right
to
call or prepay obligations with or without call or prepayment penalties. Yields
on tax-exempt obligations have been computed on a tax-equivalent
basis.
December
31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in thousands)
|
Within
|
|
After
One But
|
|
After
Five But
|
|
After
|
|
No
|
|
|
|
|
|
|
One
Year
|
|
Within
Five Years
|
|
Within
Ten Years
|
|
Ten
Years
|
|
Maturity
|
|
Total
|
|
|
Fair
Value
Amount
|
|
Amortized
Cost
Amount
|
|
Yield
|
|
Fair
Value
Amount
|
|
Amortized
Cost
Amount
|
|
Yield
|
|
Fair
Value
Amount
|
|
Amortized
Cost
Amount
|
|
Yield
|
|
Fair
Value
Amount
|
|
Amortized
Cost
Amount
|
|
Yield
|
|
Fair
Value
Amount
|
|
Amortized
Cost
Amount
|
|
Yield
|
|
Fair
Value
Amount
|
|
Amortized
Cost
Amount
|
|
Available
for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
government
agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
$
|
394
|
|
$
|
401
|
|
|
3.42
|
%
|
$
|
37,268
|
|
$
|
38,042
|
|
|
5.64
|
%
|
$
|
-
|
|
$
|
-
|
|
|
-
|
%
|
$
|
-
|
|
$
|
-
|
|
|
-
|
%
|
$
|
-
|
|
$
|
-
|
|
|
-
|
%
|
$
|
37,662
|
|
$
|
38,443
|
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
-
|
|
|
-
|
|
|
-
|
|
|
11,542
|
|
|
11,968
|
|
|
5.65
|
|
|
16,563
|
|
|
17,027
|
|
|
6.38
|
|
|
65,814
|
|
|
67,943
|
|
|
6.62
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
93,919
|
|
|
96,938
|
|
State
and municipal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
obligations
|
|
5,318
|
|
|
5,281
|
|
|
6.84
|
|
|
21,469
|
|
|
21,564
|
|
|
4.98
|
|
|
15,269
|
|
|
15,315
|
|
|
5.38
|
|
|
9,164
|
|
|
9,232
|
|
|
5.69
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
51,220
|
|
|
51,392
|
|
Total
available for sale
|
|
5,712
|
|
|
5,682
|
|
|
6.60
|
|
|
70,279
|
|
|
71,574
|
|
|
5.44
|
|
|
31,832
|
|
|
32,342
|
|
|
5.91
|
|
|
74,978
|
|
|
77,175
|
|
|
6.50
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
182,801
|
|
|
186,773
|
|
Restricted
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
Reserve Bank Stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
36
|
|
|
36
|
|
|
9.00
|
|
|
36
|
|
|
36
|
|
Federal
Home Loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
Stock
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,341
|
|
|
1,341
|
|
|
6.87
|
|
|
1,341
|
|
|
1,341
|
|
Total
restricted
|
|
-
|
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
1,377
|
|
|
1,377
|
|
|
6.93
|
|
|
1,377
|
|
|
1,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held
to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and municipal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
obligations
|
|
9,989
|
|
|
10,012
|
|
|
4.53
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9,989
|
|
|
10,012
|
|
Total
held to maturity
|
|
9,989
|
|
|
10,012
|
|
|
4.53
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9,989
|
|
|
10,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
debt and equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
$
|
15,701
|
|
$
|
15,694
|
|
|
5.28
|
%
|
$
|
70,279
|
|
$
|
71,574
|
|
|
5.44
|
%
|
$
|
31,832
|
|
$
|
32,342
|
|
|
5.91
|
%
|
$
|
74,978
|
|
$
|
77,175
|
|
|
6.50
|
%
|
$
|
1,377
|
|
$
|
1,377
|
|
|
6.93
|
%
|
$
|
194,167
|
|
$
|
198,162
|
|
There
were $21,965,000, $56,005,000 and $71,637,000 of proceeds on sales of available
for sale securities in 2005, 2004, and 2003, respectively. Gross gains of
approximately $180,000, $1,126,000, and $1,461,000 were realized on sales of
available for sale securities during 2005, 2004, and 2003, respectively. Gross
losses of approximately $65,000, $392,000, and $635,000 were realized on sales
of available for sale securities during 2005, 2004, and 2003, respectively.
There were no sales of held to maturity securities during 2005, 2004, and
2003.
Securities
having a fair value of approximately $123,314,000 and $110,479,000 at December
31, 2005 and 2004, respectively, were pledged to secure public
deposits.
There
was
no investment that exceeded 10% of stockholders’ equity at December 31,
2005.
3.
LOANS
The
following table sets forth the major classifications of loans:
December
31,
|
|
2005
|
|
2004
|
|
(In
thousands)
|
|
|
|
|
|
|
|
Real
estate mortgage loans
|
|
$
|
242,928
|
|
$
|
236,812
|
|
Commercial,
financial, and agricultural loans
|
|
|
31,644
|
|
|
34,342
|
|
Installment/consumer
loans
|
|
|
9,827
|
|
|
6,685
|
|
Real
estate construction loans
|
|
|
17,960
|
|
|
18,452
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
|
302,359
|
|
|
296,291
|
|
Unearned
income
|
|
|
(95
|
)
|
|
(157
|
)
|
|
|
|
302,264
|
|
|
296,134
|
|
Allowance
for loan losses
|
|
|
(2,383
|
)
|
|
(2,188
|
)
|
Net
loans
|
|
$
|
299,881
|
|
$
|
293,946
|
|
Lending
Risk
The
principal business of the Bank is lending, primarily in commercial real estate
loans, construction loans, home equity loans, land loans, consumer loans,
residential mortgages and commercial 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.
Allowance
for Loan Losses
The
following table sets forth changes in the allowance for loan
losses.
December
31,
|
|
2005
|
|
2004
|
|
2003
|
|
(In
thousands)
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
|
|
|
|
|
|
|
|
balance
at beginning of period
|
|
$
|
2,188
|
|
$
|
2,144
|
|
$
|
2,294
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
Real
estate mortgage loans
|
|
|
7
|
|
|
3
|
|
|
38
|
|
Commercial,
financial and agricultural loans
|
|
|
153
|
|
|
302
|
|
|
163
|
|
Installment/consumer
loans
|
|
|
129
|
|
|
65
|
|
|
148
|
|
Total
|
|
|
289
|
|
|
370
|
|
|
349
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
Real
estate mortgage loans
|
|
|
17
|
|
|
23
|
|
|
13
|
|
Real
estate construction loans
|
|
|
100
|
|
|
-
|
|
|
-
|
|
Commercial,
financial and agricultural loans
|
|
|
37
|
|
|
61
|
|
|
90
|
|
Installment/consumer
loans
|
|
|
30
|
|
|
30
|
|
|
96
|
|
Total
|
|
|
184
|
|
|
114
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(charge-offs) recoveries
|
|
|
(105
|
)
|
|
(256
|
)
|
|
(150
|
)
|
Provision
for loan losses
|
|
|
|
|
|
|
|
|
|
|
charged
to operations
|
|
|
300
|
|
|
300
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
$
|
2,383
|
|
$
|
2,188
|
|
$
|
2,144
|
|
Past
Due, Nonaccrual and Restructured Loans
Nonaccrual
loans at December 31, 2005 and 2004 were $658,000 and $1,695,000, respectively.
There were no loans 90 days or more past due that were still accruing or any
restructured loans at December 31, 2005 and 2004. Gross interest income on
nonaccrual loans that would have been recorded under original terms during
the
year ended December 31, 2005, 2004, and 2003 were $38,000, $16,000, and $9,000,
respectively. Gross interest income recorded on these loans during the year
ended December 31, 2005, 2004 and 2003 were $17,000, $12,000, and $6,000,
respectively.
As
of
December 31, 2005 and 2004, the Bank did not have any impaired loans as defined
in SFAS No. 114.
Related
Party Loans
Certain
directors, executive officers, and their related parties, including their
immediate families and companies in which they are principal owners, were loan
customers of the Bank during 2005 and 2004.
The
following table sets forth selected information about related party loans at
December 31, 2005.
|
|
Balance
Outstanding
|
|
(In
thousands)
|
|
|
|
|
Balance
at December 31, 2004
|
|
$
|
1,220
|
|
New
loans
|
|
|
-
|
|
Effective
change in related parties
|
|
|
56
|
|
Advances
|
|
|
682
|
|
Repayments
|
|
|
(170
|
)
|
Balance
at December 31, 2005
|
|
$
|
1,788
|
|
4.
BANKING PREMISES AND EQUIPMENT
Banking
premises and equipment consist of:
December
31,
|
|
2005
|
|
2004
|
|
(In
thousands)
|
|
|
|
|
|
Land
|
|
$
|
6,142
|
|
$
|
6,142
|
|
Construction
in progress
|
|
|
426
|
|
|
87
|
|
Building
and improvements
|
|
|
8,632
|
|
|
7,036
|
|
Furniture
and fixtures
|
|
|
6,797
|
|
|
6,110
|
|
Leasehold
improvements
|
|
|
1,234
|
|
|
1,226
|
|
|
|
|
23,231
|
|
|
20,601
|
|
Less:
accumulated
|
|
|
|
|
|
|
|
depreciation
and amortization
|
|
|
(7,591
|
)
|
|
(6,784
|
)
|
|
|
$
|
15,640
|
|
$
|
13,817
|
|
The
Company has a purchase commitment outstanding at December 31, 2005 for purchase
of real estate in the Town of Southold for $250,000.
5.
DEPOSITS
Time
Deposits
The
following table sets forth the remaining maturities of the Bank’s time deposits
at December 31, 2005.
|
|
Less
than $100,000
|
|
$100,000
or Greater
|
|
Total
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
3
months or less
|
|
$
|
9,515
|
|
$
|
11,284
|
|
$
|
20,799
|
|
Over
3 thru 6 months
|
|
|
5,327
|
|
|
2,469
|
|
|
7,796
|
|
Over
6 thru 12 months
|
|
|
5,700
|
|
|
2,762
|
|
|
8,462
|
|
Over
12 months thru 24 months
|
|
|
2,727
|
|
|
1,661
|
|
|
4,388
|
|
Over
24 months thru 36 months
|
|
|
1,267
|
|
|
641
|
|
|
1,908
|
|
Over
36 months thru 48 months
|
|
|
312
|
|
|
204
|
|
|
516
|
|
Over
48 months thru 60 months
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Over
60 months
|
|
|
2
|
|
|
-
|
|
|
2
|
|
Total
|
|
$
|
24,850
|
|
$
|
19,021
|
|
$
|
43,871
|
|
Deposits
from principal officers, directors and their affiliates at year-end 2005 and
2004 were approximately $3,526,000 and $4,177,000, respectively.
6.
INCOME
TAXES
The
components of the provision for income taxes are as follows:
Year
Ended December 31,
|
|
2005
|
|
2004
|
|
2003
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
4,087
|
|
$
|
4,453
|
|
$
|
4,361
|
|
State
|
|
|
863
|
|
|
1,139
|
|
|
1,090
|
|
|
|
|
4,950
|
|
|
5,592
|
|
|
5,451
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(22
|
)
|
|
152
|
|
|
30
|
|
State
|
|
|
1
|
|
|
27
|
|
|
7
|
|
|
|
|
(21
|
)
|
|
179
|
|
|
37
|
|
Total
|
|
$
|
4,929
|
|
$
|
5,771
|
|
$
|
5,488
|
|
The
reconciliation of the expected Federal income tax expense at the statutory
tax
rate to the actual provision follows:
Year
Ended December 31,
|
|
|
|
2005
|
|
|
|
2004
|
|
|
|
2003
|
|
(Dollars
in thousands)
|
|
|
|
Percentage
|
|
|
|
Percentage
|
|
|
|
Percentage
|
|
|
|
|
|
of
Pre-tax
|
|
|
|
of
Pre-tax
|
|
|
|
of
Pre-tax
|
|
|
|
Amount
|
|
Earnings
|
|
Amount
|
|
Earnings
|
|
Amount
|
|
Earnings
|
|
Federal
income tax expense computed by applying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the
statutory rate to income before income taxes
|
|
$
|
4,984
|
|
|
34
|
%
|
$
|
5,531
|
|
|
34
|
%
|
$
|
5,280
|
|
|
35
|
%
|
Tax
exempt interest
|
|
|
(665
|
)
|
|
(4
|
)
|
|
(552
|
)
|
|
(4
|
)
|
|
(544
|
)
|
|
(4
|
)
|
State
taxes, net of Federal income tax benefit
|
|
|
568
|
|
|
5
|
|
|
767
|
|
|
5
|
|
|
721
|
|
|
5
|
|
Other
|
|
|
42
|
|
|
1
|
|
|
25
|
|
|
1
|
|
|
31
|
|
|
-
|
|
Provision
for income taxes
|
|
$
|
4,929
|
|
|
36
|
%
|
$
|
5,771
|
|
|
36
|
%
|
$
|
5,488
|
|
|
36
|
%
|
Deferred
tax assets and liabilities are comprised of the following:
December
31,
|
|
2005
|
|
2004
|
|
(In
thousands)
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Allowance
for loan losses
|
|
$
|
1,026
|
|
$
|
924
|
|
Depreciation
|
|
|
15
|
|
|
-
|
|
Total
|
|
|
1,041
|
|
|
924
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
Pension
expense
|
|
|
(211
|
)
|
|
(184
|
)
|
Other
|
|
|
(203
|
)
|
|
(78
|
)
|
Depreciation
|
|
|
-
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
Total
|
|
|
(414
|
)
|
|
(319
|
)
|
|
|
|
|
|
|
|
|
Total
before other comprehensive income
|
|
|
627
|
|
|
605
|
|
|
|
|
|
|
|
|
|
SFAS
No. 115 deferred tax asset (liability)
|
|
|
1,596
|
|
|
(267
|
)
|
Minimum
pension liability adjustment
|
|
|
59
|
|
|
81
|
|
Net
deferred tax asset
|
|
$
|
2,282
|
|
$
|
419
|
|
Since
the
Bank has exceeded the threshold of $500,000,000 in average assets, the tax
basis
in the bad debt reserve prior to January 1, 2004 is to be recaptured for federal
tax purposes. The Bank intends to recapture this using the deferral method
and
has previously provided for the taxes relating to this recapture. Subsequent
to
January 1, 2004, the Bank is on a specific charge-off method for federal tax
purposes.
7.
EMPLOYEE BENEFITS
a)
Pension Plan and Supplemental Executive Retirement Plan
The
Bank
maintains a noncontributory pension plan through the New York State Bankers
Association Retirement System covering all eligible employees. The Bank uses
a
September 30 measurement date for this plan.
During
2001, the Bank adopted the Bridgehampton National Bank Supplemental Executive
Retirement Plan (“SERP”). The SERP provides benefits to certain employees,
designated by the Compensation Committee of the 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 in order to maintain the tax-deferred status
of
the individuals in the plan. As a result, the assets of the trust are reflected
on the Consolidated Statements of Condition of the Company. The effective date
of the SERP was January 1, 2001. SERP expense was $208,000, $149,000, and
$142,000 in 2005, 2004 and 2003, respectively. Subsequent to December 31, 2005,
a payout of approximately $105,000 will be made pursuant to a severance
agreement with the former Chief Operating Officer.
The
following table sets forth the plans’ changes in obligations and funded status
projected as of September 30, 2005 and 2004 (measurement dates).
|
|
Pension
Benefits
|
|
SERP
Benefits
|
|
At
December 31,
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
(In
thousands)
|
|
|
|
|
|
|
|
Change
in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
$
|
3,776
|
|
$
|
3,382
|
|
$
|
1,453
|
|
$
|
1,016
|
|
Service
cost
|
|
|
317
|
|
|
277
|
|
|
87
|
|
|
63
|
|
Expenses
|
|
|
(40
|
)
|
|
(35
|
)
|
|
-
|
|
|
-
|
|
Interest
cost
|
|
|
223
|
|
|
200
|
|
|
71
|
|
|
52
|
|
Benefits
paid
|
|
|
(130
|
)
|
|
(123
|
)
|
|
-
|
|
|
-
|
|
Additional
prior service cost
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Assumption
changes and other
|
|
|
485
|
|
|
75
|
|
|
(430
|
)
|
|
322
|
|
Benefit
obligation at end of year
|
|
$
|
4,631
|
|
$
|
3,776
|
|
$
|
1,181
|
|
$
|
1,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in plan assets, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
assets at beginning of year
|
|
$
|
3,759
|
|
$
|
2,508
|
|
|
-
|
|
|
-
|
|
Actual
return on plan assets
|
|
|
445
|
|
|
295
|
|
|
-
|
|
|
-
|
|
Employer
contribution
|
|
|
-
|
|
|
1,114
|
|
|
-
|
|
|
-
|
|
Benefit
paid
|
|
|
(130
|
)
|
|
(123
|
)
|
|
-
|
|
|
-
|
|
Expenses
|
|
|
(40
|
)
|
|
(35
|
)
|
|
-
|
|
|
-
|
|
Plan
assets at end of year
|
|
$
|
4,034
|
|
$
|
3,759
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status (plan assets less benefit obligations)
|
|
$
|
(596
|
)
|
$
|
(16
|
)
|
$
|
(1,181
|
)
|
$
|
(1,453
|
)
|
Unrecognized
net actuarial loss
|
|
|
1,107
|
|
|
795
|
|
|
78
|
|
|
531
|
|
Unrecognized
prior service cost
|
|
|
137
|
|
|
147
|
|
|
-
|
|
|
-
|
|
Unrecognized
transition asset
|
|
|
(3
|
)
|
|
(12
|
)
|
|
399
|
|
|
426
|
|
Minimum
additional pension liability
|
|
|
-
|
|
|
-
|
|
|
(147
|
)
|
|
(202
|
)
|
Prepaid
benefit (accrued) cost
|
|
$
|
645
|
|
$
|
914
|
|
$
|
(851
|
)
|
$
|
(698
|
)
|
Amounts
recognized in the statement of condition consist of:
|
|
Pension
Benefits
|
|
SERP
Benefits
|
|
At
December 31,
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
Prepaid
benefit cost
|
|
$
|
645
|
|
$
|
914
|
|
$
|
-
|
|
$
|
-
|
|
Accrued
benefit cost
|
|
|
-
|
|
|
-
|
|
|
(704
|
)
|
|
(495
|
)
|
Minimum
additional pension liability
|
|
|
-
|
|
|
-
|
|
|
(147
|
)
|
|
(202
|
)
|
Other
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
amount recognized
|
|
$
|
645
|
|
$
|
914
|
|
$
|
(851
|
)
|
$
|
(697
|
)
|
|
|
Pension
Benefits
|
|
SERP
Benefits
|
|
At
December 31,
|
|
2005
|
|
2004
|
|
2003
|
|
2005
|
|
2004
|
|
2003
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components
of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
317
|
|
$
|
277
|
|
$
|
265
|
|
$
|
87
|
|
$
|
63
|
|
$
|
59
|
|
Interest
cost
|
|
|
223
|
|
|
200
|
|
|
175
|
|
|
71
|
|
|
52
|
|
|
46
|
|
Expected
return on plan assets
|
|
|
(296
|
)
|
|
(208
|
)
|
|
(185
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Amortization
of net loss
|
|
|
25
|
|
|
25
|
|
|
29
|
|
|
-
|
|
|
23
|
|
|
7
|
|
Amortization
of unrecognized prior service cost
|
|
|
10
|
|
|
9
|
|
|
9
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Amortization
of unrecognized transition (asset) obligation
|
|
|
(9
|
)
|
|
(8
|
)
|
|
(8
|
)
|
|
28
|
|
|
28
|
|
|
28
|
|
Net
periodic benefit cost
|
|
$
|
290
|
|
$
|
295
|
|
$
|
285
|
|
$
|
186
|
|
$
|
166
|
|
$
|
140
|
|
Other
information for the pension and SERP are as follows:
|
|
Pension
Plan
|
|
SERP
|
|
At
December 31,
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
Net
minimum liability included in other comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
|
|
$
|
-
|
|
$
|
-
|
|
$
|
88
|
|
$
|
121
|
|
Accumulated
benefit obligation
|
|
|
3,463
|
|
|
2,907
|
|
|
851
|
|
|
697
|
|
Expected
contributions in 2006
|
|
|
666
|
|
|
-
|
|
|
148
|
|
|
- |
|
The
following benefit payments, which reflect expected future service, as
appropriate are expected to be paid as follows:
Year
|
|
Pension
Payments
|
|
(In
thousands)
|
|
|
|
|
|
|
|
2006
|
|
$
|
137
|
|
2007
|
|
|
138
|
|
2008
|
|
|
137
|
|
2009
|
|
|
204
|
|
2010
|
|
|
205
|
|
2011-2015
|
|
|
1,110
|
|
The
Company’s pension plan weighted-average asset allocations at September 30, 2005
and 2004 by asset category are as follows:
Plan
Assets at September 30,
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Asset
Category:
|
|
|
|
|
|
|
|
Equity
Securities
|
|
|
58.8
|
%
|
|
64.7
|
%
|
Debt
Securities
|
|
|
41.2
|
|
|
34.9
|
|
Other
|
|
|
-
|
|
|
0.4
|
|
Total
|
|
|
100.0
|
%
|
|
100.0
|
%
|
Investment
Policies
The
New
York State Bankers Retirement System (the “System”) was established in 1938 to
provide for the payment of benefits to employees of participating banks. The
System is overseen by a Board of Trustees (“Trustees”), who meet quarterly, and
set the investment policy guidelines.
The
System utilizes two investment management firms (which will be referred to
as
“Firm I” and “Firm II”). Firm I is investing approximately 68% of the portfolio
and Firm II is investing approximately 32% of the portfolio. The System’s
investment objective is to exceed the investment benchmarks in each asset
category. Each firm operates under a separate written investment policy approved
by the Trustees and designed to achieve an allocation approximating 60% invested
in Equity Securities and 40% invested in Debt Securities.
Each
Firm
reports at least quarterly to the investment committee of the System and
semi-annually to the Trustees.
Equities:
The target allocation percentage for equity securities is 60% but may vary
from
50%-70% at the investment manager’s discretion.
Firm
I is
employed for its expertise as a Value Manager. It is allowed to invest a certain
amount of the equity portfolio under its management in international securities
and to hedge said international securities so as to protect against currency
devaluations.
The
equities managed by Firm II are in a commingled Large Cap Equity Fund. The
portfolio is permitted to invest in a diversified range of securities in the
US
Equity markets. Although the portfolio holds primarily common stocks, from
time
to time the portfolio may invest in other types of investments on an
opportunistic basis.
Fixed
Income: For both investment portfolios, the target allocation percentage for
debt securities is 40%, but may vary from 30% to 50% at the investment manager’s
discretion.
The
Fixed
Income Portfolio managed by Firm I operates with guidelines relating to types
of
debt securities, quality ratings, maturities,
and
maximum single and sector allocations.
The
portfolio may trade foreign currencies in both spot and forward markets to
affect securities transactions and to hedge underlying asset positions. The
purchase and sale of futures and options on futures on foreign currencies and
on
foreign and domestic bonds, bond indices and short-term securities is permitted;
however, purchases may not be used to leverage the portfolio. Currency
transactions may only be used to hedge 0-100% of currency exposure of foreign
securities.
The
Fixed
Income managed by Firm II is a Core Bond Fixed Income Fund. The portfolio
investments are limited to US Dollar denominated, fixed income securities and
selective derivatives designed to have similar attributes of such fixed income
securities. The term “fixed income security” is defined to include instruments
with fixed, floating, variable, adjustable, auction-rate, zero, or other coupon
features.
Expected
Long-Term Rate-of-Return
The
expected long-term rate-of-return on plan assets reflects long-term earnings
expectations on existing plan assets and those contributions expected to be
received during the current plan year. In estimating that rate, appropriate
consideration was given to historical returns earned by plan assets in the
fund
and the rates of return expected to be available for reinvestment. Average
rates
of return over the past 1, 3, 5 and 10-year periods were determined and
subsequently adjusted to reflect current capital market assumptions and changes
in investment allocations.
|
|
Pension
Benefits
|
|
SERP
Benefits
|
|
At
December 31,
|
|
2005
|
|
2004
|
|
2003
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Assumptions Used to Determine Benefit
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
5.50
|
%
|
|
6.00
|
%
|
|
6.00
|
%
|
|
4.68
|
%
|
|
4.90
|
%
|
|
5.14
|
%
|
Rate
of compensation increase
|
|
|
4.50
|
|
|
4.00
|
|
|
4.00
|
|
|
5.00
|
|
|
4.00
|
|
|
4.00
|
|
Expected
long-term rate of return
|
|
|
8.00
|
|
|
8.00
|
|
|
8.00
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Weighted
Average Assumptions Used to Determine Net Periodic Benefit Cost
(Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
rate
|
|
|
6.00
|
%
|
|
6.00
|
%
|
|
6.25
|
%
|
|
4.90
|
%
|
|
5.14
|
%
|
|
5.14
|
%
|
Rate
of compensation increase
|
|
|
4.00
|
|
|
4.00
|
|
|
4.00
|
|
|
4.00
|
|
|
4.00
|
|
|
4.00
|
|
Expected
long-term rate of return
|
|
|
8.00
|
|
|
8.00
|
|
|
8.50
|
|
|
-
|
|
|
-
|
|
|
-
|
|
b)
401(k)
Plan
A
savings
plan is maintained under Section 401(k) of the Internal Revenue Code and covers
substantially all current employees. Newly hired employees can elect to
participate in the savings plan after completing six months of service. Under
the provisions of the savings plan, employee contributions are partially matched
by the Bank with cash contributions. Participants can invest their account
balances into several investment alternatives. The savings plan does not allow
for investment in the Company’s common stock. During the years ended December
31, 2005, 2004 and 2003 the Bank made cash contributions of $114,000, $110,000,
and $108,000, respectively.
c)
Equity
Incentive Plan
During
1996, the Bridge Bancorp, Inc. Equity Incentive Plan (the “Plan”) was approved
by the shareholders to provide for the grant of options to purchase up to a
total of 648,000 shares of common stock of the Company and for the award of
shares of common stock as a bonus. During 2001, a plan amendment to cover
non-employee directors was adopted by the shareholders. Of the total 648,000
shares of common stock approved for issuance under the Plan, at December 31,
2005, 406,048 shares remain available for issuance.
The
Compensation Committee of the Board of Directors determines options awarded
under the Plan. The Company accounts for this Plan under APB Opinion No. 25,
under which no compensation cost has been recognized for stock options granted.
Historically, stock options granted by the Company are immediately
exercisable.
For
the Year Ended December 31,
|
|
|
|
2005
|
|
|
|
2004
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number |
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
|
|
of |
|
|
Exercise
|
|
|
of
|
|
|
Exercise
|
|
|
of
|
|
|
Exercise
|
|
|
|
|
Options |
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of the year
|
|
|
102,429
|
|
$
|
15.10
|
|
|
136,725
|
|
$
|
13.22
|
|
|
163,575
|
|
$
|
11.85
|
|
Granted
|
|
|
6,954
|
|
$
|
28.85
|
|
|
14,845
|
|
$
|
24.00
|
|
|
26,550
|
|
$
|
15.47
|
|
Exercised
|
|
|
(26,276
|
)
|
$
|
13.09
|
|
|
(49,141
|
)
|
$
|
12.54
|
|
|
(53,400
|
)
|
$
|
10.11
|
|
Forfeited
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Outstanding
and exercisable, end of the year
|
|
|
83,107
|
|
$
|
16.88
|
|
|
102,429
|
|
$
|
15.10
|
|
|
136,725
|
|
$
|
13.22
|
|
Weighted
average fair value of options granted
|
|
|
|
|
$
|
4.39
|
|
|
|
|
$
|
4.45
|
|
|
|
|
$
|
5.00
|
|
Weighted
average remaining contractual life
|
|
|
|
|
|
4.79
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range
of Exercise Prices
|
|
|
Shares
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
$
|
9.78-$11.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,025
|
|
$
|
12.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,933
|
|
$
|
13.17-14.67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,100
|
|
$
|
15.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,049
|
|
$
|
24.00-$30.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company’s Equity Incentive Plan also provides for issuance of restricted stock
awards. During the years ended December 31, 2005 and 2004, the Company granted
restricted stock awards of 1,239 and 4,570 shares, respectively. These awards
vest over three years in January of each year following the date of the award.
Such shares are subject to restrictions based on continued service as employees
of the Company or employees of subsidiaries of the Company. Compensation expense
attributable to these awards was approximately $179,000, $101,000 and $98,000
for the years ended December 31, 2005, 2004, and 2003, respectively. Unearned
compensation is recorded as a reduction of stockholders’ equity until
earned.
8.
EARNINGS PER SHARE
The
following is a reconciliation of earnings per share for December 31, 2005,
2004
and 2003. All share and per share amounts have been adjusted for the
three-for-two stock split effective July 9, 2004.
For
the Year Ended December 31,
|
|
2005
|
|
2004
|
|
2003
|
|
(In
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
9,623
|
|
$
|
10,377
|
|
$
|
9,598
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
equivalent shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
6,241
|
|
|
6,255
|
|
|
6,197
|
|
Weighted
average common equivalent shares
|
|
|
34
|
|
|
75
|
|
|
57
|
|
Weighted
average common and common equivalent shares
|
|
|
6,275
|
|
|
6,330
|
|
|
6,254
|
|
Basic
earnings per share
|
|
$
|
1.54
|
|
$
|
1.66
|
|
$
|
1.55
|
|
Diluted
earnings per share
|
|
$
|
1.53
|
|
$
|
1.64
|
|
$
|
1.53
|
|
9.
COMMITMENTS AND CONTINGENCIES AND OTHER MATTERS
In
the
normal course of business, there are various outstanding commitments and
contingent liabilities, such as claims and legal actions, minimum annual rental
payments under non-cancelable operating leases, guarantees and commitments
to
extend credit, which are not reflected in the accompanying consolidated
financial statements. No material losses are anticipated as a result of these
actions or claims.
a)
Leases
The
Company is obligated to make minimum annual rental payments under non-cancelable
operating leases on its premises. Projected
minimum
rentals under existing leases are as follows:
December
31, 2005
|
|
|
|
(In
thousands)
|
|
|
|
|
2006
|
|
$
|
493
|
|
2007
|
|
|
368
|
|
2008
|
|
|
217
|
|
2009
|
|
|
197
|
|
2010
|
|
|
97
|
|
Thereafter
|
|
|
1,052
|
|
Total
minimum rentals
|
|
$
|
2,424
|
|
Certain
leases contain renewal options and rent escalation clauses. In addition, certain
leases provide for additional payments based upon real estate taxes, interest
and other charges. Rental expenses under these leases for the years ended
December 31, 2005, 2004 and 2003 approximated $456,000, $501,000, and $492,000,
respectively.
b)
Loan
commitments
Some
financial instruments, such as loan commitments, credit lines, letters of
credit, and overdraft protection, are issued to meet customer financing needs.
These are agreements to provide credit or to support the credit of others,
as
long as conditions established in the contract are met, and usually have
expiration dates. Commitments may expire without being used. Off-balance-sheet
risk to credit loss exists up to the face amount of these instruments, although
material losses are not anticipated. The same credit policies are used to make
such commitments as are used for loans, often including obtaining collateral
at
exercise of the commitment.
The
following represents commitments outstanding:
December
31,
|
|
2005
|
|
2004
|
|
(In
thousands)
|
|
|
|
|
|
|
|
Standby
letters of credit
|
|
$
|
1,955
|
|
$
|
1,803
|
|
Loan
commitments outstanding (1)
|
|
|
11,839
|
|
|
6,090
|
|
Unused
equity lines
|
|
|
42,432
|
|
|
37,233
|
|
Unused
construction lines
|
|
|
1,324
|
|
|
10,123
|
|
Unused
lines of credit
|
|
|
23,154
|
|
|
21,751
|
|
Unused
overdraft lines
|
|
|
12,268
|
|
|
11,408
|
|
Total
commitments outstanding
|
|
$
|
92,972
|
|
$
|
88,408
|
|
(1)
|
Of
the $11,839,000 of loan commitments outstanding, $987,000 are
|
|
fixed
rate commitments and $10,852,000 are variable rate
commitments.
|
c)
Other
During
2005, the Bank was required to maintain certain cash balances with the Federal
Reserve Bank of New York for reserve and clearing requirements. These balances
averaged $1,678,000 in 2005.
During
2005, 2004 and 2003, the Bank maintained an overnight line of credit with the
Federal Home Loan Bank of New York (“FHLB”). The Bank has the ability to borrow
against its unencumbered residential mortgages and investment securities owned
by the Bank. At
December 31, 2005, the Bank had aggregate lines of credit of $47,000,000 with
unaffiliated correspondent banks to provide short-term credit for liquidity
requirements. Of these aggregate lines of credit, $27,000,000 is available
on an
unsecured basis. As of December 31, 2005, the Bank had $14,500,000 in such
borrowings outstanding.
In
March
2001, the Bank entered into a Master Repurchase Agreement with the FHLB whereby
the FHLB agrees to purchase securities from the Bank, upon the Bank’s request,
with the simultaneous agreement to sell the same or similar securities back
to
the Bank at a future date. Securities are limited, under the agreement, to
government securities, securities issued, guaranteed or collateralized by any
agency or instrumentality of the U.S. Government or any government sponsored
enterprise, and non-agency AA and AAA rated mortgage-backed securities. At
December 31, 2005, there was $53,587,000 available for transactions under this
agreement. There were no balances outstanding at year-end.
10.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair
value estimates are made at a specific point in time and are based on existing
on-and off-balance sheet financial instruments. Such
estimates
are generally subjective in nature and dependent upon a number of significant
assumptions associated with each financial instrument or group of financial
instruments, including estimates of discount rates, risks associated with
specific financial instruments, estimates of future cash flows, and relevant
available market information. Changes in assumptions could significantly affect
the estimates. In addition, fair value estimates do not reflect the value of
anticipated future business, premiums or discounts that could result from
offering for sale at one time the Bank’s entire holdings of a particular
financial instrument, or the tax consequences of realizing gains or losses
on
the sale of financial instruments.
The
Company used the following method and assumptions in estimating the fair value
of its financial instruments:
Cash
and
Due from Banks and Federal Funds Sold: Carrying amounts approximate fair value,
since these instruments are either payable on demand or have short-term
maturities.
Securities
Available for Sale and Held to Maturity: The estimated fair values are based
on
independent dealer quotations and quoted market prices.
Loans:
The estimated fair values of real estate mortgage loans and other loans
receivable are based on discounted cash flow calculations that apply available
market benchmarks when establishing discount factors for the types of loans.
All
nonaccrual loans are carried at their current fair value. Exceptions may be
made
for Prime based adjustable rate loans (with resets of one year or less), which
would be discounted straight to Prime plus or minus an appropriate
spread.
Deposits:
The estimated fair value of certificates of deposits are based on discounted
cash flow calculations that apply interest rates currently being offered by
the
Bank for deposits with similar remaining maturities to a schedule of aggregated
expected monthly maturities. Stated value is fair value for all other
deposits.
Borrowings:
The estimated fair value of borrowed funds is based on the discounted value
of
contractual cash flows using interest rates currently in effect for borrowings
with similar maturities and collateral requirements.
Accrued
Interest Receivable and Payable: For these short-term instruments, the carrying
amount is a reasonable estimate of the fair value.
Off-Balance-Sheet
Liabilities: The
fair
value of off-balance-sheet commitments to extend credit is estimated using
fees
currently charged to enter into similar agreements.
The
estimated fair values and recorded carrying values of the Bank’s financial
instruments are as follows:
December
31,
|
|
2005
|
|
2004
|
|
(In
thousands)
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
Amount |
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
Financial
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
15,649
|
|
$
|
15,649
|
|
$
|
8,744
|
|
$
|
8,744
|
|
Interest
bearing deposits with banks
|
|
|
26
|
|
|
26
|
|
|
118
|
|
|
118
|
|
Securities
available for sale
|
|
|
182,801
|
|
|
182,801
|
|
|
202,042
|
|
|
202,042
|
|
Securities
restricted
|
|
|
1,377
|
|
|
1,377
|
|
|
1,979
|
|
|
1,979
|
|
Securities
held to maturity
|
|
|
10,012
|
|
|
9,989
|
|
|
21,213
|
|
|
21,131
|
|
Loans
|
|
|
299,881
|
|
|
305,096
|
|
|
293,946
|
|
|
294,640
|
|
Accrued
interest receivable
|
|
|
2,624
|
|
|
2,624
|
|
|
2,469
|
|
|
2,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
and other deposits
|
|
|
468,025
|
|
|
467,544
|
|
|
469,311
|
|
|
469,211
|
|
Overnight
borrowings
|
|
|
14,500
|
|
|
14,500
|
|
|
26,700
|
|
|
26,700
|
|
Accrued
interest payable
|
|
|
328
|
|
|
328
|
|
|
273
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance-Sheet
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
to extend credit
|
|
|
11,839
|
|
|
-
|
|
|
6,090
|
|
|
-
|
|
11.
REGULATORY MATTERS
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 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 December 31, 2005, that the
Company and the Bank meet all capital adequacy requirements with which it must
comply.
As
of
December 31, 2005, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as “well capitalized” under the
regulatory framework for prompt corrective action. To be categorized as “well
capitalized,” the Bank must maintain minimum total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the table. Since that notification,
there are no conditions or events that management believes have changed the
institution’s category.
The
Company and the Bank’s actual capital amounts and ratios are presented in the
following table:
Bridge
Bancorp, Inc. (Consolidated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31,
|
|
2005
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
To
Be Well
Capitalized
Under
Prompt
Corrective
Action
Provisions
|
|
|
|
|
|
|
|
For
Capital
Adequacy
Purposes
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Total
Capital (to risk weighted assets)
|
|
$
|
51,410
|
|
|
14.0
|
%
|
$
|
29,399
|
|
|
>8.0
|
%
|
|
n/a
|
|
|
n/a
|
|
Tier
1 Capital (to risk weighted assets)
|
|
|
49,115
|
|
|
13.4
|
%
|
|
14,699
|
|
|
>4.0
|
%
|
|
n/a
|
|
|
n/a
|
|
Tier
1 Capital (to average assets)
|
|
|
49,115
|
|
|
9.1
|
%
|
|
21,517
|
|
|
>4.0
|
%
|
|
n/a
|
|
|
n/a
|
|
As
of December 31,
|
|
2004
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
To
Be Well
Capitalized
Under
Prompt
Corrective
Action
Provisions
|
|
|
|
|
|
|
|
For
Capital
Adequacy
Purposes
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Total
Capital (to risk weighted assets)
|
|
$
|
48,998
|
|
|
13.5
|
%
|
$
|
28,940
|
|
|
>8.0
|
%
|
|
n/a
|
|
|
n/a
|
|
Tier
1 Capital (to risk weighted assets)
|
|
|
46,649
|
|
|
12.9
|
%
|
|
14,470
|
|
|
>4.0
|
%
|
|
n/a
|
|
|
n/a
|
|
Tier
1 Capital (to average assets)
|
|
|
46,649
|
|
|
8.3
|
%
|
|
22,468
|
|
|
>4.0
|
%
|
|
n/a
|
|
|
n/a
|
|
Bridgehampton
National Bank
|
|
|
|
As
of December 31,
|
|
2005
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
To
Be Well
Capitalized
Under
Prompt
Corrective
Action
Provisions
|
|
|
|
|
|
|
|
For
Capital
Adequacy
Purposes
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Total
Capital (to risk weighted assets)
|
|
$
|
51,234
|
|
|
14.0
|
%
|
$
|
29,392
|
|
|
>8.0
|
%
|
$
|
35,805
|
|
|
>10.0
|
%
|
Tier
1 Capital (to risk weighted assets)
|
|
|
48,851
|
|
|
13.3
|
%
|
|
14,696
|
|
|
>4.0
|
%
|
|
21,483
|
|
|
>
6.0
|
%
|
Tier
1 Capital (to average assets)
|
|
|
48,851
|
|
|
9.0
|
%
|
|
21,658
|
|
|
>4.0
|
%
|
|
27,073
|
|
|
>
5.0
|
%
|
As
of December 31,
|
|
2004
|
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
To
Be Well
Capitalized
Under
Prompt
Corrective
Action
Provisions
|
|
|
|
|
|
|
|
For
Capital
Adequacy
Purposes
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Total
Capital (to risk weighted assets)
|
|
$
|
47,773
|
|
|
13.2
|
%
|
$
|
28,924
|
|
|
>8.0
|
%
|
$
|
36,154
|
|
|
>10.0
|
%
|
Tier
1 Capital (to risk weighted assets)
|
|
|
45,585
|
|
|
12.6
|
%
|
|
14,462
|
|
|
>4.0
|
%
|
|
21,693
|
|
|
>
6.0
|
%
|
Tier
1 Capital (to average assets)
|
|
|
45,585
|
|
|
8.1
|
%
|
|
22,512
|
|
|
>4.0
|
%
|
|
28,140
|
|
|
>
5.0
|
%
|
12.
BRIDGE BANCORP, INC. (PARENT COMPANY ONLY)
Condensed
Statements of Financial Condition
December
31,
|
|
2005
|
|
2004
|
|
(In
thousands, except share data)
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
80
|
|
$
|
1,024
|
|
Dividend
receivable
|
|
|
1,441
|
|
|
1,339
|
|
Other
assets
|
|
|
82
|
|
|
201
|
|
Investment
in the Bank
|
|
|
46,489
|
|
|
45,988
|
|
Total
Assets
|
|
$
|
48,092
|
|
$
|
48,552
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Dividends
payable
|
|
$
|
1,428
|
|
$
|
1,313
|
|
Other
liabilities
|
|
|
13
|
|
|
26
|
|
Total
Liabilities
|
|
|
1,441
|
|
|
1,339
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
50,936
|
|
|
49,543
|
|
Treasury
stock at cost, 179,767 and 131,817 shares at
|
|
|
|
|
|
|
|
December
31, 2005 and 2004, respectively
|
|
|
(4,285
|
)
|
|
(2,330
|
)
|
Total
Stockholders’ Equity
|
|
|
46,651
|
|
|
47,213
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
48,092
|
|
$
|
48,552
|
|
Condensed
Statements of Income
Year
Ended December 31,
|
|
2005
|
|
2004
|
|
2003
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
Dividend
income from the Bank
|
|
$
|
6,390
|
|
$
|
5,104
|
|
$
|
4,893
|
|
Other
operating expenses
|
|
|
1
|
|
|
-
|
|
|
1
|
|
Income
before income taxes and equity in
|
|
|
|
|
|
|
|
|
|
|
undistributed
earnings of the Bank
|
|
|
6,389
|
|
|
5,104
|
|
|
4,892
|
|
Income
tax provision
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Income
before equity in undistributed
|
|
|
|
|
|
|
|
|
|
|
earnings
of the Bank
|
|
|
6,389
|
|
|
5,104
|
|
|
4,892
|
|
Equity
in undistributed earnings of the Bank
|
|
|
3,234
|
|
|
5,273
|
|
|
4,706
|
|
Net
income
|
|
$
|
9,623
|
|
$
|
10,377
|
|
$
|
9,598
|
|
Condensed
Statements of Cash Flows
Year
Ended December 31,
|
|
2005
|
|
2004
|
|
2003
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities:
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
9,623
|
|
$
|
10,377
|
|
$
|
9,598
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Equity
in undistributed earnings of the Bank
|
|
|
(3,234
|
)
|
|
(5,273
|
)
|
|
(4,706
|
)
|
Income
tax benefit from exercise of employee stock options
|
|
|
16
|
|
|
7
|
|
|
38
|
|
Decrease
(increase) in other assets
|
|
|
109
|
|
|
1,432
|
|
|
(2,043
|
)
|
Increase
(decrease) in other liabilities
|
|
|
11
|
|
|
(5
|
)
|
|
166
|
|
Net
cash provided by operating activities
|
|
|
6,525
|
|
|
6,538
|
|
|
3,053
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows used by financing activities:
|
|
|
|
|
|
|
|
|
|
|
Net
proceeds from issuance of common stock upon exercise of stock
options
|
|
|
216
|
|
|
203
|
|
|
440
|
|
Payment
for the purchase of treasury stock
|
|
|
(2,134
|
)
|
|
(611
|
)
|
|
-
|
|
Dividends
paid
|
|
|
(5,551
|
)
|
|
(5,790
|
)
|
|
(2,943
|
)
|
Net
cash used by financing activities
|
|
|
(7,469
|
)
|
|
(6,198
|
)
|
|
(2,503
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
(944
|
)
|
|
340
|
|
|
550
|
|
Cash
and cash equivalents at beginning of year
|
|
|
1,024
|
|
|
684
|
|
|
134
|
|
Cash
and cash equivalents at end of year
|
|
$
|
80
|
|
$
|
1,024
|
|
$
|
684
|
|
13.
QUARTERLY FINANCIAL DATA (Unaudited)
Selected
Consolidated Quarterly Financial Data
2005
Quarter Ended,
|
|
March
31,
|
|
June
30,
|
|
September
30,
|
|
December
31,
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
6,912
|
|
$
|
7,004
|
|
$
|
7,373
|
|
$
|
7,424
|
|
Interest
expense
|
|
|
916
|
|
|
1,033
|
|
|
1,118
|
|
|
1,252
|
|
Net
interest income
|
|
|
5,996
|
|
|
5,971
|
|
|
6,255
|
|
|
6,172
|
|
Provision
for loan losses
|
|
|
-
|
|
|
150
|
|
|
150
|
|
|
-
|
|
Net
interest income after provision for loan losses
|
|
|
5,996
|
|
|
5,821
|
|
|
6,105
|
|
|
6,172
|
|
Other
income
|
|
|
1,021
|
|
|
1,339
|
|
|
1,391
|
|
|
1,354
|
|
Other
expenses
|
|
|
3,568
|
|
|
3,645
|
|
|
3,771
|
|
|
3,663
|
|
Income
before income taxes
|
|
|
3,449
|
|
|
3,515
|
|
|
3,725
|
|
|
3,863
|
|
Provision
for income taxes
|
|
|
1,199
|
|
|
1,190
|
|
|
1,251
|
|
|
1,289
|
|
Net
income
|
|
$
|
2,250
|
|
$
|
2,325
|
|
$
|
2,474
|
|
$
|
2,574
|
|
Basic
earnings per share
|
|
$
|
0.36
|
|
$
|
0.37
|
|
$
|
0.40
|
|
$
|
0.41
|
|
Diluted
earnings per share
|
|
$
|
0.36
|
|
$
|
0.37
|
|
$
|
0.39
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004
Quarter Ended,
|
|
|
March
31,
|
|
|
June
30,
|
|
|
September
30,
|
|
|
December
31,
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$
|
6,443
|
|
$
|
6,651
|
|
$
|
6,955
|
|
$
|
6,874
|
|
Interest
expense
|
|
|
539
|
|
|
563
|
|
|
600
|
|
|
649
|
|
Net
interest income
|
|
|
5,904
|
|
|
6,088
|
|
|
6,355
|
|
|
6,225
|
|
Provision
for loan losses
|
|
|
-
|
|
|
50
|
|
|
100
|
|
|
150
|
|
Net
interest income after provision for loan losses
|
|
|
5,904
|
|
|
6,038
|
|
|
6,255
|
|
|
6,075
|
|
Other
income
|
|
|
1,591
|
|
|
1,215
|
|
|
1,284
|
|
|
1,350
|
|
Other
expenses
|
|
|
3,403
|
|
|
3,296
|
|
|
3,383
|
|
|
3,482
|
|
Income
before income taxes
|
|
|
4,092
|
|
|
3,957
|
|
|
4,156
|
|
|
3,943
|
|
Provision
for income taxes
|
|
|
1,467
|
|
|
1,415
|
|
|
1,493
|
|
|
1,396
|
|
Net
income
|
|
$
|
2,625
|
|
$
|
2,542
|
|
$
|
2,663
|
|
$
|
2,547
|
|
Basic
earnings per share
|
|
$
|
0.42
|
|
$
|
0.41
|
|
$
|
0.43
|
|
$
|
0.41
|
|
Diluted
earnings per share
|
|
$
|
0.41
|
|
$
|
0.40
|
|
$
|
0.42
|
|
$
|
0.41
|
|
|
Amounts
have been restated for a three-for-two stock split, in the form of
a stock
dividend, effective July 9, 2004.
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
Audit
Committee
Board
of
Directors
Bridge
Bancorp, Inc.
Bridgehampton,
New York
We
have
audited the accompanying balance sheets of Bridge Bancorp, Inc. as of December
31, 2005 and 2004, and the related statements of income, stockholders' equity
and cash flows for each of the years in the three-year period ended December
31,
2005. We also have audited management's assessment, included in the accompanying
Report By Management On Internal Control Over Financial Reporting, that Bridge
Bancorp, Inc. maintained effective internal control over financial reporting
as
of December 31, 2005, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Bridge
Bancorp, Inc.’s
management is responsible for these financial
statements, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on these financial
statements, an opinion on management's assessment, and an opinion on the
effectiveness of the company's internal control over financial reporting based
on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audit of financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our
audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, evaluating
management's assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as
we
considered necessary in the circumstances. We believe that our audits provide
a
reasonable basis for our opinions.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control
over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Bridge
Bancorp, Inc.
as of
December 31, 2005 and 2004, and the results of its operations and its cash
flows
for each of the years in the three-year period ended December 31, 2005 in
conformity with U.S. generally accepted accounting principles. Also in our
opinion, management's assessment that Bridge
Bancorp, Inc. maintained
effective internal control over financial reporting as of December 31, 2005,
is
fairly stated, in all material respects, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
Furthermore, in our opinion, Bridge Bancorp, Inc. maintained, in all material
respects, effective internal control over financial reporting as of December
31,
2005, based on
criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
|
/s/
Crowe Chizek and Company LLC
|
|
Crowe
Chizek and Company LLC
|
Livingston,
New Jersey
February
17, 2006
Item
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Disclosure
Controls and Procedures
An
evaluation was performed under the supervision and with the participation of
the
Company’s management, including the Chief Executive Officer and Chief 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 December 31,
2005. Based on that evaluation, the Company’s management, including the Chief
Executive Officer and Chief Financial Officer, concluded that the Company’s
disclosure controls and procedures were effective.
Report
By Management On Internal Control Over Financial Reporting
Management
of Bridge Bancorp, Inc. (“the Company”) is responsible for establishing and
maintaining an effective system of internal control over financial reporting.
The Company's system of internal control over financial reporting is designed
to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. There are inherent limitations
in
the effectiveness of any system of internal control over financial reporting,
including the possibility of human error and circumvention or overriding of
controls. Accordingly, even an effective system of internal control over
financial reporting can provide only reasonable assurance with respect to
financial statement preparation. Projections of any evaluation of effectiveness
to future periods are subject to the risks that controls may become inadequate
because of changes in conditions or that the degree of compliance with the
policies or procedures may deteriorate.
Management
assessed the Company’s systems of internal control over financial reporting as
of December 31, 2005. This assessment was based on criteria for effective
internal control over financial reporting described in Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on this assessment, management believes that, as of December 31, 2005, the
Company maintained effective internal control over financial reporting based
on
those criteria.
The
Company’s independent registered public accounting firm that audited the
financial statements that are included in this annual report on Form 10-K,
has
issued an attestation report on management’s assessment of the Company’s
internal control over financial reporting. The attestation report of Crowe
Chizek and Company LLC appears on the previous page.
Changes
in Internal Control Over Financial Reporting
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.
None.
Item
10. Directors and Executive Officers of the
Registrant
“Item
1 -
Election of Directors,” “Compliance with Section 16 (a) of the Exchange Act,”
and “Code of Ethics” set forth in the Registrant’s Proxy Statement for the 2006
Annual Meeting of Shareholders are incorporated herein by
reference.
“Compensation
of Directors,” “Compensation of Executive Officers,” “Performance Graph,”
“Report of the Compensation Committee on Executive Compensation,” “Compensation
Committee Interlocks and Insider Participation,”
and
“Employment Contracts and Severance Agreements” set forth in the Registrant’s
Proxy Statement for the 2006 Annual Meeting of Shareholders are incorporated
herein by reference.
Item
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
“Beneficial
Ownership” and “Item 1 - Election of Directors”, set forth in the Registrant’s
Proxy Statement for the 2006 Annual Meeting of Shareholders are incorporated
herein by reference.
Item
13. Certain Relationships and Related
Transactions
“Certain
Relationships and Related Transactions” set forth in the Registrant’s Proxy
Statement for the 2006 Annual Meeting of Shareholders is incorporated herein
by
reference.
Item
14. Principal Accounting Fees and
Services
“Item
2 -
Ratification of the Appointment of Independent Auditors,”
“Fees
Paid
to Crowe Chizek,”
and
“Policy
on
Audit Committee Pre-approval Of Audit and Non-audit Services of Independent
Auditor”
set
forth in the Registrant’s Proxy Statement for the 2006 Annual Meeting of
Shareholders is incorporated herein by reference.
Item
15. Exhibits, Financial Statement
Schedules
(a)
The following Consolidated Financial Statements, including notes
thereto,
and financial schedules of the Company, required in response to this
item
are included in Part II, Item 8.
|
|
|
|
1. Financial
Statements
|
|
Page
No.
|
|
|
|
|
|
24
|
|
|
25
|
|
|
26
|
|
|
27
|
|
|
28
|
|
|
47
|
|
|
|
2. Financial
Statement Schedules
|
|
|
|
|
|
Financial
Statement Schedules have been omitted because they are not applicable
or
the required information is shown in the Consolidated Financial Statements
or Notes thereto under Item 8, “Financial Statements and Supplementary
Data.”
|
|
|
|
|
|
|
|
|
|
See
Index of Exhibits on page 52.
|
|
|
|
|
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities and Exchange Act
of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
BRIDGE
BANCORP, INC.
|
|
Registrant
|
|
|
|
|
March
15, 2006
|
/s/
Thomas J. Tobin
|
|
Thomas
J. Tobin
|
|
President
and Chief Executive Officer
|
|
|
March
15, 2006
|
/s/
Janet T. Verneuille
|
|
Janet
T. Verneuille,
|
|
Senior
Vice President, Chief Financial Officer
|
|
and
Treasurer
|
|
|
Pursuant
to the requirements of the Securities and Exchange Act of 1934, this report
has
been signed below by the following persons on behalf of the registrant and
in
the capacities and on the dates indicated.
March
15, 2006
|
/s/
Raymond Wesnofske
|
,Director
|
|
Raymond
Wesnofske
|
|
|
|
|
|
|
|
March
15, 2006
|
/s/
Thomas J. Tobin
|
,Director
|
|
Thomas
J. Tobin
|
|
|
|
|
|
|
|
March
15, 2006
|
/s/
Thomas E. Halsey
|
,Director
|
|
Thomas
E. Halsey
|
|
|
|
|
|
|
|
March
15, 2006
|
/s/
Marcia Z. Hefter
|
,Director
|
|
Marcia
Z. Hefter
|
|
|
|
|
|
|
|
March
15, 2006
|
/s/
R. Timothy Maran
|
,Director
|
|
R.
Timothy Maran
|
|
|
|
|
|
|
|
March
15, 2006
|
/s/
Charles I. Massoud
|
,Director
|
|
Charles
I. Massoud
|
|
|
|
|
|
|
|
March
15, 2006
|
/s/
Howard H. Nolan
|
,Director
|
|
Howard
H. Nolan
|
|
|
|
|
|
|
|
March
15, 2006
|
/s/
Dennis A. Suskind
|
,Director
|
|
Dennis
A. Suskind
|
|
Exhibit
Number
|
Description
of Exhibit
|
Exhibit
|
|
|
|
|
|
|
3.1
|
Certificate
of Incorporation of the registrant (incorporated by reference to
Registrant’s amended Form 10, File No. 0-18546, filed October 15,
1990)
|
*
|
|
|
|
3.1(i)
|
Certificate
of Amendment of the Certificate of Incorporation of the Registrant
(incorporated by reference to Registrant’s Form 10, File No. 0-18546,
filed August 13, 1999)
|
*
|
|
|
|
3.2
|
Revised
By-laws of the Registrant (incorporated by reference to Registrant’s Form
10-Q, File No. 0-18546, filed November 2, 2004)
|
*
|
|
|
|
10.1
|
Employment
Contract - Thomas J. Tobin (incorporated by reference to Registrant’s Form
10-Q, File No. 0-18546, filed November 7, 2001)
|
*
|
|
|
|
10.2
|
Employment
Contract - Janet T. Verneuille (incorporated by reference to Registrant’s
Form 10-Q, File No. 0-18546, filed November 7, 2001)
|
*
|
|
|
|
10.5
|
Equity
Incentive Plan (incorporated by reference to Registrant’s Form 14A, File
No. 0-18546, filed March 9, 2001)
|
*
|
|
|
|
23
|
|
|
|
|
|
31.1
|
|
|
|
|
|
31.2
|
|
|
|
|
|
32.1
|
|
|
* Denotes
incorporated by reference.