Form 10-Q Second Quarter 2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
|
SECURITIES
EXCHANGE ACT OF 1934
|
For
the
quarterly period ended June 30, 2006
Commission
file number 000-18546
BRIDGE
BANCORP, INC.
(Exact
name of registrant as specified in its charter)
NEW
YORK
|
11-2934195
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification Number)
|
|
|
2200
MONTAUK HIGHWAY, BRIDGEHAMPTON, NEW YORK
|
11932
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (631) 537-1000
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements
for
the past 90 days.
Yes
[X]
No [ ]
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]
There
were 6,126,922
shares
of common stock outstanding as of August 3, 2006.
BRIDGE
BANCORP, INC.
PART
I -
|
FINANCIAL
INFORMATION
|
|
|
Item
1.
|
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Item
2.
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Item
3.
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Item
4.
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PART
II -
|
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Item
1.
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|
Item
1A.
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|
Item
2.
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Item
3.
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Item
4.
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Item
5.
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Item
6.
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10.1
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31.1
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31.2
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32.1
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Signatures
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|
BRIDGE
BANCORP, INC. AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
|
(In
thousands, except share and per share amounts)
|
|
June
30,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
ASSETS
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
12,808
|
|
$
|
15,649
|
|
Interest
earning deposits with banks
|
|
|
76
|
|
|
26
|
|
Total
cash and cash equivalents
|
|
|
12,884
|
|
|
15,675
|
|
|
|
|
|
|
|
|
|
Securities
available for sale
|
|
|
175,821
|
|
|
182,801
|
|
Securities
held to maturity (fair value of $1,983 and $9,989,
respectively)
|
|
|
1,987
|
|
|
10,012
|
|
Total
securities, net
|
|
|
177,808
|
|
|
192,813
|
|
|
|
|
|
|
|
|
|
Securities,
restricted
|
|
|
1,391
|
|
|
1,377
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
311,011
|
|
|
302,264
|
|
Less:
Allowance for loan losses
|
|
|
(2,386
|
)
|
|
(2,383
|
)
|
Loans,
net
|
|
|
308,625
|
|
|
299,881
|
|
|
|
|
|
|
|
|
|
Banking
premises and equipment, net
|
|
|
16,483
|
|
|
15,640
|
|
Accrued
interest receivable
|
|
|
2,308
|
|
|
2,624
|
|
Other
assets
|
|
|
5,944
|
|
|
5,434
|
|
Total
Assets
|
|
$
|
525,443
|
|
$
|
533,444
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Demand
deposits
|
|
$
|
183,065
|
|
$
|
190,426
|
|
Savings,
N.O.W. and money market deposits
|
|
|
231,754
|
|
|
233,728
|
|
Other
time deposits
|
|
|
15,149
|
|
|
24,850
|
|
Certificates
of deposit of $100,000 or more
|
|
|
22,767
|
|
|
19,021
|
|
Total
deposits
|
|
|
452,735
|
|
|
468,025
|
|
|
|
|
|
|
|
|
|
Overnight
borrowings
|
|
|
24,300
|
|
|
14,500
|
|
Accrued
interest payable
|
|
|
354
|
|
|
328
|
|
Other
liabilities and accrued expenses
|
|
|
3,763
|
|
|
3,940
|
|
Total
Liabilities
|
|
|
481,152
|
|
|
486,793
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Common
stock, par value $.01 per share:
|
|
|
|
|
|
|
|
Authorized:
20,000,000 shares; 6,386,306 issued; 6,136,787
|
|
|
|
|
|
|
|
and
6,206,539 shares outstanding at June 30, 2006 and December 31, 2005,
respectively
|
|
|
64
|
|
|
64
|
|
Surplus
|
|
|
21,565
|
|
|
21,631
|
|
Undivided
profits
|
|
|
32,949
|
|
|
31,813
|
|
Less:
Treasury Stock at cost, 249,519 and 179,767 shares at June 30, 2006
and
December 31, 2005, respectively
|
|
|
(6,207
|
)
|
|
(4,285
|
)
|
Unearned
stock awards
|
|
|
-
|
|
|
(108
|
)
|
|
|
|
48,371
|
|
|
49,115
|
|
Accumulated other comprehensive loss:
|
|
|
|
|
|
|
|
Net
unrealized loss on securities, net of taxes of ($2,682) and ($1,596)
at
June 30,
2006 and December 31, 2005, respectively
|
|
|
(3,992
|
)
|
|
(2,376
|
)
|
Net
minimum pension liability, net of taxes of $81 and $59 at June 30,
2006
and
December 31, 2005, respectively
|
|
|
(88
|
)
|
|
(88
|
)
|
Total
Stockholders’ Equity
|
|
|
44,291
|
|
|
46,651
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
525,443
|
|
$
|
533,444
|
|
See
accompanying notes to the Unaudited Consolidated Financial
Statements
BRIDGE
BANCORP, INC. AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
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|
For
the three months ended June 30,
|
|
For
the six months ended June 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
5,723
|
|
$
|
5,111
|
|
$
|
11,294
|
|
$
|
9,992
|
|
Mortgage-backed
securities
|
|
|
1,186
|
|
|
1,016
|
|
|
2,311
|
|
|
2,089
|
|
State
and municipal obligations
|
|
|
535
|
|
|
459
|
|
|
1,080
|
|
|
897
|
|
U.S.
Treasury and government agency securities
|
|
|
178
|
|
|
322
|
|
|
424
|
|
|
821
|
|
Federal
funds sold
|
|
|
39
|
|
|
71
|
|
|
83
|
|
|
76
|
|
Other
securities
|
|
|
12
|
|
|
24
|
|
|
35
|
|
|
40
|
|
Deposits
with banks
|
|
|
1
|
|
|
1
|
|
|
2
|
|
|
1
|
|
Total
interest income
|
|
|
7,674
|
|
|
7,004
|
|
|
15,229
|
|
|
13,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings,
N.O.W. and money market deposits
|
|
|
1,420
|
|
|
736
|
|
|
2,682
|
|
|
1,264
|
|
Other
time deposits
|
|
|
136
|
|
|
112
|
|
|
259
|
|
|
219
|
|
Certificates
of deposit of $100,000 or more
|
|
|
136
|
|
|
160
|
|
|
234
|
|
|
308
|
|
Other
borrowed money
|
|
|
111
|
|
|
23
|
|
|
158
|
|
|
136
|
|
Federal
funds purchased
|
|
|
79
|
|
|
2
|
|
|
125
|
|
|
22
|
|
Total
interest expense
|
|
|
1,882
|
|
|
1,033
|
|
|
3,458
|
|
|
1,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
5,792
|
|
|
5,971
|
|
|
11,771
|
|
|
11,967
|
|
Provision
for loan losses
|
|
|
-
|
|
|
150
|
|
|
-
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income after provision for loan losses
|
|
|
5,792
|
|
|
5,821
|
|
|
11,771
|
|
|
11,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
586
|
|
|
593
|
|
|
1,090
|
|
|
1,144
|
|
Fees
for other customer services
|
|
|
340
|
|
|
358
|
|
|
501
|
|
|
581
|
|
Title
fee income
|
|
|
263
|
|
|
295
|
|
|
562
|
|
|
455
|
|
Net
securities (losses) gains
|
|
|
-
|
|
|
52
|
|
|
(257
|
)
|
|
115
|
|
Other
operating income
|
|
|
71
|
|
|
41
|
|
|
103
|
|
|
65
|
|
Total
other income
|
|
|
1,260
|
|
|
1,339
|
|
|
1,999
|
|
|
2,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
2,280
|
|
|
2,092
|
|
|
4,489
|
|
|
4,183
|
|
Net
occupancy expense
|
|
|
332
|
|
|
286
|
|
|
675
|
|
|
627
|
|
Furniture
and fixture expense
|
|
|
206
|
|
|
197
|
|
|
396
|
|
|
393
|
|
Other
operating expenses
|
|
|
1,255
|
|
|
1,070
|
|
|
2,282
|
|
|
2,010
|
|
Total
other expenses
|
|
|
4,073
|
|
|
3,645
|
|
|
7,842
|
|
|
7,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
|
2,979
|
|
|
3,515
|
|
|
5,928
|
|
|
6,964
|
|
Provision
for income taxes
|
|
|
941
|
|
|
1,190
|
|
|
1,951
|
|
|
2,389
|
|
Net
income
|
|
$
|
2,038
|
|
$
|
2,325
|
|
$
|
3,977
|
|
$
|
4,575
|
|
Basic
earnings per share
|
|
$
|
0.33
|
|
$
|
0.37
|
|
$
|
0.64
|
|
$
|
0.73
|
|
Diluted
earnings per share
|
|
$
|
0.33
|
|
$
|
0.37
|
|
$
|
0.64
|
|
$
|
0.73
|
|
Comprehensive
income
|
|
$
|
698
|
|
$
|
3,548
|
|
$
|
2,361
|
|
$
|
3,876
|
|
See
accompanying notes to the Unaudited Consolidated Financial
Statements.
BRIDGE
BANCORP, INC. AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Common
|
|
Stock
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
Other
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Comprehensive
|
|
Undivided
|
|
Treasury
|
|
Stock
|
|
Comprehensive
|
|
|
|
|
|
Outstanding
|
|
Amount
|
|
Surplus
|
|
Income
|
|
Profits
|
|
Stock
|
|
Awards
|
|
Loss
|
|
Total
|
|
Balance
at December 31, 2005
|
|
|
6,206,539
|
|
$
|
64
|
|
$
|
21,631
|
|
|
|
|
$
|
31,813
|
|
$
|
(4,285
|
)
|
$
|
(108
|
)
|
$
|
(2,464
|
)
|
$
|
46,651
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
$
|
3,977
|
|
|
3,977
|
|
|
|
|
|
|
|
|
|
|
|
3,977
|
|
Transfer
due to adoption of SFAS 123(r)
|
|
|
|
|
|
|
|
|
(108
|
)
|
|
|
|
|
|
|
|
|
|
|
108
|
|
|
|
|
|
-
|
|
Stock
awards vested
|
|
|
3,356
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
Exercise
of stock options
|
|
|
567
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
(1
|
)
|
Treasury
stock repurchases
|
|
|
(73,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,912
|
)
|
|
|
|
|
|
|
|
(1,912
|
)
|
Cash
dividends declared, $0.46 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,841
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,841
|
)
|
Other
comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
losses in securities available for sale,
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
(1,616
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,616
|
)
|
|
(1,616
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
$
|
2,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2006
|
|
|
6,136,787
|
|
$
|
64
|
|
$
|
21,565
|
|
|
|
|
$
|
32,949
|
|
$
|
(6,207
|
)
|
$
|
-
|
|
$
|
(4,080
|
)
|
$
|
44,291
|
|
See
accompanying notes to the Unaudited Consolidated Financial
Statements.
BRIDGE
BANCORP, INC. AND SUBSIDIARY
|
|
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Six
months ended June 30,
|
|
2006
|
|
2005
|
|
Operating
activities:
|
|
|
|
|
|
Net
Income
|
|
$
|
3,977
|
|
$
|
4,575
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
-
|
|
|
150
|
|
Depreciation
and amortization
|
|
|
445
|
|
|
439
|
|
Amortization
and accretion, net
|
|
|
220
|
|
|
424
|
|
Earned
or allocated expense of restricted stock awards
|
|
|
33
|
|
|
55
|
|
Net
securities losses (gains)
|
|
|
257
|
|
|
(115
|
)
|
Decrease
in accrued interest receivable
|
|
|
316
|
|
|
90
|
|
Decrease
(increase) in other assets
|
|
|
575
|
|
|
(140
|
)
|
Decrease
in accrued and other liabilities
|
|
|
(140
|
)
|
|
(316
|
)
|
Net
cash provided by operating activities
|
|
|
5,683
|
|
|
5,162
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
Purchases
of securities available for sale
|
|
|
(27,086
|
)
|
|
(15,723
|
)
|
Purchase of securities, restricted
|
|
|
(8,235
|
)
|
|
(190
|
)
|
Purchases
of securities held to maturity
|
|
|
(201
|
)
|
|
(5,057
|
)
|
Proceeds
from sales of securities available for sale
|
|
|
17,288
|
|
|
21,172
|
|
Proceeds from sales of securities, restricted
|
|
|
8,221
|
|
|
-
|
|
Proceeds
from maturing securities available for sale
|
|
|
4,775
|
|
|
2,670
|
|
Proceeds
from maturing securities held to maturity
|
|
|
8,226
|
|
|
20,319
|
|
Proceeds
from principal payments on mortgage-backed securities
|
|
|
8,825
|
|
|
9,897
|
|
Net
increase in loans
|
|
|
(8,744
|
)
|
|
(6,632
|
)
|
Purchases
of banking premises and equipment, net of disposals
|
|
|
(1,288
|
)
|
|
(833
|
)
|
Net
cash provided by investing activities
|
|
|
1,781
|
|
|
25,623
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
Net
(decrease) increase in deposits
|
|
|
(15,290
|
)
|
|
36,684
|
|
Increase
(decrease) in other borrowings
|
|
|
9,800
|
|
|
(26,700
|
)
|
Net
proceeds from exercise of stock options
|
|
|
|
|
|
|
|
issued
pursuant to equity incentive plan
|
|
|
-
|
|
|
196
|
|
Purchases
of Treasury Stock
|
|
|
(1,912
|
)
|
|
(844
|
)
|
Cash
dividends paid
|
|
|
(2,853
|
)
|
|
(2,691
|
)
|
Net
cash (used in) provided by financing activities
|
|
|
(10,255
|
)
|
|
6,645
|
|
|
|
|
|
|
|
|
|
(Decrease)
increase in cash and cash equivalents
|
|
|
(2,791
|
)
|
|
37,430
|
|
Cash
and cash equivalents beginning of period
|
|
|
15,675
|
|
|
8,862
|
|
Cash
and cash equivalents end of period
|
|
$
|
12,884
|
|
$
|
46,292
|
|
|
|
|
|
|
|
|
|
Supplemental
Information-Cash Flows:
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,432
|
|
$
|
1,951
|
|
Income taxes
|
|
$
|
1,643
|
|
$
|
2,271
|
|
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
Dividends
declared and unpaid
|
|
$
|
1,415
|
|
$
|
1,441
|
|
See
accompanying notes to the Unaudited Consolidated Financial
Statements.
BRIDGE
BANCORP, INC. AND SUBSIDIARY
(unaudited)
1.
Basis
of Presentation
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’s operations include its real estate investment
trust subsidiary, Bridgehampton Community, Inc. (“BCI”) and a title insurance
subsidiary; Bridge Abstract LLC (“Bridge Abstract”).
The
accompanying Unaudited Consolidated Financial Statements, which include the
accounts of the Company and its wholly-owned subsidiary, the Bank, have been
prepared in accordance with U.S. generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. The Unaudited Consolidated Financial Statements included
herein reflect all normal recurring adjustments that are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. In preparing the interim financial statements, management
has
made estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenue and expense during
the reported periods. Such estimates are subject to change in the future as
additional information becomes available or previously existing circumstances
are modified. Actual future results could differ significantly from those
estimates. The annualized results of operations for the six months ended June
30, 2006 are not necessarily indicative of the results of operations that may
be
expected for the entire fiscal year. Certain information and note disclosures
normally included in the financial statements prepared in accordance with U.S.
generally accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
reclassifications have been made to prior year amounts, and the related
discussion and analysis, to conform to the current year presentation. The
Unaudited Consolidated Financial Statements should be read in conjunction with
the Audited Consolidated Financial Statements and notes thereto included in
the
Company’s Annual Report on Form 10-K for the year ended December 31,
2005.
2.
Earnings Per Share
Diluted
earnings per share, which reflect the potential dilution that could occur if
outstanding stock options were exercised and dilutive stock awards were fully
vested and resulted in the issuance of common stock that then shared in the
earnings of the Company, is computed by dividing net income by the weighted
average number of common shares and common stock equivalents.
Computation
of Per Share Income
|
|
Three
months ended
|
|
Six
months ended
|
|
(In
thousands, except per share data)
|
|
June
30,
|
|
June
30,
|
|
June
30,
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
2,038
|
|
$
|
2,325
|
|
$
|
3,977
|
|
$
|
4,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Equivalent Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding
|
|
|
6,176
|
|
|
6,254
|
|
|
6,190
|
|
|
6,256
|
|
Weighted
Average Common Equivalent Shares
|
|
|
29
|
|
|
53
|
|
|
28
|
|
|
52
|
|
Weighted
Average Common and Common Equivalent Shares
|
|
|
6,205
|
|
|
6,307
|
|
|
6,218
|
|
|
6,308
|
|
Basic
earnings per share
|
|
$
|
0.33
|
|
$
|
0.37
|
|
$
|
0.64
|
|
$
|
0.73
|
|
Diluted
earnings per share
|
|
$
|
0.33
|
|
$
|
0.37
|
|
$
|
0.64
|
|
$
|
0.73
|
|
There
were approximately 6,296 options outstanding and 3,001 shares of unvested
restricted stock at June 30, 2006 that were not included in the computation
of
diluted earnings per share because the options’ exercise prices and the
restricted stock grant prices were greater than the average market price of
the
common stock and were, therefore, antidilutive.
3.
Repurchased Stock
For
the
six months ended June 30, 2006, the Company repurchased 73,675 shares as
compared to 29,470 shares repurchased during the six-month period ended June
30,
2005. Repurchased shares
are held in the Company’s treasury account, and may be utilized for general
corporate purposes.
4.
Stock
Based Compensation Plans
Statement
of Financial Accounting Standards 123R (“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 Company adopted
SFAS 123R beginning January 1, 2006 applying the modified prospective transition
method. Under the modified prospective transition method, the financial
statements will not reflect restated amounts. No new grants were awarded during
2006 and no shares were unvested resulting in no compensation expense being
recorded through June 30, 2006 relating to stock options. Historically,
substantially all of the options granted by the Company have vested immediately;
compensation expense would be recorded on the date of grant. The intrinsic
value
for stock options is calculated based on the exercise price of the underlying
awards and the market price of the common stock as of the reporting date. No
options were exercised during the second quarter of 2006. The intrinsic value
of
options exercised during the first quarter of 2006 was $15,000. The intrinsic
value of options exercised during the six-month period ended June 30, 2005
was
$185,000. The intrinsic value of options outstanding and exercisable at June
30,
2006 is $711,000. The effect of this pronouncement on future operations will
depend on the fair value of future options issued and accordingly, cannot be
determined at this time.
The
following table illustrates the effect on net income and earnings per share
if
expense was measured using the fair value recognition provisions of SFAS 123R.
The
Black-Scholes option pricing model was used to estimate the grant date fair
value of option grants.
|
|
|
|
Three
months ended,
|
|
Six
months ended,
|
|
(In
thousands, except per share data)
|
|
|
|
June
30, 2005
|
|
|
|
June
30, 2005
|
|
Net
Income:
|
|
|
As
Reported:
|
|
$
|
2,325
|
|
|
|
|
$
|
4,575
|
|
|
|
|
Pro
Forma:
|
|
$
|
2,325
|
|
|
|
|
$
|
4,560
|
|
Basic
EPS:
|
|
|
As
Reported:
|
|
$
|
0.37
|
|
|
|
|
$
|
0.73
|
|
|
|
|
Pro
Forma:
|
|
$
|
0.37
|
|
|
|
|
$
|
0.73
|
|
Diluted
EPS:
|
|
|
As
Reported:
|
|
$
|
0.37
|
|
|
|
|
$
|
0.73
|
|
|
|
|
Pro
Forma:
|
|
$
|
0.37
|
|
|
|
|
$
|
0.73
|
|
A
summary
of the status of the Company’s stock options as of June 30, 2006
follows.
|
|
|
|
Weighted
|
|
|
|
Number
|
|
Average
|
|
|
|
of
|
|
Exercise
|
|
|
|
Options
|
|
Price
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2005
|
|
|
83,107
|
|
$
|
16.88
|
|
Granted
|
|
|
-
|
|
|
-
|
|
Exercised
|
|
|
(1,125
|
)
|
$
|
12.53
|
|
Forfeited
|
|
|
(2,720
|
)
|
$
|
25.60
|
|
Outstanding
and exercisable, June 30, 2006
|
|
|
79,262
|
|
$
|
16.64
|
|
Weighted
average fair value of options granted
|
|
|
|
|
$
|
-
|
|
Weighted
average remaining contractual life
|
|
|
|
|
|
5.02
years
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
|
|
Range
of Exercise Prices
|
|
|
Shares
|
|
|
Price
|
|
|
|
|
8,000
|
|
$
|
9.78-$11.00
|
|
|
|
|
9,900
|
|
$
|
12.53
|
|
|
|
|
25,933
|
|
$
|
13.17-14.67
|
|
|
|
|
17,100
|
|
$
|
15.47
|
|
|
|
|
18,329
|
|
$
|
24.00-$30.60
|
|
A
summary
of the status of the Company’s unvested restricted stock shares as of June 30,
2006 follows.
|
|
|
|
Weighted
|
|
|
|
|
|
Average
Grant-Date
|
|
|
|
Shares
|
|
Fair
Value
|
|
|
|
|
|
|
|
Unvested,
December 31, 2005
|
|
|
7,214
|
|
$
|
23.44
|
|
Granted
|
|
|
-
|
|
|
-
|
|
Vested
|
|
|
(3,356
|
)
|
$
|
19.94
|
|
Unvested,
June 30, 2006
|
|
|
3,858
|
|
$
|
26.48
|
|
5.
Securities
A
summary
of the amortized cost and estimated fair value of securities
follows.
|
|
June
30, 2006
|
|
December
31, 2005
|
|
(In
thousands)
|
|
|
|
Estimated
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
Fair
|
|
Amortized
|
|
Fair
|
|
|
|
Cost
|
|
Value
|
|
Cost
|
|
Value
|
|
Available
for sale:
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury and government agency securities
|
|
$
|
20,855
|
|
$
|
20,223
|
|
$
|
38,443
|
|
$
|
37,662
|
|
State
and municipal obligations
|
|
|
49,579
|
|
|
48,778
|
|
|
51,392
|
|
|
51,220
|
|
Mortgage-backed
securities
|
|
|
112,062
|
|
|
106,820
|
|
|
96,938
|
|
|
93,919
|
|
Total
available for sale
|
|
|
182,496
|
|
|
175,821
|
|
|
186,773
|
|
|
182,801
|
|
Held
to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and municipal obligations
|
|
|
1,987
|
|
|
1,983
|
|
|
10,012
|
|
|
9,989
|
|
Total
held to maturity
|
|
|
1,987
|
|
|
1,983
|
|
|
10,012
|
|
|
9,989
|
|
Total
debt and equity securities
|
|
$
|
184,483
|
|
$
|
177,804
|
|
$
|
196,785
|
|
$
|
192,790
|
|
Securities
having a fair value of approximately $159,840,000 and $123,314,000 at June
30,
2006 and December 31, 2005, respectively, were pledged to secure public deposits
and Federal Home Loan Bank and the Federal Reserve Bank overnight borrowings.
The Company did not hold any trading securities during the six months ended
June
30, 2006 or the year ended December 31, 2005.
6.
Loans
The
following table sets forth the major classifications of loans.
|
|
June
30, 2006
|
|
December
31, 2005
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate mortgage loans
|
|
$
|
254,603
|
|
$
|
242,928
|
|
Commercial,
financial, and agricultural loans
|
|
|
38,395
|
|
|
31,644
|
|
Installment/consumer
loans
|
|
|
9,285
|
|
|
9,827
|
|
Real
estate construction loans
|
|
|
8,695
|
|
|
17,960
|
|
Total
loans
|
|
|
310,978
|
|
|
302,359
|
|
Unamortized
cost (unearned income)
|
|
|
33
|
|
|
(95
|
)
|
|
|
|
311,011
|
|
|
302,264
|
|
Allowance
for loan losses
|
|
|
(2,386
|
)
|
|
(2,383
|
)
|
Net
loans
|
|
$
|
308,625
|
|
$
|
299,881
|
|
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.
Nonaccrual
loans at June 30, 2006 and December 31, 2005 were $735,000 and $658,000,
respectively. There were no loans 90 days or more past due that were still
accruing, or any restructured loans at June 30, 2006 and December 31, 2005.
As
of
June 30, 2006, the Company had three impaired loans totaling $302,000, as
defined by SFAS No. 114. There were no impaired loans as of December 31, 2005.
For a loan to be considered impaired, management determines after review whether
it is probable that the Company will not be able to collect all amounts due
according to the contractual terms of the loan agreement. Additionally,
management applies its normal loan review procedures in making these
judgements.
7.
Allowance for Loan Losses
Management
monitors its entire loan portfolio on a regular basis, with consideration given
to detailed analyses of classified loans, repayment patterns, 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 June
30,
2006, management determined the allowance for loan losses to be
adequate.
The
following table sets forth changes in the allowance for loan
losses.
(In
thousands)
|
|
For
the Six Months Ended
|
|
For
the Year Ended
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
December
31, 2005
|
|
Beginning
balance
|
|
$
|
2,383
|
|
$
|
2,188
|
|
$
|
2,188
|
|
Provision
for loan loss
|
|
|
-
|
|
|
150
|
|
|
300
|
|
Net
recoveries (charge-offs)
|
|
|
3
|
|
|
72
|
|
|
(105
|
)
|
Ending
balance
|
|
$
|
2,386
|
|
$
|
2,410
|
|
$
|
2,383
|
|
8.
Employee Benefits
The
Bank
maintains a noncontributory pension plan through the New York State Bankers
Association Retirement System covering all eligible employees.
The
Bridgehampton National Bank Supplemental Executive Retirement Plan (“SERP”)
provides benefits to certain employees, as recommended by the Compensation
Committee of the Board of Directors and approved by the full Board of Directors,
whose benefits under the Pension Plan are limited by the applicable provisions
of the Internal Revenue Code. The benefit under the SERP is equal to the
additional amount the employee would be entitled to under the Pension Plan
in
the absence of such Internal Revenue Code limitations. The assets of the SERP
are held in a rabbi trust to maintain the tax-deferred status for the
individuals in the plan. As a result, the assets of the trust are reflected
on
the Consolidated Statements of Condition of the Company.
Contributions
to the pension plan were $665,900 while no contributions were made to the SERP
for the six months ended June 30, 2006. The Company does not anticipate making
any additional contributions to the pension plan through the end of the
year.
The
Company’s funding policy with respect to its benefit plans is to contribute at
least the minimum amounts required by applicable laws and
regulations.
(In
thousands)
|
|
At
June 30,
|
|
|
|
Pension
Benefits
|
|
SERP
Benefits
|
|
Components
of net periodic benefit cost
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Service
cost
|
|
$
|
210
|
|
$
|
158
|
|
$
|
32
|
|
$
|
43
|
|
Interest
cost
|
|
|
125
|
|
|
111
|
|
|
27
|
|
|
35
|
|
Expected
return on plan assets
|
|
|
(162
|
)
|
|
(148
|
)
|
|
-
|
|
|
-
|
|
Amortization
of net loss
|
|
|
20
|
|
|
12
|
|
|
-
|
|
|
11
|
|
Amortization
of unrecognized prior service cost
|
|
|
4
|
|
|
4
|
|
|
-
|
|
|
-
|
|
Amortization
of unrecognized transition (asset) obligation
|
|
|
(1
|
)
|
|
(4
|
)
|
|
14
|
|
|
14
|
|
Net
periodic benefit cost
|
|
$
|
196
|
|
$
|
133
|
|
$
|
73
|
|
$
|
103
|
|
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, factors set forth under Item 1A., Risk Factors, in our Annual
Report on Form 10-K for the year ended December 31, 2005 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
Bridge
Bancorp, Inc. (“the Company”), a New York corporation, is a single bank holding
company formed in 1989. On a parent-only basis, the Company had nominal results
of operations. In the event the Company subsequently expands its current
operations, it will be dependent on dividends from its wholly owned subsidiary,
The Bridgehampton National Bank (“the Bank”), its own earnings, additional
capital raised, and borrowings as sources of funds. The information in this
report reflects principally the financial condition and results of operations
of
the Bank. The Bank’s results of operations are primarily dependent on its net
interest income, which is mainly the difference between interest income on
loans
and investments and interest expense on deposits and borrowings. The Bank also
generates other income, such as fee income on deposit accounts and merchant
credit and debit card processing programs, income from its title abstract
subsidiary, and net gains on sales of securities and loans. The level of its
other expenses, such as salaries and benefits, occupancy and equipment costs,
other general and administrative expenses, expenses from its title insurance
subsidiary, and income tax expense, further affects the Bank’s net income. This
discussion and analysis should be read in conjunction with the Audited
Consolidated Financial Statements, the notes thereto, and other financial
information included in the Company’s 2005 Annual Report on Form 10-K and this
filing. Certain reclassifications have been made to prior year amounts, and
the
related discussion and analysis, to conform to the current year
presentation.
Net
income for the six-month period ended June 30, 2006 was $3,977,000, decreasing
13.1% from $4,575,000 for the first six months of 2005. Diluted earnings per
share for the six-month period ended June 30, 2006 were $0.64, a decrease of
$0.09, or 12.3% from $0.73 per diluted share for the first six months of 2005.
Net income for the three months ended June 30, 2006 was $2,038,000, decreasing
$287,000, or 12.3%, from earnings of $2,325,000 for the same period last year.
Diluted earnings per share for the second quarter 2006 were $0.33, a decrease
of
$0.04, or 10.8% from $0.37 per diluted share for the second quarter of 2005.
Performance
ratios for the six-month period of 2006 include returns on average equity and
average assets of 17.04% and 1.51%, respectively. With a Tier 1 Capital to
Average Assets ratio of 9.1%, the Company’s capital levels remain strong, and
the Company is positioned well for future growth. Stockholders’ equity totaled
$44,291,000 at June 30, 2006 as compared to $47,741,000 at June 30, 2005 and
$46,651,000 at December 31, 2005.
Balance
sheet and interest rate risk management included a repositioning of a portion
of
the available for sale investment securities portfolio resulting in a net pretax
loss of $257,000 during the first quarter of 2006. Growing profits in the
current flat or inverted yield curve environment presents significant challenges
to the Bank since, as a community bank, its income historically relies heavily
on the interest rate spread between short term and long term rates. The ability
for the Bank to borrow short at a lower cost and invest longer at a higher
yield
is diminished.
The
yield
curve environment was largely unimproved this quarter, with the long end of
the
treasury yield curve stubbornly flat through the first half of 2006, resulting
in apparent near term challenges managing the balance sheet. The combination
of
a decline in core deposits and the flat yield curve continues putting pressure
on earnings growth. The Bank’s geographic markets are witnessing aggressive
deposit pricing as competitors recognize the richness and growth potential
of
eastern Long Island. Rising short term interest rates resulted in increased
interest expense as interest bearing liabilities were repriced to foster core
deposit retention, while at the same time, asset yields remained constricted
by
the flat yield curve. The net interest margin for the three-month period ended
June 30, 2006 declined to 4.9% as compared to 5.1% for the three-month period
ended March 31, 2006.
Net
interest income declined $179,000 for the three-month period ended June 30,
2006
versus the same three-month period of 2005. The net interest margin for the
three-month period ended June 30, 2006 remained level at 4.9% as compared to
the
three-month period ended June 30, 2005. Net interest income declined $196,000
for the first six months of 2006 to $11,771,000 versus $11,967,000 for the
first
six months of 2005. The net interest margin for the six-month period ended
June
30, 2006 increased to 5.0% as compared to 4.9% for the first six months of
2005.
Increased average demand deposits as a higher percentage of overall deposits
over the first six months of 2006 as compared to the first six months of 2005
partially supports the increase in the net interest margin. The liability side
of the balance sheet continues to reprice upward faster than the asset side
as
evidenced by the decline in the interest rate spread from 4.4% over the first
six months of 2005 to 4.1% over the first six months of 2006.
Total
assets declined 5.7% to $525,443,000 at June 30, 2006 compared to the same
date
last year and declined 1.5% compared to December 31, 2005. Loan originations,
which continued to exceed core deposit growth in the second quarter of 2006,
were funded primarily with proceeds from maturities of investment securities,
secondary funding sources, and increased public fund deposits.
Total
loans grew 2.7% year over year for the six-month period, primarily attributable
to growth in real estate mortgage loans. Total loans grew 2.9% for the six-month
period ended June 30, 2006 versus December 31, 2005, mostly due to growth in
commercial loans. Average loans grew less than one percent for the six-month
period year over year, a slower pace than for the comparable periods in the
prior three years. Net loans averaged $304,227,000 for the three months ended
June 30, 2006 an increase from average loans of $297,824,000 for the first
three
months of 2006. The loan loss reserve remains healthy relative to existing
nonperforming assets and nonaccrual loans. No additional provision for the
loan
loss was provided for in the second quarter of 2006. As a percentage of total
loans, the allowance was 0.77% at June 30, 2006, as compared to 0.79% at
December 31, 2005.
The
Bank’s loan portfolio remains heavily weighted toward 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.
Non-interest
expense increased 8.7% for the first six months of 2006 largely due to increased
costs of salaries and employee benefits programs. The Bank is committed to
maintaining a high quality staff and competitive products as it continues to
balance its growth objectives with the resources required to deliver
consistently high level service.
During
the second quarter 2006, the Bank introduced new consumer deposit products
with
the objectives of promoting deposit growth among existing and new customers,
as
well as supporting customer retention. Core deposits are important relative
to
funding costs, and the Bank remains committed to growing its deposit base
through increased market share in existing markets and continued branch
expansion. The Bank’s Southampton Village facility is expected to open during
the fourth quarter 2006, enhancing the Bank’s presence in the market. The
Westhampton Beach branch, which opened in December 2005, had deposits in excess
of $6.6 million at June 30, 2006, of which 67.2% represented demand deposits.
Expansion plans are expected to broaden the Bank’s footprint and strengthen its
franchise value. Regulatory approval of the Bank’s thirteenth branch office,
which will be located on the North Fork of Long Island, in Cutchogue, NY was
received during the second quarter with its opening anticipated by year end.
In
addition, the Bank is currently in the process of finalizing a lease agreement
for its first branch location in the Town of Brookhaven, which is still subject
to OCC approval.
In
June,
the Company announced the appointment of Howard H. Nolan to the position of
Senior Executive Vice President, Chief Operating Officer. Mr. Nolan brings
additional talents, strategic thinking, and analytical and leadership strengths
to the Company’s management team.
In
June
2006, the Company declared a quarterly dividend of $0.23 per share. On a
quarterly basis the dividend is consistent with the prior year and on a
year-to-date basis the dividend has increased 2.2% over last year. The Company
continues its long term trend of uninterrupted dividends.
Critical
Accounting Policies
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 judgements 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 judgements by management, in conjunction with
outside sources, are used to determine whether full collectibility of a loan
is
not reasonably assured. These assumptions and judgements 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 judgements. 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 June 30, 2006, management believes
the allowance for loan losses has been established at levels sufficient to
cover
the probable incurred losses in the Bank’s loan portfolio. Future additions or
reductions to the allowance may be necessary based on changes in economic,
market or other conditions. Changes in estimates could result in a material
change in the allowance. In addition, various regulatory agencies, as an
integral part of the examination process, periodically review the Bank’s
allowance for loan losses. Such agencies may require the Bank to recognize
adjustments to the allowance based on their judgments of the information
available to them at the time of their examination.
Net
Income
Net
income for the three-month period ended June 30, 2006 totaled $2,038,000 or
$0.33 per diluted share as compared to $2,325,000 or $0.37 per diluted share
for
the same period in 2005. Changes for the three months ended June 30, 2006
include: (i) $179,000 or 3.0% decrease in net interest income; (ii) no provision
for loan losses recorded compared to $150,000 during 2005; (iii) $79,000 or
5.9%
decrease in total other income and (iv) $428,000 or 11.7% increase in total
other expenses, over the same period in 2005. The
effective income tax rate decreased to 31.6% from 33.9% for the same period
last
year.
Net
income for the six-month period ended June 30, 2006 totaled $3,977,000 or $0.64
per diluted share as compared to $4,575,000 or $0.73 per diluted share for
the
same period in 2005. Changes for the six months ended June 30, 2006 include:
(i)
$196,000 or 1.6% decrease in net interest income; (ii) no provision for loan
losses recorded compared to $150,000 during 2005; (iii) $361,000 or 15.3%
decrease in total other income as a result of a net loss due to repositioning
of
the available for sale investment portfolio and (iv) $629,000 or 8.7% increase
in total other expenses, over the same period in 2005. The
effective income tax rate decreased to 32.9% in 2006 from 34.3% for the same
period last year. This decrease primarily resulted from the Bank earning more
tax-exempt interest income from its tax-exempt securities.
Analysis
of Net Interest Income
Net
interest income, the primary contributor to earnings, represents the difference
between income on interest earning assets and expenses on interest bearing
liabilities. Net interest income depends upon the volume of interest earning
assets and interest bearing liabilities and the interest rates earned or paid
on
them.
The
following table sets forth certain information relating to the Company’s average
consolidated statements of financial condition and its consolidated statements
of income for the periods indicated and reflect the average yield on assets
and
average cost of liabilities for the periods indicated. Such yields and costs
are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown. Average balances are derived
from daily average balances and include 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.”
Three
months ended June 30,
|
|
2006
|
|
2005
|
|
(In
thousands)
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Yield/
|
|
Average
|
|
|
|
Yield/
|
|
|
|
Balance
|
|
Interest
|
|
Cost
|
|
Balance
|
|
Interest
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans,
net (including loan fee income)
|
|
$
|
304,227
|
|
$
|
5,723
|
|
|
7.6
|
%
|
$
|
301,836
|
|
$
|
5,111
|
|
|
6.8
|
%
|
Mortgage-backed
securities
|
|
|
109,204
|
|
|
1,186
|
|
|
4.3
|
|
|
100,531
|
|
|
1,016
|
|
|
4.0
|
|
Tax
exempt securities (1)
|
|
|
60,004
|
|
|
771
|
|
|
5.1
|
|
|
59,346
|
|
|
694
|
|
|
4.6
|
|
Taxable
securities
|
|
|
20,863
|
|
|
178
|
|
|
3.4
|
|
|
36,021
|
|
|
322
|
|
|
3.5
|
|
Federal
funds sold
|
|
|
3,165
|
|
|
39
|
|
|
4.9
|
|
|
9,902
|
|
|
71
|
|
|
2.8
|
|
Securities,
restricted
|
|
|
1,115
|
|
|
12
|
|
|
4.3
|
|
|
2,162
|
|
|
24
|
|
|
4.5
|
|
Deposits
with banks
|
|
|
47
|
|
|
1
|
|
|
8.5
|
|
|
77
|
|
|
1
|
|
|
5.2
|
|
Total
interest earning assets
|
|
|
498,625
|
|
|
7,910
|
|
|
6.3
|
|
|
509,875
|
|
|
7,239
|
|
|
5.7
|
|
Non
interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
14,403
|
|
|
|
|
|
|
|
|
17,187
|
|
|
|
|
|
|
|
Other
assets
|
|
|
17,736
|
|
|
|
|
|
|
|
|
17,802
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
530,764
|
|
|
|
|
|
|
|
$
|
544,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings,
N.O.W. and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
money
market deposits
|
|
$
|
247,524
|
|
$
|
1,420
|
|
|
2.3
|
%
|
$
|
251,023
|
|
$
|
736
|
|
|
1.2
|
%
|
Other time deposits
|
|
|
22,718
|
|
|
136
|
|
|
2.4
|
|
|
28,307
|
|
|
112
|
|
|
1.6
|
|
Certificates of deposit of $100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or more
|
|
|
18,226
|
|
|
136
|
|
|
3.0
|
|
|
33,308
|
|
|
160
|
|
|
1.9
|
|
Other
borrowed money
|
|
|
8,858
|
|
|
111
|
|
|
5.0
|
|
|
2,920
|
|
|
23
|
|
|
3.2
|
|
Federal
funds purchased
|
|
|
6,332
|
|
|
79
|
|
|
4.9
|
|
|
171
|
|
|
2
|
|
|
4.6
|
|
Total
interest bearing liabilities
|
|
|
303,658
|
|
|
1,882
|
|
|
2.5
|
|
|
315,729
|
|
|
1,033
|
|
|
1.3
|
|
Non
interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
179,574
|
|
|
|
|
|
|
|
|
179,521
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
1,096
|
|
|
|
|
|
|
|
|
1,881
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
484,328
|
|
|
|
|
|
|
|
|
497,131
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
46,436
|
|
|
|
|
|
|
|
|
47,733
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
530,764
|
|
|
|
|
|
|
|
$
|
544,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/interest rate spread (2)
|
|
|
|
|
|
6,028
|
|
|
3.8
|
%
|
|
|
|
|
6,206
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest earning assets/net interest margin (3)
|
|
$
|
194,967
|
|
|
|
|
|
4.9
|
%
|
$
|
194,146
|
|
|
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of interest earning assets to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
bearing liabilities
|
|
|
|
|
|
|
|
|
164.2
|
%
|
|
|
|
|
|
|
|
161.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Tax equivalent adjustment
|
|
|
|
|
|
(236
|
)
|
|
|
|
|
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
$
|
5,792
|
|
|
|
|
|
|
|
$
|
5,971
|
|
|
|
|
(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.
|
Six
months ended June 30,
|
|
2006
|
|
2005
|
|
(In
thousands)
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Yield/
|
|
Average
|
|
|
|
Yield/
|
|
|
|
Balance
|
|
Interest
|
|
Cost
|
|
Balance
|
|
Interest
|
|
Cost
|
|
Interest
earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans,
net (including loan fee income)
|
|
$
|
301,043
|
|
$
|
11,294
|
|
|
7.6
|
%
|
$
|
298,582
|
|
$
|
9,992
|
|
|
6.8
|
%
|
Mortgage-backed
securities
|
|
|
106,995
|
|
|
2,311
|
|
|
4.3
|
|
|
103,043
|
|
|
2,089
|
|
|
4.0
|
|
Tax
exempt securities (1)
|
|
|
60,703
|
|
|
1,610
|
|
|
5.3
|
|
|
60,325
|
|
|
1,365
|
|
|
4.5
|
|
Taxable
securities
|
|
|
24,459
|
|
|
424
|
|
|
3.5
|
|
|
44,270
|
|
|
821
|
|
|
3.7
|
|
Federal
funds sold
|
|
|
3,555
|
|
|
83
|
|
|
4.6
|
|
|
5,404
|
|
|
76
|
|
|
2.8
|
|
Securities,
restricted
|
|
|
1,008
|
|
|
35
|
|
|
7.0
|
|
|
2,071
|
|
|
40
|
|
|
3.9
|
|
Deposits
with banks
|
|
|
64
|
|
|
2
|
|
|
6.3
|
|
|
71
|
|
|
1
|
|
|
2.8
|
|
Total
interest earning assets
|
|
|
497,827
|
|
|
15,759
|
|
|
6.4
|
|
|
513,766
|
|
|
14,384
|
|
|
5.6
|
|
Non
interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
14,711
|
|
|
|
|
|
|
|
|
15,974
|
|
|
|
|
|
|
|
Other
assets
|
|
|
17,838
|
|
|
|
|
|
|
|
|
18,444
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
530,376
|
|
|
|
|
|
|
|
$
|
548,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings,
N.O.W. and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
money
market deposits
|
|
$
|
251,118
|
|
$
|
2,682
|
|
|
2.2
|
%
|
$
|
250,808
|
|
$
|
1,264
|
|
|
1.0
|
%
|
Other time deposits
|
|
|
23,291
|
|
|
259
|
|
|
2.2
|
|
|
29,453
|
|
|
219
|
|
|
1.5
|
|
Certificates of deposit of $100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
or more
|
|
|
17,989
|
|
|
234
|
|
|
2.6
|
|
|
34,578
|
|
|
308
|
|
|
1.8
|
|
Other
borrowed money
|
|
|
6,397
|
|
|
158
|
|
|
5.0
|
|
|
10,060
|
|
|
136
|
|
|
2.7
|
|
Federal
funds purchased
|
|
|
5,173
|
|
|
125
|
|
|
4.8
|
|
|
1,630
|
|
|
22
|
|
|
2.7
|
|
Total
interest bearing liabilities
|
|
|
303,968
|
|
|
3,458
|
|
|
2.3
|
|
|
326,529
|
|
|
1,949
|
|
|
1.2
|
|
Non
interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
178,140
|
|
|
|
|
|
|
|
|
171,671
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
1,208
|
|
|
|
|
|
|
|
|
2,153
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
483,316
|
|
|
|
|
|
|
|
|
500,353
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
|
47,060
|
|
|
|
|
|
|
|
|
47,831
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
530,376
|
|
|
|
|
|
|
|
$
|
548,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/interest rate spread (2)
|
|
|
|
|
|
12,301
|
|
|
4.1
|
%
|
|
|
|
|
12,435
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest earning assets/net interest margin (3)
|
|
$
|
193,859
|
|
|
|
|
|
5.0
|
%
|
$
|
187,237
|
|
|
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of interest earning assets to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
bearing liabilities
|
|
|
|
|
|
|
|
|
163.8
|
%
|
|
|
|
|
|
|
|
157.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Tax equivalent adjustment
|
|
|
|
|
|
(530
|
)
|
|
|
|
|
|
|
|
(468
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
$
|
11,771
|
|
|
|
|
|
|
|
$
|
11,967
|
|
|
|
|
(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
Analysis
Net
interest income can be analyzed in terms of the impact of changes in rates
and
volumes. The following table illustrates the extent to which changes in interest
rates and in 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 that are not due solely to volume or rate changes have been
allocated to these categories based on the respective percentage changes in
average volume and rate. Due to the numerous simultaneous volume and rate
changes during the periods analyzed, it is not possible to precisely allocate
changes between volume and rates. In addition, average earning assets include
nonaccrual loans.
|
|
Three
months ended June 30
|
|
Six
months ended June 30
|
|
|
|
2006
Over 2005
|
|
2006
Over 2005
|
|
(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)
|
|
$
|
41
|
|
$
|
571
|
|
$
|
612
|
|
$
|
83
|
|
$
|
1,219
|
|
$
|
1,302
|
|
Mortgage-backed
securities
|
|
|
91
|
|
|
79
|
|
|
170
|
|
|
81
|
|
|
141
|
|
|
222
|
|
Taxable
securities
|
|
|
(130
|
)
|
|
(14
|
)
|
|
(144
|
)
|
|
(346
|
)
|
|
(51
|
)
|
|
(397
|
)
|
Tax
exempt securities (1)
|
|
|
8
|
|
|
69
|
|
|
77
|
|
|
9
|
|
|
236
|
|
|
245
|
|
Federal
funds sold
|
|
|
(212
|
)
|
|
180
|
|
|
(32
|
)
|
|
(66
|
)
|
|
73
|
|
|
7
|
|
Securities,
restricted
|
|
|
(11
|
)
|
|
(1
|
)
|
|
(12
|
)
|
|
(52
|
)
|
|
47
|
|
|
(5
|
)
|
Deposits
with banks
|
|
|
(3
|
)
|
|
3
|
|
|
-
|
|
|
(1
|
)
|
|
2
|
|
|
1
|
|
Total
interest earning assets
|
|
|
(216
|
)
|
|
887
|
|
|
671
|
|
|
(292
|
)
|
|
1,667
|
|
|
1,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense on interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings,
N.O.W. and money market deposits
|
|
|
(71
|
)
|
|
755
|
|
|
684
|
|
|
2
|
|
|
1,416
|
|
|
1,418
|
|
Certificates
of deposit of $100,000 or more
|
|
|
(330
|
)
|
|
306
|
|
|
(24
|
)
|
|
(329
|
)
|
|
255
|
|
|
(74
|
)
|
Other
time deposits
|
|
|
(121
|
)
|
|
145
|
|
|
24
|
|
|
(118
|
)
|
|
158
|
|
|
40
|
|
Federal
funds purchased
|
|
|
76
|
|
|
1
|
|
|
77
|
|
|
75
|
|
|
28
|
|
|
103
|
|
Other
borrowings
|
|
|
36
|
|
|
52
|
|
|
88
|
|
|
(132
|
)
|
|
154
|
|
|
22
|
|
Total
interest bearing liabilities
|
|
|
(410
|
)
|
|
1,259
|
|
|
849
|
|
|
(502
|
)
|
|
2,011
|
|
|
1,509
|
|
Net
interest income
|
|
$
|
194
|
|
$
|
(372
|
)
|
$
|
(178
|
)
|
$
|
210
|
|
$
|
(344
|
)
|
$
|
(134
|
)
|
(1)
The
above table is presented on a tax equivalent basis.
The
net
interest margin for the three months ended June 30, 2006 remained constant
at
4.9% as compared to the same three-month period in 2005. The decrease in net
interest income of $179,000 or 3.0% for the current three-month period over
the
same period last year primarily resulted from the effect of the increase in
rate
for the average total interest bearing liabilities being greater than the effect
of the increase in the rate of average total interest earning assets. Average
total interest earning assets decreased to $498,625,000 from $509,875,000 or
2.2% while there was an increase in the yield on average interest earning assets
to 6.3% from 5.7%. Average interest bearing liabilities decreased 3.8% to
$303,658,000 for the three-month period ended June 30, 2006 from $315,729,000
during the same period in 2005. The cost of average bearing liabilities
increased to 2.5% during 2006 from 1.3% in 2005.
Net
interest income decreased $196,000 or 1.6% for the current six-month period
over
the same period last year. Average interest earning assets decreased to
$497,827,000 during the six-month period ended June 30, 2006 from $513,766,000
or 3.1% for the same period in 2005. During this period, the yield on average
interest earning assets increased to 6.4% from 5.6%. Average interest bearing
liabilities decreased 6.9% to $303,968,000 in 2006 from $326,529,000 for the
same period last year. The yield on average interest bearing liabilities for
the
six-month period ended June 30, 2006 increased to 2.3% from 1.2% during the
same
period in 2005 due to increases in funding costs of
interest
bearing deposits and average overnight borrowings. Because the Company’s
interest bearing liabilities generally reprice or mature more quickly than
its
interest earning assets, an increase in short term interest rates would
initially result in a decrease in net interest income. Additionally, the decline
in volume of time deposits negatively impacted net interest income. The net
interest margin increased to 5.0% for the six months ended June 30, 2006 from
4.9% from the same six-month period in 2005.
For
the
six-month period ended June 30, 2006, average loans grew by $2,461,000 or 0.8%
as compared to average loans for the six-month period ended June 30, 2005.
The
Bank is committed to growing loans with prudent underwriting, sensible pricing
and limited credit and extension risk.
For
the
six-month period ended June 30, 2006, average total investments decreased by
$16,544,000 or 7.9% as compared to average total investments for the six-month
period ended June 30, 2005. Average balances in mortgage-backed securities
and
tax exempt securities increased year over year, while average taxable securities
and restricted securities decreased for the first six months of 2006 as compared
to the first six months of 2005. Average federal funds sold decreased $1,849,000
or 34.2% over the average balance for the same period in the prior
year.
For
the
six-month period ended June 30, 2006, average total deposits declined by
$15,972,000, or 3.3%, as compared to average total deposits for the six-month
period ended June 30, 2005. For the six-month period ended June 30, 2006,
components of this change include an increase in average demand deposits of
$6,469,000 or 3.8% as compared to average demand deposits for the six-month
period ended June 30, 2005. The average balances in savings, N.O.W. and money
market accounts essentially remained level at $251,118,000 for the six-month
period ended June 30, 2006 compared to $250,808,000 during the same period
last
year. Average balances in certificates of deposit of $100,000 or more and other
time deposits decreased $22,751,000 or 35.5% for the six-month period ended
June
30, 2006 as compared to average balances over the same six-month period in
2005.
Average public fund deposits comprised 20.9% of total average deposits during
the six-month period ended June 30, 2006 and 17.0% of total average deposits
for
the six-month period ended June 30, 2005. Average federal funds purchased
totaled with average other borrowings decreased $120,000 or 1.0% over the
average balances for the same period in the prior year.
Provision
and Allowance for Loan Losses
The
Bank’s loan portfolio consists primarily of real estate loans secured by
commercial and residential real estate properties located in the Bank’s
principal lending area on eastern Long Island. The interest rates charged by
the
Bank on loans are affected primarily by the demand for such loans, the supply
of
money available for lending purposes, the rates offered by its competitors,
the
Bank’s relationship with the customer and the related credit risks of the
transaction. These factors are affected by general and economic conditions
including, but not limited to, monetary policies of the federal government,
including the Federal Reserve Board, legislative policies and governmental
budgetary matters.
The
credit quality of the loan portfolio remained strong for the quarter ended
June
30, 2006. Since December 31, 2005, nonaccrual loans increased to $735,000 from
$658,000, representing 0.24% of net loans at June 30, 2006. Total nonaccrual
loans represented 0.22% of net loans at December 31, 2005. As of June 30, 2006,
the Company had three impaired loans totaling $302,000, as defined by SFAS
No.
114. There were no impaired loans as of December 31, 2005. The Bank had no
foreclosed real estate at June 30, 2006 and December 31, 2005. The Bank
recognized recoveries of $76,000 and charge-offs of $73,000 for the six months
ended June 30, 2006 as compared to recoveries of $136,000 and charge-offs of
$64,000 for the same period in 2005.
Loans
of
approximately $3,791,000 or 1.2% of total loans at June 30, 2006 were classified
as potential problem loans. This was a decrease of $1,294,000 from $5,085,000
or
1.7% of total loans at December 31, 2005. These are loans that are currently
performing and do not meet the criteria for impairment, however some concern
exists. 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 it is unlikely
that the Bank will sustain a loss on these loans.
Based
on
our continuing review of the overall loan portfolio, the current asset quality
of the portfolio, and the net recoveries of $3,000, no provision for loan losses
was recorded during the first six months of 2006. The allowance for loan losses
increased to $2,386,000 at June 30, 2006, as compared to $2,383, 000 at December
31, 2005. As a percentage of total loans, the allowance was 0.77% at June 30,
2006, as compared to 0.79% at December 31, 2005. The allowance for loan losses
as a percentage of total loans was 0.79% as of March 31, 2006.
Non
Interest Income
Total
other income decreased during the three-month period ended June 30, 2006 by
$79,000 or 5.9% over the same period last year. There were no net gains on
sales
of securities during the three months ended June 30, 2006 compared to net
securities gains for the three-month period ended June 30, 2005 of $52,000.
Title fee income for the three-month period ended June 30, 2006 was $263,000,
a
decrease of $32,000. Fees for other customer services for the three-month period
ended June 30, 2006 totaled $340,000, a decrease of $18,000 from the same
three-month period in 2005. Service charges on deposit accounts for the
three-month period ended June 30, 2006 totaled $586,000 reflecting a decrease
of
$7,000. The higher other operating income predominately related to increased
debit card revenue.
Total
other income decreased during the six-month period ended June 30, 2006 by
$361,000 or 15.3% over the same period last year. Net losses on sales of
securities during the six months ended June 30, 2006 totaled $257,000, compared
to net securities gains for the six-month period ended June 30, 2005 of
$115,000. Excluding net securities gains and losses, total other income
increased $11,000 or 0.5% for the six months ended June 30, 2006. Fees for
other
customer services for the six-month period ended June 30, 2006 totaled $501,000,
a decrease of 13.8% from the same six-month period in 2005. Service charges
on
deposit accounts for the six-month period ended June 30, 2006 totaled
$1,090,000, reflecting a decrease of 4.7% over the six months ended June 30,
2005. These declines were partly offset by the title fee income generated by
Bridge Abstract of $562,000 for the six-month periods ended June 30, 2006
compared to $455,000 for the same period in 2005.
Non
Interest Expense
Total
other expenses increased during the three-month period ended June 30, 2006
by
$428,000 or 11.7% and increased during the six-month period ended June 30,
2006
by $629,000 or 8.7% over the same periods last year. The primary components
of
this increase were salary and benefit expense and other operating expenses.
Salary and benefit expense increased $188,000 or 9.0% for the three-month period
and increased $306,000 or 7.3% for the six-month ended June 30, 2006 over the
same periods last year. Increases in salaries and employee benefit costs were
due to base salary increases, filling vacant positions, hiring new employees
to
support the Company’s expanding infrastructure and new branch offices, and an
increase in employee benefit costs. Total other operating expenses for the
three-month period ended June 30, 2006 totaled $1,255,000; an increase of
$185,000 or 17.3% over the same period last year. Total other operating expenses
for the six-month period ended June 30, 2006 totaled $2,282,000; an increase
of
$272,000 or 13.5% over the same period last year. Higher other operating
expenses were due to increases in information systems costs and other
operational costs related to expanding the Company’s infrastructure and the
opening and preparing for new branch offices.
Income
Taxes
The
provision for income taxes decreased during the three-month period ended June
30, 2006 by $249,000 or 20.9% over the same period last year due to the
reduction in income before provision for income taxes and a lower effective
tax
rate. The effective tax rate for the three-month period ended June 30, 2006
decreased to 31.6% as compared to 33.9% for the same period last year. The
effective tax rate for the six-month period ended June 30, 2006 decreased to
32.9% as compared to 34.3% for the same period last year. The reduction in
tax
rate primarily results from a greater percentage of interest income from tax
exempt securities in 2006.
Financial
Condition
Assets
totaled $525,443,000 at June 30, 2006, a decrease of $8,001,000 or 1.5% from
December 31, 2005. This change is primarily a result of decreases in the
investment portfolio of $14,991,000 primarily due to the maturing of securities
partly offset by purchases of securities. This decrease was partially offset
by
increases in the total loans of $8,747,000.
Total
liabilities were $481,152,000 at June 30, 2006, a decrease of $5,641,000 or
1.2%
compared to December 31, 2005. This change is primarily a result of decreases
in
demand deposits of $7,361,000, or 3.9%; savings, N.O.W. and money market
deposits of $1,974,000, or 0.8% and other time deposits of $9,701,000 or 39.0%.
These decreases are partially offset by increases in certificates of deposit
of
$100,000 or more of $3,746,000 or 19.7%, and an increase in the overnight
borrowing position of $9,800,000.
Total
stockholders’ equity was $44,291,000 at June 30, 2006, a decrease of 5.1% from
December 31, 2005, primarily due to repurchases of treasury stock and an
increase in net unrealized losses on securities.
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, dividends from the Bank to the Company at June 30,
2006
were limited to $11,646,000, which represents the Bank’s 2006 retained net
income and the net retained 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 investment securities 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 and local municipal deposits, as its principal source
of funding. The Bank seeks to retain existing deposits and loans and maintain
customer relationships by offering quality service and competitive interest
rates to its customers, while managing the overall cost of funds needed to
finance its strategies. The Bank’s Asset/Liability and Funds Management Policy
allows for wholesale borrowings of up to 25% of total assets. At June 30, 2006,
the Bank had aggregate lines of credit of $52,000,000 with unaffiliated
correspondent banks to provide short-term credit for liquidity requirements.
Of
these aggregate lines of credit, $32,000,000 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
June 30, 2006, the amount of overnight borrowings was $24,300,000.
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.
Capital
Resources
The
Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can result in certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company’s and the Bank’s financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and the Bank must meet specific capital guidelines that
involve quantitative measures of the Company’s and Bank’s assets, liabilities,
and certain off-balance sheet items calculated under regulatory accounting
practices. The Company’s and 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 June 30, 2006, that the Company
and the Bank meet all capital adequacy requirements, with which it must
comply.
The
Company’s only activity is the ownership of the Bank, and therefore, its
capital, capital ratios, and minimum required levels of capital are
substantially the same as the Bank’s. At June 30, 2006 and December 31, 2005,
actual capital levels and minimum required levels for the Bank were as
follows:
|
|
|
|
|
|
|
|
|
|
To
Be Well
|
|
|
|
|
|
|
|
For
Capital
|
|
Capitalized
Under
|
|
|
|
|
|
|
|
Adequacy
|
|
Prompt
Corrective
|
|
(In
thousands)
|
|
Actual
|
|
Purposes
|
|
Action
Provisions
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital (to risk weighted assets)
|
|
$
|
50,584
|
|
|
13.4
|
%
|
$
|
30,262
|
|
|
>8.0
|
%
|
$
|
37,827
|
|
|
>10.0
|
%
|
Tier
1 Capital (to risk weighted assets)
|
|
|
48,198
|
|
|
12.7
|
|
|
15,131
|
|
|
>4.0
|
|
|
22,696
|
|
|
>6.0
|
|
Tier
1 Capital (to average assets)
|
|
|
48,198
|
|
|
9.1
|
|
|
21,230
|
|
|
>4.0
|
|
|
26,537
|
|
|
>5.0
|
|
As
of December 31, 2005
|
|
|
|
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
|
|
Impact
of Inflation and Changing Prices
The
unaudited Consolidated Financial Statements and notes thereto presented herein
have been prepared in accordance with U.S. generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation. The primary
effect of inflation on the operations of the Company is reflected in increased
operating costs. Unlike most industrial companies, virtually all of the assets
and liabilities of a financial institution are monetary in nature. As a result,
changes in interest rates have a more significant effect on the performance
of a
financial institution than do the effects of changes in the general rate of
inflation and changes in prices. Changes in interest rates could aversely affect
our results of operations and financial condition. Interest rates do not
necessarily move in the same direction, or in the same magnitude, as the prices
of goods and services. Interest rates are highly sensitive to many factors,
which are beyond the control of the Company, including the influence of domestic
and foreign economic conditions and the monetary and fiscal policies of the
United States government and federal agencies, particularly the Federal Reserve
Bank.
Recent
Regulatory and Accounting Developments
In
February 2006, the FASB issued SFAS No. 155, “Accounting
for Certain Hybrid Financial Instruments — An Amendment of FASB Statement No.
133 and 140”
(“SFAS
155”). SFAS 155 simplifies the accounting for certain hybrid financial
instruments that contain an embedded derivative that otherwise would have
required bifurcation. SFAS 155 also eliminates the interim guidance in FASB
Statement No. 133, which provides that beneficial interest in securitized
financial assets are not subject to the provisions of FASB Statement No. 133.
SFAS 155 is effective for all financial instruments acquired or issued after
the
beginning of an entity’s first fiscal year that begins after September 15, 2006,
which for the Company will be as of the beginning of fiscal 2007. The Company
does not believe that the adoption of SFAS 155 will have a significant effect
on
its financial statements as the Company does not have any hybrid financial
instruments at this time.
In
March
2006, the FASB issued SFAS No. 156, “Accounting
for Servicing of Financial Assets — An Amendment of FASB Statement No.
140”
(“SFAS
156”). SFAS 156 requires that all separately recognized servicing assets and
servicing liabilities be initially measured at fair value, if practicable.
The
statement permits, but does not require, the subsequent measurement of servicing
assets and servicing liabilities at fair value. SFAS 156 is effective as of
the
beginning of an entity’s first fiscal year that begins after September 15, 2006.
The Company does not believe that the adoption of SFAS 156 will have a
significant effect on its financial statements as the Company does not have
servicing assets/liabilities at this time.
In
February 2006, the FASB issued FASB Staff Position No. FAS 123(R)-4,
“Classification
of Options and Similar Instruments Issued as Employee Compensation That Allow
for Cash Settlement upon the Occurrence of a Contingent Event.”
This
position amends SFAS 123R to incorporate that a cash settlement feature that
can
be exercised only upon the occurrence of a contingent event that is outside
the
employee’s control does not meet certain conditions in SFAS 123R until it
becomes probable that the event will occur. The guidance in this FASB Staff
Position was applied upon initial adoption of SFAS 123R and had no effect on
the
financial statements.
In
June
2006, the FASB issued Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes - An interpretation of FASB No. 109”
(“FIN
48”). FIN 48 prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken
or
expected to be taken in a tax return. The Interpretation is effective for fiscal
years beginning after December 15, 2006. The Company is currently evaluating
the
impact of the adoption of FIN 48, with respect to its results of operations,
financial position and liquidity.
Asset/Liability
Management
Management
considers interest rate risk to be the most significant market risk for the
Company. Market risk is the risk of loss from adverse changes in market prices
and rates. Interest rate risk is the exposure to adverse changes in the net
income of the Company as a result of changes in interest rates.
The
Company’s primary earnings source is net interest income, which is affected by
changes in the level of interest rates, the relationship between rates, the
impact of interest rate fluctuations on asset prepayments, the level and
composition of deposits and liabilities, and the credit quality of earning
assets. The Company’s objectives in its asset and liability management are to
maintain a strong, stable net interest margin, to utilize its capital
effectively without taking undue risks, to maintain adequate liquidity, and
to
reduce vulnerability of its operations to changes in interest
rates.
The
Company’s Asset and Liability Committee evaluates periodically, but at least
four times a year, the impact of changes in market interest rates on assets
and
liabilities, net interest margin, capital and liquidity. Risk assessments are
governed by policies and limits established by senior management, which are
reviewed and approved by the full Board of Directors at least annually. The
economic environment continually presents uncertainties as to future interest
rate trends. The Asset and Liability Committee regularly utilizes a model that
projects net interest income based on increasing or decreasing interest rates,
in order to be better able to respond to changes in interest rates.
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:
|
|
June
30, 2006
|
|
December
31, 2005
|
|
Change
in Interest
|
|
Potential
Change
|
|
Potential
Change
|
|
Rates
in Basis Points
|
|
in
Net
|
|
in
Net
|
|
(RATE
SHOCK)
|
|
Interest
Income
|
|
Interest
Income
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
$
Change
|
|
%
Change
|
|
$
Change
|
|
%
Change
|
|
200
|
|
$
|
(1,439
|
)
|
|
(6.03
|
)%
|
$
|
(1,620
|
)
|
|
(6.16
|
)%
|
Static
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
(200)
|
|
$
|
444
|
|
|
1.86
|
%
|
$
|
(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.
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 June 30, 2006
Based on that evaluation, the Company’s Chief Executive Officer and Chief
Financial Officer concluded that the Company’s disclosure controls and
procedures were effective as of the end of the period covered by this quarterly
report. There has been no change in the Company’s internal control over
financial reporting during the quarter that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
None.
There
have been no material changes to the factors disclosed in Item 1A., Risk
Factors, in our Annual Report on Form 10-K for the year ended December 31,
2005.
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-2006 (1)
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plans or
Programs
|
April
2006
|
8,000
|
$26.25
|
8,000
|
301,000
|
May
2006
|
16,300
|
$26.69
|
24,300
|
284,700
|
June
2006
|
34,000
|
$25.76
|
58,300
|
250,700
|
(1)
|
The
Board of Directors approved a new stock repurchase program on March
27,
2006.
|
|
|
-
|
The
Board of Directors approved repurchase of shares up to 309,000
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 three month period ended June 30,
2006.
|
Not
applicable.
The
Annual Meeting of Shareholders was held at The Bridgehampton National Bank,
2200
Montauk Highway, Bridgehampton, New York 11932 on April 28, 2006.
Routine
items included the election of two Class A directors for a term of three years
expiring in 2009.
Nominees
for Director
|
Votes
For
|
Votes
Withheld
|
Class
A (three year term):
|
|
|
R.
Timothy Maran
|
4,883,503
|
59,651
|
Dennis
A. Suskind
|
4,566,739
|
376,415
|
|
|
|
Other
items voted included the adoption of the Bridge Bancorp, Inc. 2006 Stock-Based
Incentive Plan and the Ratification of the Appointment of the Company’s
Independent Registered Public Accounting Firm, Crowe Chizek and Company LLC,
for
2006.
|
Votes
For
|
Votes
Against
|
Abstentions
|
Broker
Non-Votes
|
Adoption
of the Bridge Bancorp, Inc. 2006 Stock-Based Incentive
Plan
|
2,845,413
|
745,498
|
30,753
|
1,321,490
|
Ratification
of Independent Auditor Firm, Crowe Chizek and Company LLC
|
4,921,108
|
7,190
|
14,856
|
-
|
Not
applicable.
SIGNATURES
In
accordance with the requirement of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
BRIDGE
BANCORP, INC.
|
|
Registrant
|
|
|
|
|
August
7, 2006
|
/s/
Thomas J. Tobin
|
|
Thomas
J. Tobin
|
|
President
and Chief Executive Officer
|
|
|
August
7, 2006
|
/s/
Janet T. Verneuille
|
|
Janet
T. Verneuille
|
|
Executive
Vice President, Chief Financial Officer
|
|
and
Treasurer
|
|
|
EXHIBIT
10.1
MATERIAL
CONTRACTS
EMPLOYMENT
AGREEMENT
This
Employment Agreement (“Agreement”) is made and entered into as of the
26th
day of
June, 2006 (“Effective Date”), by and between Bridgehampton National Bank, a
bank organized and existing under the laws of the United States of America
and
having its executive offices at 2200 Montauk Highway, Bridgehampton, New York
(“Bank”), Bridge Bancorp, Inc., the holding company for the Bank (the
“Company”), and Howard H. Nolan (“Executive”).
WITNESSETH:
WHEREAS,
Executive has been offered a position as Senior Executive Vice President and
Chief Operating Officer of the Bank and the Company; and
WHEREAS, the Executive is willing to accept the offer of employment on the
terms
and conditions set forth in this Agreement.
NOW,
THEREFORE, in consideration of the premises and the mutual covenants and
obligations hereinafter set forth, the Bank, the Company and the Executive
hereby agree as follows:
1.
Employment Period.
(a)
Three
Year Contract. The Executive’s period of employment with the Bank under the
terms of this Agreement shall begin on the Effective Date and shall continue
for
a period of thirty-six months thereafter (the “Employment Period”). Unless
extended, the Employment Period shall end on the date that is thirty-six (36)
months after the Effective Date. On or prior to the second anniversary date
of
the Effective Date, the Bank and the Company shall notify the Executive in
writing whether the Employment Period will be extended and for what period,
if
any, the Employment Period will be extended.
(b)
Annual Performance Evaluation. On a calendar year basis, the Bank and/or the
Company (acting through the full Board or a committee thereof) shall conduct
an
annual performance evaluation of the Executive, the results of which shall
be
included in the minutes of the Board or committee meeting and communicated
to
the Executive. The first such annual performance evaluation shall occur in
January 2007.
(c)
Continued Employment Following Termination of Employment Period. Nothing in
this
Agreement shall mandate or prohibit a continuation of the Executive’s employment
following the expiration of the Employment Period.
2.
Duties.
(a)
Title; Responsibility. During the Employment Period, the Executive shall serve
as the Senior Executive Vice President and Chief Operating Officer of the Bank
and Company, and shall perform such administrative and management services
as
customarily performed by person in a similar executive capacity and as may
be
directed from time to time by the CEO and/or the Board. In his capacity as
Senior Executive Vice President and Chief Operating Officer, the Executive
shall
directly report to the President and Chief Executive Officer and to the Board
of
Directors. The Executive shall also be appointed as a member of the Board of
Directors of the Bank and the Company, subject in the case of the Company to
election by the shareholders.
(b)
Time
Commitment. The Executive shall devote his full business time and attention
to
the business and affairs of the Bank and the Company and shall use his best
efforts to advance the interests of the Bank and Company.
3.
Annual
Compensation.
(a)
Annual Salary. In consideration for the services performed by the Executive
under this Agreement, the Bank shall pay to the Executive an annual salary
(“Base Salary”) of not less than $200,000. The Base Salary shall be paid in
approximately equal installments in accordance with the Bank’s customary payroll
practices. The Bank shall review the Executive’s Base Salary at least annually
and such Base Salary may be increased, but may not be decreased without the
Executive’s consent (any increase in Base Salary shall become the new “Base
Salary” for purposes of this Agreement). The first such annual review of
Executive’s Base Salary shall occur in January 2007.
(b)
Board
Meeting Fees. For his attendance at meetings of the Board of Directors of the
Bank and the Company (but not for committee meetings), the Executive shall
receive such fees as are paid to directors of the Bank and the Company for
such
attendance.
(c)
Incentive Compensation. The Executive shall be eligible to participate in any
incentive compensation programs established by the Bank and/or the Company
from
time to time for senior executive officers, in accordance with the terms of
such
plans as they may exist from time to time.
(d)
Equity Compensation. The Executive shall be eligible to participate in any
equity compensation programs established by the Bank and/or the Company from
time to time for senior executive officers, including, but not limited to,
the
2006 Stock-Based Incentive Plan.
Nothing
paid to Executive under any plan, program or arrangement referenced in (c)
or
(d) above shall be deemed to be in lieu of other compensation to which Executive
is entitled under this Agreement.
4.
Employee Benefit Plans; Paid Time Off
(a)
Benefit Plans. During the Employment Period, the Executive shall be an employee
of the Bank and shall be entitled to participate in the Bank’s (i) tax-qualified
retirement plans (i.e., the defined benefit plan and 401(k) plan; (ii) the
Bank’s Supplement Executive Retirement Plan; (iii) group life, health and
disability insurance plans; and (iv) any other employee benefit plans and
programs in accordance with the Bank’s customary practices, provided he is a
member of the class of employees authorized to participate in such plans or
programs.
(b)
Paid
Time Off. The Executive shall be entitled to paid vacation time each year during
the Employment Period, as well as sick leave, holidays and other paid absences,
in accordance with the Bank’s policies and procedures for executive employees.
5.
Outside Activities and Board Memberships
During
the term of this Agreement, the Executive shall not, directly or indirectly,
provide services on behalf of any financial institution, any insurance company
or agency, any mortgage or loan broker or any other entity or on behalf of
any
subsidiary or affiliate of any such entity engaged in the financial services
industry, as an employee, consultant, independent contractor, agent, sole
proprietor, partner, joint venturer, corporate officer or director; nor shall
the Executive acquire by reason of purchase during the term of this Agreement
the ownership of more than 5% of the outstanding equity interest in any such
entity. Subject to the foregoing, and to the Executive’s right to continue to
serve as an officer and/or director or trustee of any business organization
as
to which he was so serving on the Effective Date of this Agreement (as described
in an attachment to this Agreement), the Executive may serve on boards of
directors of unaffiliated, for-profit business corporations, subject to Board
approval, which shall not be unreasonably withheld, and such services shall
be
presumed for these purposes to be for the benefit of the Bank and the Company.
Except as specifically set forth herein, the Executive may engage in personal
business and investment activities, including real estate investments and
personal investments in the stocks, securities and obligations of other
financial institutions (or their holding companies). Notwithstanding the
foregoing, in no event shall the Executive’s outside activities, services,
personal business and investments materially interfere with the performance
of
his duties under this Agreement.
6.
Working Facilities and Expenses
(a)
Working Facilities. The Executive’s principal place of employment shall be at
the Bank’s principal executive office or at such other location upon which the
Bank and the Executive may mutually agree.
(b)
Expenses.
(1)
Ordinary Expenses. The Bank shall reimburse the Executive for his ordinary
and
necessary business expenses, incurred in connection with the performance of
his
duties under this Agreement, upon presentation to the Bank of an itemized
account of such expenses in such form as the Bank may reasonably require.
(2)
Automobile. The Bank shall provide the Executive with an automobile suitable
to
the Executive’s position and such automobile may be used by the Executive in
carrying out his duties under this Agreement, including commuting between his
residence and his principal place of employment and other personal use. The
Bank
shall be responsible for the cost of maintenance and servicing such automobile
and for insurance, gasoline and oil for such automobile. The Executive shall
be
responsible for the payment of any taxes on account of his personal use of
such
automobile.
7.
Termination of Employment with Bank Liability
(a)
Reasons for Termination. In the event that the Executive’s employment with the
Bank and/or the Company shall terminate during the Employment Period on account
of:
(i)The
Executive’s voluntary resignation from employment with the Bank and the Company
within 30 days after any of the following events, such that the
Executive’s
resignation shall be treated as a resignation for “Good Reason”:
(A)
the
failure to re-appoint the Executive to the officer position set forth under
Section 2(a) and/or, the failure of Executive to be appointed to the Board
of
Directors of the Bank, and with respect to the Executive’s service as a director
of the Company, the failure to re-nominate the Executive for election to the
Board;
(B)
a
material change in Executive’s functions, duties, or responsibilities, which
change would cause Executive’s position to become one of lesser responsibility,
importance, or scope, which the Bank and the Company fail to cure within 30
days
following written notice thereof from the Executive;
(C)
a
liquidation or dissolution of the Bank or the Company other than a liquidation
or dissolution that is caused by a reorganization that does not affect the
status of the Executive;
(D)
a
material breach of this Agreement by the Bank and/or the Company, which the
Bank
and/or the Company fail to cure within 30 days following written notice thereof
from the Executive; or
(E)
the
relocation of Executive’s principal place of employment to an office other than
one located in Southampton, East Hampton, Shelter Island, Southhold or
Riverhead, New York unless consented to by Executive.
(ii)
the
termination of the Executive’s employment by the Bank and/or the Company for any
reason other than: for “Cause” as defined in Section 8(a); for “Disability” as
set forth in Section 7(d) below; following a Change in Control, as set forth
in
Section 7(c) below; or as a result of the death of the Executive.
Then
the
Bank shall provide the benefits and pay to the Executive the amounts provided
for under Section 7(b).
(b)
Severance Pay. Subject to the limitations set forth in Section 7(e) below,
upon
the termination of the Executive’s employment with the Bank under circumstances
described in Section 7(a) of this Agreement, the Bank shall pay to the Executive
(or, in the event of the Executive’s death after the event described in Section
7(a) has occurred, the Bank shall pay to the Executive’s surviving spouse,
beneficiary or estate) an amount equal to the following:
(i)
his
earned but unpaid Base Salary as of the date of his termination of employment
with the Bank;
(ii)
the
benefits, if any, to which he is entitled as a former employee under the Bank’s
employee benefit plans;
(iii)
if
the Executive’s employment is terminated within the first 18 months following
the Effective Date (the “Initial Period”), continued group health and medical
insurance benefits (on the same terms as such benefits are made available to
other executive employees of the Bank) for the greater of six months or the
remainder of the Initial Period;
(iv)
if
the Executive’s employment is terminated following the “Initial Period”,
continued group health and medical insurance benefits (on the same terms as
such
benefits are made available to other executive employees of the Bank) for the
greater of six months or the remainder of the Employment Period;
(v)
if
Executive’s employment is terminated within the Initial Period, a lump sum cash
payment, as liquidated damages, in an amount equal to the greater of (a) the
Base Salary that the Executive would have earned if he had continued working
for
the Bank for the remainder of the Initial Period; or (b) one-half of his annual
Base Salary; and
(vi)
if
Executive’s employment is terminated following the Initial Period, a lump sum
cash payment, as liquidated damages, in an amount equal to the greater of (a)
the Base Salary that the Executive would have earned if he had continued working
for the Bank for the remainder of the Employment Period; or (b) one-half of
his
annual Base Salary.
(c)
Change in Control. Upon
the
occurrence of a Change in Control (as defined in Section 9 of this Agreement),
the Bank and/or the Company shall provide: (i) continuing group health and
medical insurance benefits to Executive (on the same terms as such benefits
were
made available to other executive employees of the Bank immediately prior to
the
Change in Control) for a period of 36 months following such termination of
employment; and (ii) a lump sum cash payment to Executive, as liquidated
damages, in an amount equal to three (3) times Executive’s “base amount”, as
determined in accordance with said Section 280G of the Internal Revenue Code
of
1986, as amended (the “Code”). Notwithstanding the foregoing, in no event shall
the aggregate payments or benefits to be made or afforded to Executive as a
result of a Change in Control (the “CIC Termination Benefits”) constitute an
“excess parachute payment” under Section 280G of the Code or any successor
thereto. In order to avoid such a result, the CIC Termination Benefits will
be
reduced, if necessary, to an amount (the “Non-Triggering Amount”), the value of
which is one dollar ($1.00) less than an amount equal to three (3) times
Executive's “base amount”, as determined in accordance with said Section 280G.
The allocation of the reduction required hereby among the CIC Termination
Benefits provided hereby shall be determined by the Executive.
(d)
Disability.
(i)
If
the termination of the Executive’s employment with the Bank is a result of the
Executive’s “Disability,” the provisions of this paragraph (d) shall apply.
“Disability” shall mean the Executive’s “total and permanent disability” as
determined by the Bank, based upon competent and independent medical evidence
that the Executive’s physical or mental condition is such that he is totally and
permanently incapable of performing the essential tasks of his position
hereunder. To the extent that any payments hereunder on account of disability
are subject to Section 409A of the Internal Revenue Code of 1986 (“Code”),
“disability” shall have the meaning set forth in Code Section 409A and the
regulations thereunder.
(ii)
Upon
termination of Executive’s employment because of Disability, the Executive shall
be entitled to any and all benefits under the Bank’s short-term and/or long-term
disability insurance plan. During the first twenty-four (24) months following
termination of employment for Disability, the Bank and/or the Company shall
provide a supplemental monthly cash payment to Executive such that the payments
received by Executive on a monthly basis, from both disability insurance and
this supplemental payment shall equal the monthly rate of Base Salary being
paid
to Executive immediately prior to such termination (the insurance payments
may
be taken into account on a tax-adjusted basis if such payment are not subject
to
federal and/or state taxes).
(iii)
Upon termination of Executive’s employment because of Disability, the Executive
shall be entitled continuing group health and medical insurance benefits for
a
period of twenty-four months following such termination, on the same terms
as
such benefits are made available to other executive employees of
Disability.
(e)
Tax
Code Limitation on Severance Pay. Notwithstanding the foregoing, to the extent
required by Code Section 409A and the regulations thereunder, if the Executive
is a “specified employee” (i.e., a “key employee” within the meaning of Code
Section 416(i) without regard to paragraph 5 thereof), the cash severance
payments described in Sections 7(b)(v) and (vi) and 7(c)(ii) shall be made
to
him immediately following the expiration of six (6) months following his
“separation from service” (as defined in Code Section 409A and the regulations
thereunder).
(f)
Executive agrees that upon any termination of his employment, whether by
Executive or by the Bank or the Company, his service as a director of the Bank
and the Company shall cease and he shall be deemed to have resigned as a
director effective upon such termination.
8.
Termination without Additional Bank or Company Liability
(a)
Termination for Cause.
(i)
The
Bank and/or the Company may terminate the Executive’s employment at any time,
but any termination other than termination for “Cause,” as defined herein, shall
not prejudice the Executive’s right to compensation or other benefits under the
Agreement. The Executive shall have no right to receive compensation or other
benefits for any period after termination for “Cause.” Termination for “Cause”
shall include termination because of the Executive’s personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, breach of the Bank’s Code of Ethics, violation of Sarbanes-Oxley Act
requirements for officers of public companies, willfully engaging in actions
that in the reasonable opinion of the Board will likely cause substantial injury
to the business reputation of the Company or Bank, intentional failure to
perform stated duties, willful violation of any law, rule or regulation (other
than routine traffic violations or similar offenses) or final cease-and-desist
order, or material breach of any provision of the contract.
(ii)
If
the Bank and the Company wish to terminate the Executive’s employment for
“Cause,” such determination shall require the affirmative vote of the Board of
Directors and prior to such vote the Board shall furnish Executive with a
written statement of its grounds for proposing to make such determination,
and
shall afford the Executive a reasonable (under the circumstances) opportunity
to
make an oral and/or a written presentation to the Board to refute the grounds
for the proposed termination for Cause.
(b)
Death; Voluntary Resignation Without Good Reason. In the event that the
Executive’s employment with the Bank shall terminate during the Employment
Period on account of the reasons set forth in this Section 8(b), then the Bank
shall have no further obligations under this Agreement, other than the payment
to the Executive of his earned but unpaid salary as of the date of the
termination of his employment, and the provision of such benefits, if any,
to
which he is entitled as a former employee under the Bank’s employee benefit
plans and programs and compensation plans and programs, including without
limitation, any incentive compensation plan. Termination of employment under
this Section 8(b) shall mean termination of employment due to the following
events:
(i)
The
Executive’s death; or
(ii)
The
Executive’s voluntary resignation from employment with the Bank for any reason
other than the “Good Reasons” specified in Section 7(a)(i).
9.
Change
in Control
(a)
Except for payments that are subject to Code Section 409A, for purposes of
this
Agreement, the term “Change in Control” shall mean a change in control of a
nature that: (i) would be required to be reported in response to Item 5.01(a)
of
the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”);
or (ii) results in a Change in Control of the Bank within the meaning of the
Change in Bank Control Act, and applicable rules and regulations promulgated
thereunder, or results in a Change in Control of the Company within the meaning
of the Bank Holding Company Act of 1956, and the rules and regulations
promulgated thereunder, in each case as in effect at the time of the Change
in
Control; or (iii) without limitation such a Change in Control shall be deemed
to
have occurred at such time as (a) any “person” (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner”(as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting power
of Company’s outstanding securities except for any securities purchased by the
Bank’s employee stock ownership plan or trust; or (b) individuals who constitute
the Board of Directors of the Bank or the Company on the date hereof (the
“Incumbent Board”) cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of
the
directors comprising the Incumbent Board, or whose nomination for election
by
the Company’s stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (b), considered
as though he were a member of the Incumbent Board; or (c) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Company or similar transaction in which the Bank
or
Company is not the surviving institution occurs; or (d) a proxy statement
soliciting proxies from stockholders of the Company, by someone other than
the
current management of the Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Company or similar transaction
with one or more corporations as a result of which the outstanding shares of
the
class of securities then subject to the plan are to be exchanged for or
converted into cash or property or securities not issued by the Company; or
(e)
a tender offer is made for 25% or more of the voting securities of the Company
and the shareholders owning beneficially or of record 25% or more of the
outstanding securities of the Company have tendered or offered to sell their
shares pursuant to such tender offer and such tendered shares have been accepted
by the tender offeror.
(b)
With
respect to any payments hereunder that are subject to Code Section 409A, “Change
in Control” shall mean (i) a change in the ownership of the Bank or the Company,
(ii) a change in the effective control of the Bank or Company, or (iii) a change
in the ownership of a substantial portion of the assets of the Bank or Company,
as described below.
(1)
A
change in ownership occurs on the date that any one person, or more than one
person acting as a group (as defined in Proposed Treasury Regulations section
1.409A-3(g)(5)(v)(B)), acquires ownership of stock of the Bank or Company that,
together with stock held by such person or group, constitutes more than 50%
of
the total fair market value or total voting power of the stock of such
corporation.
(2)
A
change in the effective control of the Bank or Company occurs on the date that
either (i) any one person, or more than one person acting as a group (as defined
in Proposed Treasury Regulations section 1.409A-3(g)(5)(vi)(B)) acquires (or
has
acquired during the 12-month period ending on the date of the most recent
acquisition by such person or persons) ownership of stock of the Bank or Company
possessing 35% or more of the total voting power of the stock of the Bank or
Company, or (ii) a majority of the members of the Bank’s or Company’s board of
directors is replaced during any 12-month period by directors whose appointment
or election is not endorsed by a majority of the members of the Bank’s or
Company’s board of directors prior to the date of the appointment or election,
provided that this sub-section “(ii)” is inapplicable where a majority
shareholder of the Bank or Company is another corporation.
(3)
A
change in a substantial portion of the Bank’s or Company’s assets occurs on the
date that any one person or more than one person acting as a group (as defined
in Proposed Treasury Regulations section 1.409A-3(g)(5)(vii)(C)) acquires (or
has acquired during the 12-month period ending on the date of the most recent
acquisition by such person or persons) assets from the Bank or Company that
have
a total gross fair market value equal to or more than 40% of the total gross
fair market value of (i) all of the assets of the Bank or Company, or (ii)
the
value of the assets being disposed of, either of which is determined without
regard to any liabilities associated with such assets. For all purposes
hereunder, the definition of Change in Control shall be construed to be
consistent with the requirements of Proposed Treasury Regulations section
1.409A-3(g)(5), except to the extent that such proposed regulations are
superseded by subsequent guidance.
(c)
For
purposes of this Agreement, the term “Change in Control Date” shall mean the
first date during the Employment Period on which a Change in Control occurs.
Anything in this Agreement to the contrary notwithstanding, if the Executive’s
employment with the Bank is terminated and if it is reasonably demonstrated
by
the Executive that such termination of Employment (i) was at the request of
a
third party who has taken steps reasonably calculated to effect a Change in
Control or (ii) otherwise arose in connection with or anticipation of a Change
in Control, then for all purposes of this Agreement the “Change in Control Date”
shall mean the date immediately prior to the date of such termination of
employment.
10.
Confidentiality. Unless he obtains prior written consent from the Bank or the
Company, the Executive shall keep confidential and shall refrain from using
for
the benefit of himself, or any person or entity other than the Bank, the Company
or any entity which is a subsidiary or affiliate of the Bank or the Company
or
of which the Bank or the Company is a subsidiary or affiliate, any material
document or information obtained from the Bank, the Company or from any of
their
respective parents, subsidiaries or affiliates, in the course of his employment
with any of them concerning their properties, operations or business (unless
such document or information is readily ascertainable from public or published
information or trade sources or has otherwise been made available to the public
through no fault of his own) until the same ceases to be material (or becomes
so
ascertainable or available); provided, however, that nothing in this Section
10
shall prevent the Executive, with or without the Bank’s or the Company’s
consent, from participating in or disclosing documents or information in
connection with any judicial or administrative investigation, inquiry or
proceeding to the extent that such participation or disclosure is required
under
applicable law.
11.
Non-Solicitation; Non-Competition; Post-Termination Cooperation.
(a)
The
Executive hereby covenants and agrees that, for a period of one year following
his termination of employment with the Bank, he shall not, without the written
consent of the Bank, either directly or indirectly:
(1)
solicit, offer employment to, or take any other action intended (or that a
reasonable person acting in like circumstances would expect) to have the effect
of causing any officer or employee of the Bank, the Company or any of their
respective subsidiaries or affiliates to terminate his or her employment and
accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any business whatsoever that
competes with the business of the Bank or the Company or any of their direct
or
indirect subsidiaries or affiliates or has headquarters or offices within the
counties in which the Bank or the Company has business operations or has filed
an application for regulatory approval to establish an office; or
(2)
solicit, provide any information, advice or recommendation or take any other
action intended (or that a reasonable person acting in like circumstances would
expect) to have the effect of causing any customer of the Bank or the Company
to
terminate an existing business or commercial relationship with the Bank or
the
Company.
(b)
The
Executive hereby covenants and agrees that following any termination of
employment, he shall not, without the written consent of the Bank, either
directly or indirectly: become an officer, employee, consultant, director,
independent contractor, agent, sole proprietor, joint venturer, greater than
5%
equity-owner or stockholder, partner or trustee of any savings bank, savings
and
loan association, savings and loan holding company, credit union, bank or bank
holding company, insurance company or agency, any mortgage or loan broker or
any
other entity competing with the Bank or its affiliates in the same geographic
locations where the Bank or its affiliates has business interests. If
Executive’s employment is terminated within the Initial Period, this restriction
shall apply for the greater of six months or the remainder of the Initial
Period, but in no event more than one year following termination. If Executive’s
employment
is terminated after the Initial Period, this restriction shall apply for the
greater of six months or the remainder of the Employment Period, but in no
event
for more than one year following termination. Notwithstanding the foregoing,
the
restriction contained in this Section 11(b) shall not apply if the Executive’s
employment is terminated following a Change in Control.
(c)
Executive shall, upon reasonable notice, furnish such information and assistance
to the Bank and/or the Company, as may reasonably be required by the Bank and/or
the Company, in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party; provided, however, that
Executive shall not be required to provide information or assistance with
respect to any litigation between the Executive and the Bank, the Company or
any
of its subsidiaries or affiliates.
(d)
All
payments and benefits to the Executive under this Agreement shall be subject
to
the Executive’s compliance with this Section. The parties hereto, recognizing
that irreparable injury will result to the Bank, its business and property
in
the event of the Executive’s breach of this Section 11, agree that, in the event
of any such breach by the Executive, the Bank and/or the Company will be
entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by the Executive and all persons
acting for or with the Executive. The Executive represents and admits that
the
Executive’s experience and capabilities are such that the Executive can obtain
employment in a business engaged in other lines and/or of a different nature
than the Bank, and that the enforcement of a remedy by way of injunction will
not prevent the Executive from earning a livelihood. Nothing herein will be
construed as prohibiting the Bank and the Company from pursuing any other
remedies available to them for such breach or threatened breach, including
the
recovery of damages from the Executive.
12.
Additional Termination and Suspension Provisions
(a)
Notwithstanding anything herein contained to the contrary, any payments to
Executive by the Bank and/or the Company, whether pursuant to this Agreement
or
otherwise, are subject to and conditioned upon their compliance with Section
18(k) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and
the regulations promulgated thereunder in 12 C.F.R. Part 359.
(b)
Notwithstanding any other provision in this Agreement, (i) the Bank or the
Company may terminate or suspend this Agreement and the employment of the
Executive hereunder, as if such termination were a Termination for Cause under
Section 8(a) hereof, to the extent required by federal or state laws or
regulations related to banking, to deposit insurance or bank holding companies
or by regulations or orders issued by the Comptroller of the Currency, the
Federal Deposit Insurance Corporation or the Board of Governors of the Federal
Reserve System and (ii) no payment shall be required to be made to Executive
under this Agreement to the extent such payment is prohibited by applicable
law
regulation or order issued by a banking agency or a court of competent
jurisdiction; provided, that it shall be the Bank’s or the Company’s burden to
prove that any such action was so required.
13.
Arbitration; Legal Fees.
(a)
Arbitration. In the event that any dispute should arise between the parties
as
to the meaning, effect, performance, enforcement, or other issue in connection
with this Agreement, which dispute cannot be resolved by the parties, the
dispute shall be decided by final and binding arbitration of a panel of three
arbitrators. Proceedings in arbitration and its conduct shall be governed by
the
rules of the American Arbitration Association (“AAA”) applicable to commercial
arbitrations (the “Rules”) except as modified by this Section. The Executive
shall appoint one arbitrator, the Bank shall appoint one arbitrator, and the
third shall be appointed by the two arbitrators appointed by the parties. The
third arbitrator shall be impartial and shall serve as chairman of the panel.
The parties shall appoint their arbitrators within thirty (30) days after the
demand for arbitration is served, failing which the AAA promptly shall appoint
a
defaulting party’s arbitrator, and the two arbitrators shall select the third
arbitrator within fifteen (15) days after their appointment, or if they cannot
agree or fail to so appoint, then the AAA promptly shall appoint the third
arbitrator. The arbitrators shall render their decision in writing within thirty
(30) days after the close of evidence or other termination of the proceedings
by
the panel, and the decision of a majority of the arbitrators shall be final
and
binding upon the parties, nonappealable, except in accordance with the Rules
and
enforceable in accordance with the applicable state law. Any hearings in the
arbitration shall be held in Suffolk County, New York unless the parties shall
agree upon a different venue, and shall be private and not open to the public.
Each party shall bear the fees and expenses of its arbitrator, counsel, and
witnesses, and the fees and expenses of the third arbitrator shall be shared
equally by the parties. The other costs of the arbitration, including the fees
of AAA, shall be borne as directed in the decision of the
panel.
(b)
Legal
Fees and Other Expenses. If the Executive is successful on the merits of the
dispute, as determined in the arbitration, all legal fees and such other
expenses as reasonably incurred by the Executive as a result of or in connection
with or arising out of the dispute, shall be paid by the Bank and/or the
Company.
14.
Indemnification and Insurance.
(a)
The
Bank and/or the Company shall provide the Executive (including his heirs,
executors and administrators) with coverage under a standard directors’ and
officers’ liability insurance policy at its expense, and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under applicable law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been an officer
of the Bank and/or the Company (whether or not he continues to be an officer
at
the time of incurring such expenses or liabilities), such expenses and
liabilities to include, but not be limited to, judgments, court costs and
attorneys’ fees and the cost of reasonable settlements (such settlements must be
approved by the Board); provided, however, that neither the Bank nor the Company
shall be required to indemnify or reimburse Executive for legal expenses or
liabilities incurred in connection with an action, suit or proceeding arising
from any illegal or fraudulent act committed by Executive. Any such
indemnification shall be made consistent with Section 18(k) of the Federal
Deposit Insurance Act, 12 U.S.C. §1828(k), and the regulations issued thereunder
in 12 C.F.R. Part 359.
15.
Notices. The persons or addresses to which mailings or deliveries shall be
made
may change from time to time by notice given pursuant to the provisions of
this
Section. Any notice or other communication given pursuant to the provisions
of
this Section shall be deemed to have been given (i) if sent by messenger, upon
personal delivery to the party to whom the notice is directed; (ii) if sent
by
reputable overnight courier, one business day after delivery to such courier;
(iii) if sent by facsimile, upon electronic or telephonic confirmation of
receipt from the receiving facsimile machine and (iv) if sent by mail, three
business days following deposit in the United States mail, properly addressed,
postage prepaid, certified or registered mail with return receipt requested.
All
notices required or permitted to be given hereunder shall be addressed as
follows:
If
to the
Executive: Howard
H.
Nolan
4
Jenny Path
Medford,
New York 11763
If
to the
Company
and
the
Bank: Bridgehampton
National Bank
2200
Montauk Highway
Bridgehampton,
New York 11932
Attention:
President and Chief Executive Officer
With
a
copy to:
Luse
Gorman Pomerenk & Schick, PC
5335
Wisconsin Avenue, NW, Suite 400
Washington,
DC 20015
Attention:
John J. Gorman, Esq.
16. Amendment.
No modifications of this Agreement shall be valid unless made in writing and
signed by the parties hereto.
17. Miscellaneous.
(a) Notice
of
Termination. Any termination of Executive’s employment by the Bank and/or the
Company shall be communicated in writing to the Executive, and any voluntary
termination of employment by the Executive shall be communicated in writing
to
the Bank and/or the Company.
(b) Successors
and Assigns. This Agreement will inure to the benefit of and be binding upon
the
Executive, his legal representatives and estate and intestate distributees,
and
the Company and the Bank, their successors and assigns, including any successor
by merger or consolidation or a statutory receiver or any other person or firm
or corporation to which all or substantially all of the assets and business
of
the Bank or the Company may be sold or otherwise transferred. Any such successor
of the Bank or the Company shall be deemed to have assumed this Agreement and
to
have become obligated hereunder to the same extent as the Company and Bank,
and
the Executive’s obligations hereunder shall continue in favor of such
successor.
(c) Severability.
A determination that any provision of this Agreement is invalid or unenforceable
shall not affect the validity or enforceability of any other provision
hereof.
(d) Waiver.
Failure to insist upon strict compliance with any terms, covenants or conditions
hereof shall not be deemed a waiver of such term, covenant or condition. A
waiver of any provision of this Agreement must be made in writing, designated
as
a waiver, and signed by the party against whom its enforcement is sought. Any
waiver or relinquishment or any right or power hereunder at any one or more
times shall not be deemed a waiver or relinquishment of such right or power
at
any other time or times.
(e) Counterparts.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, and all of which shall constitute one and the same
Agreement.
(f) Governing
Law. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without reference to
conflicts of law principles, except to the extent governed by federal law in
which case federal law shall govern.
(g) Headings
and Construction. The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any Section.
Any reference to a Section number shall refer to a Section of this Agreement,
unless otherwise specified.
(h) Entire
Agreement. This instrument contains the entire agreement of the parties relating
to the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof.
(i) Source
of
Payments. All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Bank. The Company, however,
unconditionally guarantees payment and provision of all amounts and benefits
due
hereunder to Executive and, if such amounts and benefits are not timely paid
or
provided by the Bank, such amounts and benefits shall be paid or provided by
the
Company.
IN
WITNESS WHEREOF, the Bank and the Company have caused this Agreement to be
executed and the Executive has hereunto set his hand, all as of the Effective
Date specified above.
EXECUTIVE
June
26, 2006 /s/
Howard H. Nolan
Date
Howard
H.
Nolan
BRIDGEHAMPTON
NATIONAL
BANK
June
26, 2006 By:
/s/
Raymond Wesnofske
Date Raymond
Wesnofske
Chairman of the Board
BRIDGE
BANCORP,
INC.
June
26, 2006
By:
/s/
Raymond Wesnofske
Date Raymond
Wesnofske
Chairman
of the Board
EXHIBIT
31.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE
13a-14(a)
I,
Thomas
J. Tobin, certify that:
1) |
I
have reviewed this quarterly report on Form 10-Q of Bridge Bancorp,
Inc.;
|
2) |
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3) |
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
|
4) |
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15(d)-15(f)) for the registrant and
have:
|
a) |
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is
being prepared;
|
b) |
designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision,
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;
|
c) |
evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
d) |
disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter that has materially affected, or is reasonably likely
to
materially affect, the registrant’s internal control over financial
reporting;
|
5) |
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting,
to
the registrant’s auditors and the audit committee of registrant’s board of
directors:
|
a) |
all
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
b) |
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date:
August
7, 2006
/s/
Thomas J. Tobin
Thomas
J.
Tobin
President
and Chief Executive Officer
EXHIBIT
31.2
CERTIFICATION
OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE
13a-14(a)
I,
Janet
T. Verneuille, certify
that:
1. |
I
have reviewed this quarterly report on Form 10-Q of Bridge Bancorp,
Inc.;
|
2. |
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3. |
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
|
4. |
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15(d)-15(f)) for the registrant and
have:
|
a) |
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is
being prepared;
|
b) |
designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision,
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;
|
c) |
evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
d) |
disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter that has materially affected, or is reasonably likely
to
materially affect, the registrant’s internal control over financial
reporting;
|
5. |
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting,
to
the registrant’s auditors and the audit committee of registrant’s board of
directors:
|
a) |
all
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
b) |
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date:
August
7, 2006
/s/
Janet T. Verneuille
Janet
T.
Verneuille
Executive
Vice President, Chief Financial Officer
and
Treasurer
This
certification is being furnished as required by Rule 13a-14(b) under the
Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter
63 of Title 18 of the United States Code, and shall not be deemed “filed” for
purposes of Section 18 of the Exchange Act or otherwise subject to the liability
of that section. This certification shall not be deemed to be incorporated
by
reference into any filing under the Securities Act of 1933 or the Exchange
Act,
except as otherwise stated in such filing.
EXHIBIT
32.1
CERTIFICATION
PURSUANT TO RULE 13a-14(b) 18 U.S.C. SECTION 1350,
As
adopted pursuant to
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Quarterly Report of Bridge Bancorp, Inc. (the “Company”) on
Form 10-Q for the period ended June 30, 2006 as filed with the Securities and
Exchange Commission on August 7, 2006, (the “Report”), we, Thomas J. Tobin,
President and Chief Executive Officer of the Company and, Janet T. Verneuille,
Executive Vice President, Chief Financial Officer and Treasurer of the Company,
hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
|
(1)
|
The
Report fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934, as amended;
and
|
|
(2)
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
|
Date:
August 7,
2006
|
/s/
Thomas J. Tobin
|
|
Thomas
J. Tobin
|
|
President
and Chief Executive Officer
|
|
|
|
/s/
Janet T. Verneuille
|
|
Janet
T. Verneuille
|
|
Executive
Vice President, Chief Financial Officer,
|
|
and
Treasurer
|