form10q_033108.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
______________________
FORM
10-Q
______________________
T
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|
|
|
SECURITIES
EXCHANGE ACT OF 1934
|
|
For the
quarterly period ended March 31, 2008
______________________
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 T 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 T
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 T
There
were 6,147,072 shares of common stock outstanding as of May 2,
2007.
PART
I -
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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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Exhibit
31.1
|
Certification
of Principal Executive Officer pursuant to Rule
13a-14(a)
|
Exhibit
31.2
|
Certification
of Principal Financial Officer pursuant to Rule
13a-14(a)
|
Exhibit
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Rule
13a-14(b) and 18 U.S.C. Section
1350
|
BRIDGE BANCORP, INC. AND SUBSIDIARY
|
|
|
|
|
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|
Consolidated
Balance Sheets (Unaudited)
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|
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|
(In
thousands, except share and per share amounts)
|
|
|
|
|
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|
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|
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|
March 31,
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|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$ |
16,643
|
|
|
$ |
14,213
|
|
Interest
earning deposits with banks
|
|
|
168
|
|
|
|
135
|
|
Total
cash and cash equivalents
|
|
|
16,811
|
|
|
|
14,348
|
|
|
|
|
|
|
|
|
|
|
Securities
available for sale, at fair value
|
|
|
220,552
|
|
|
|
187,384
|
|
Securities
held to maturity (fair value of $5,475 and $5,844,
respectively)
|
|
|
5,460
|
|
|
|
5,836
|
|
Total
securities, net
|
|
|
226,012
|
|
|
|
193,220
|
|
|
|
|
|
|
|
|
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|
Loans
|
|
|
387,971
|
|
|
|
375,236
|
|
Allowance
for loan losses
|
|
|
(3,122
|
) |
|
|
(2,954
|
) |
Loans,
net
|
|
|
384,849
|
|
|
|
372,282
|
|
|
|
|
|
|
|
|
|
|
Premises
and equipment, net
|
|
|
18,394
|
|
|
|
18,469
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|
Accrued
interest receivable
|
|
|
3,388
|
|
|
|
2,707
|
|
Other
assets
|
|
|
5,159
|
|
|
|
6,398
|
|
Total
Assets
|
|
$ |
654,613
|
|
|
$ |
607,424
|
|
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|
|
|
|
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LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
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|
|
|
|
|
|
Demand
deposits
|
|
$ |
205,231
|
|
|
$ |
176,130
|
|
Savings,
NOW and money market deposits
|
|
|
278,691
|
|
|
|
253,012
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|
Certificates
of deposit of $100,000 or more
|
|
|
58,592
|
|
|
|
44,769
|
|
Other
time deposits
|
|
|
31,305
|
|
|
|
34,998
|
|
Total
deposits
|
|
|
573,819
|
|
|
|
508,909
|
|
|
|
|
|
|
|
|
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|
Federal
funds purchased and repurchase agreements
|
|
|
16,600
|
|
|
|
32,000
|
|
Federal
Home Loan Bank advances
|
|
|
-
|
|
|
|
10,000
|
|
Accrued
interest payable
|
|
|
650
|
|
|
|
641
|
|
Other
liabilities and accrued expenses
|
|
|
9,590
|
|
|
|
4,765
|
|
Total
Liabilities
|
|
|
600,659
|
|
|
|
556,315
|
|
|
|
|
|
|
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Stockholders'
equity:
|
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|
|
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Common
stock, par value $.01 per share:
|
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Authorized:
20,000,000 shares; 6,386,306 issued; 6,147,072 and 6,110,802
shares outstanding, respectively
|
|
|
64
|
|
|
|
64
|
|
Surplus
|
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|
21,039
|
|
|
|
21,671
|
|
Retained
earnings
|
|
|
37,552
|
|
|
|
37,031
|
|
Less: Treasury
Stock at cost, 239,234 and 276,274 shares, respectively
|
|
|
(7,179
|
) |
|
|
(7,889
|
) |
|
|
|
51,476
|
|
|
|
50,877
|
|
Accumulated
other comprehensive income:
|
|
|
|
|
|
|
|
|
Net
unrealized gain on securities, net of deferred taxes of $1,612 and
$140, respectively
|
|
|
2,450
|
|
|
|
213
|
|
Change
in pension assets, net of deferred taxes of ($9) and ($7),
respectively
|
|
|
28
|
|
|
|
19
|
|
Total
Stockholders' Equity
|
|
|
53,954
|
|
|
|
51,109
|
|
Total
Liabilities and Stockholders' Equity
|
|
$ |
654,613
|
|
|
$ |
607,424
|
|
See
accompanying notes to the Unaudited Consolidated Financial
Statement
BRIDGE
BANCORP, INC. AND SUBSIDIARY
Unaudited
Consolidated Statements of Income
(In thousands,
and per share amounts)
Three months ended March
31,
|
|
2008
|
|
|
2007
|
|
Interest
income:
|
|
|
|
|
|
|
Loans
(including fee income)
|
|
$ |
6,857
|
|
|
$ |
6,204
|
|
Mortgage-backed
securities
|
|
|
1,600
|
|
|
|
1,394
|
|
State
and municipal obligations
|
|
|
452
|
|
|
|
533
|
|
U.S.
Treasury and government agency securities
|
|
|
228
|
|
|
|
364
|
|
Federal
funds sold
|
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|
30
|
|
|
|
47
|
|
Deposits
with banks
|
|
|
3
|
|
|
|
2
|
|
Total
interest income
|
|
|
9,170
|
|
|
|
8,544
|
|
|
|
|
|
|
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|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
Savings,
NOW and money market deposits
|
|
|
1,577
|
|
|
|
2,100
|
|
Certificates
of deposit of $100,000 or more
|
|
|
531
|
|
|
|
335
|
|
Other
time deposits
|
|
|
324
|
|
|
|
271
|
|
Federal
funds purchased and repurchase agreements
|
|
|
110
|
|
|
|
63
|
|
Federal
Home Loan Bank Advances
|
|
|
4
|
|
|
|
-
|
|
Total
interest expense
|
|
|
2,546
|
|
|
|
2,769
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
6,624
|
|
|
|
5,775
|
|
Provision
for loan losses
|
|
|
200
|
|
|
|
45
|
|
Net
interest income after provision for loan losses
|
|
|
6,424
|
|
|
|
5,730
|
|
|
|
|
|
|
|
|
|
|
Non
interest income:
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts
|
|
|
699
|
|
|
|
561
|
|
Fees
for other customer services
|
|
|
338
|
|
|
|
352
|
|
Title
fee income
|
|
|
378
|
|
|
|
393
|
|
Net
securities losses
|
|
|
-
|
|
|
|
(101
|
) |
Other
operating income
|
|
|
55
|
|
|
|
41
|
|
Total
non interest income
|
|
|
1,470
|
|
|
|
1,246
|
|
|
|
|
|
|
|
|
|
|
Non
interest expense:
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
3,058
|
|
|
|
2,681
|
|
Net
occupancy expense
|
|
|
467
|
|
|
|
443
|
|
Furniture
and fixture expense
|
|
|
205
|
|
|
|
216
|
|
Other
operating expenses
|
|
|
1,259
|
|
|
|
1,140
|
|
Total
non interest expense
|
|
|
4,989
|
|
|
|
4,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
2,905
|
|
|
|
2,496
|
|
Income
tax expense
|
|
|
935
|
|
|
|
747
|
|
Net
income
|
|
$ |
1,970
|
|
|
$ |
1,749
|
|
Basic
earnings per share
|
|
$ |
0.32
|
|
|
$ |
0.29
|
|
Diluted
earnings per share
|
|
$ |
0.32
|
|
|
$ |
0.29
|
|
Comprehensive
Income
|
|
$ |
4,216
|
|
|
$ |
1,984
|
|
See
accompanying notes to the Unaudited Consolidated Financial
Statements.
BRIDGE BANCORP, INC. AND SUBSIDIARY
Consolidated
Statements of Stockholders’ Equity (unaudited)
(In
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
|
|
|
|
Stock
|
|
|
Surplus
|
|
|
Income
|
|
|
Earnings
|
|
|
Stock
|
|
|
Income (Loss)
|
|
|
Total
|
|
Balance
at December 31, 2007
|
|
|
64
|
|
|
|
21,671
|
|
|
|
|
|
|
37,031
|
|
|
|
(7,889
|
) |
|
|
232
|
|
|
|
51,109
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
1,970
|
|
|
|
1,970
|
|
|
|
|
|
|
|
|
|
|
|
1,970
|
|
Stock
awards vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Stock
awards granted
|
|
|
|
|
|
|
(798
|
) |
|
|
|
|
|
|
|
|
|
|
798
|
|
|
|
|
|
|
|
-
|
|
Stock
awards forfeited
|
|
|
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
(88
|
) |
|
|
|
|
|
|
-
|
|
Shared
based compensation expense
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
Cash
dividends declared, $0.23 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,414
|
) |
|
|
|
|
|
|
|
|
|
|
(1,414
|
) |
Other
comprehensive income, net of deferred tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Change
in unrealized gains in securities available for sale, net of
reclassification and deferred tax effects
|
|
|
|
|
|
|
|
|
|
|
2,237
|
|
|
|
|
|
|
|
|
|
|
|
2,237
|
|
|
|
2,237
|
|
Adjustment
to pension liability, net of deferred taxes
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
(35
|
) |
|
|
|
|
|
|
9
|
|
|
|
(26
|
) |
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
4,216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Balance
at March 31, 2008
|
|
|
64
|
|
|
|
21,039
|
|
|
|
|
|
|
|
37,552
|
|
|
|
(7,179
|
) |
|
|
2,478
|
|
|
|
53,954
|
|
See
accompanying notes to the Unaudited Consolidated Financial
Statements.
BRIDGE BANCORP, INC. AND SUBSIDIARY
Consolidated
Statements of Cash Flows (unaudited)
(In
thousands)
Three months ended March
31,
|
|
2008
|
|
|
2007
|
|
Operating
activities:
|
|
|
|
|
|
|
Net
Income
|
|
$ |
1,970 |
|
|
$ |
1,749 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
200 |
|
|
|
45 |
|
Depreciation
and amortization
|
|
|
312 |
|
|
|
304 |
|
(Accretion)
and amortization, net
|
|
|
(1 |
) |
|
|
(30 |
) |
Share
based compensation expense
|
|
|
78 |
|
|
|
66 |
|
Tax
benefit from exercise of stock options issued pursuant to equity incentive
plans
|
|
|
- |
|
|
|
25 |
|
SERP
Expense
|
|
|
41 |
|
|
|
35 |
|
Net
securities losses
|
|
|
- |
|
|
|
101 |
|
Increase
in accrued interest receivable
|
|
|
(681 |
) |
|
|
(253 |
) |
Deferred
income tax expense benefit
|
|
|
(313 |
) |
|
|
76 |
|
Decrease
(increase) in other assets
|
|
|
(2,641 |
) |
|
|
(312 |
) |
Increase
(decrease) in accrued and other liabilities
|
|
|
3,309 |
|
|
|
(1,316 |
) |
Net
cash provided by operating activities
|
|
|
2,274 |
|
|
|
490 |
|
|
|
|
|
|
|
|
|
|
Investing
Activities:
|
|
|
|
|
|
|
|
|
Purchases
of securities available for sale
|
|
|
(44,127 |
) |
|
|
(3,250 |
) |
Purchases
of securities held to maturity
|
|
|
(733 |
) |
|
|
(749 |
) |
Sales
of securities available for sale
|
|
|
- |
|
|
|
8,484 |
|
Maturities
of securities available for sale
|
|
|
13,000 |
|
|
|
4,000 |
|
Maturities
of securities held to maturity
|
|
|
1,109 |
|
|
|
201 |
|
Principal
payments on mortgage-backed securities
|
|
|
5,841 |
|
|
|
4,719 |
|
Net
increase in loans
|
|
|
(12,767 |
) |
|
|
(10,252 |
) |
Purchase
of premises and equipment
|
|
|
(237 |
) |
|
|
(675 |
) |
Net
cash (used in) provided by investing activities
|
|
|
(37,914 |
) |
|
|
2,478 |
|
|
|
|
|
|
|
|
|
|
Financing
Activities:
|
|
|
|
|
|
|
|
|
Net
increase in deposits
|
|
|
64,909 |
|
|
|
35,452 |
|
Net
decrease in other borrowings
|
|
|
(25,400 |
) |
|
|
(18,600 |
) |
Repayment
of Federal Home Loan Bank advances
|
|
|
(10,000 |
) |
|
|
- |
|
Net
proceeds from exercise of stock options issued pursuant to equity
incentive plan
|
|
|
- |
|
|
|
109 |
|
Cash
dividends paid
|
|
|
(1,406 |
) |
|
|
(1,405 |
) |
Net
cash provided by financing activities
|
|
|
38,103 |
|
|
|
15,556 |
|
|
|
|
|
|
|
|
|
|
Increase
in cash and cash equivalents
|
|
|
2,463 |
|
|
|
18,524 |
|
Cash
and cash equivalents beginning of period
|
|
|
14,348 |
|
|
|
13,263 |
|
Cash
and cash equivalents end of period
|
|
$ |
16,811 |
|
|
$ |
31,787 |
|
|
|
|
|
|
|
|
|
|
Supplemental
Information-Cash Flows:
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
2,576 |
|
|
$ |
3,006 |
|
Income
tax
|
|
$ |
1,090 |
|
|
$ |
1,235 |
|
Noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Securities
which settled in the subsequent period
|
|
$ |
4,172 |
|
|
$ |
- |
|
Dividends
declared and unpaid
|
|
$ |
1,414 |
|
|
$ |
1,398 |
|
See
accompanying notes to the Unaudited Consolidated Financial
Statements.
BRIDGE BANCORP, INC. AND SUBSIDIARY
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.
BASIS OF PRESENTATION
Bridge
Bancorp, Inc. (the “Company”) is incorporated under the laws of the State of New
York as a 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 three months ended March 31, 2008 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, 2007.
2.
EARNINGS PER SHARE
Basic
earnings per common share is computed by dividing net income by the
weighted-average number of common shares outstanding for the
period. Diluted earnings per share, which reflect the potential
dilution that could occur if outstanding stock options were exercised and
dilutive stock awards were fully vested and resulted in the issuance of common
stock that then shared in the earnings of the Company, is computed by dividing
net income by the weighted average number of common shares and common stock
equivalents.
Computation
of Per Share Income
(In
thousands, except per share data)
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$ |
1,970
|
|
|
$ |
1,749
|
|
|
|
|
|
|
|
|
|
|
Common
equivalent shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
6,076
|
|
|
|
6069
|
|
Weighted
average common equivalent shares
|
|
|
18
|
|
|
|
12
|
|
Weighted
average common and common equivalent shares
|
|
|
6,094
|
|
|
|
6,081
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.32
|
|
|
$ |
0.29
|
|
Diluted
earnings per share
|
|
$ |
0.32
|
|
|
$ |
0.29
|
|
There
were approximately 64,243 and 69,107 options outstanding and 70,173 and 17,513
shares of unvested restricted stock at March 31, 2008 and March 31, 2007,
respectively, 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.
REPURCHASE STOCK
The
Company’s Board of Directors approved a stock repurchase program on March 27,
2006 that authorized the repurchase of up to 309,000 shares or approximately 5%
of its total issued and outstanding common shares. These shares can
be purchased from time to time in the open market or through private purchases,
depending on market conditions, availability of stock, the trading price of the
stock, alternative uses for capital, and the Company’s financial
performance. Repurchased shares are held in the Company’s treasury
account and may be utilized for general corporate purposes.
For the
three months ended March 31, 2008 and March 31, 2007, the Company did not
repurchase any of its common shares. At March 31, 2008, 167,041
shares were available for repurchase under the Board approved
program.
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
Black-Scholes option pricing model is used to determine the grant date fair
value of option grants. The Company adopted SFAS 123R beginning
January 1, 2006 applying the modified prospective transition
method. No new grants of stock options were awarded during the three
months ended March 31, 2008 and March 31, 2007. Compensation expense
attributable to stock options was $8,000 and $14,000 for the three months ended
March 31, 2008 and 2007, respectively.
The
intrinsic value for stock options is calculated based on the exercise price of
the underlying awards and the market price of our common stock as of the
reporting date. The intrinsic value of options exercised during the
first quarter of 2008 and 2007 was $0 and $81,000, respectively. The
intrinsic value of options outstanding and exercisable at March 31, 2008 was
$194,000. 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.
During
the three months ended March 31, 2008, the Company granted restricted stock
awards of 42,470 shares. These awards vest over five years with a
third vesting after three years, four years and five years from the date of
grant. No shares of restricted stock were granted for the three
months ended March 31, 2007. Compensation expense attributable to
restricted stock awards was $72,000 and $52,000 for the three months ended March
31, 2008 and 2007, respectively.
A summary
of the status of the Company’s stock options as of March 31, 2008 is as
follows:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
Number
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
of
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
Life
|
|
Value
|
|
Outstanding,
December 31, 2007
|
|
|
100,415
|
|
|
$ |
21.72
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
(2,989
|
) |
|
$ |
25.26
|
|
|
|
|
|
Outstanding,
March 31, 2008
|
|
|
97,426
|
|
|
$ |
21.61
|
|
6.18
years
|
|
$ |
193,980
|
|
Vested
or expected to vest
|
|
|
93,487
|
|
|
$ |
21.46
|
|
6.07
years
|
|
$ |
193,980
|
|
Exercisable,
March 31, 2008
|
|
|
67,340
|
|
|
$ |
19.96
|
|
5.21
years
|
|
$ |
193,980
|
|
|
|
Number
of
|
|
|
|
|
Range
of Exercise Prices
|
|
Shares
|
|
|
Price
|
|
|
|
|
8,400
|
|
|
$ |
12.53
|
|
|
|
|
13,683
|
|
|
$ |
14.67
|
|
|
|
|
11,100
|
|
|
$ |
15.47
|
|
|
|
|
58,652
|
|
|
$ |
24.00-25.25
|
|
|
|
|
5,591
|
|
|
$ |
26.55-30.60
|
|
A summary
of the status of the Company’s unvested restricted stock as of March 31, 2008 is
as follows:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
Grant-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
Unvested,
December 31, 2007
|
|
|
36,673
|
|
|
$ |
24.82
|
|
Granted
|
|
|
42,470
|
|
|
$ |
22.00
|
|
Vested
|
|
|
(1,770
|
) |
|
$ |
27.96
|
|
Forfeited
|
|
|
(7,200
|
) |
|
$ |
24.19
|
|
Unvested,
March 31, 2008
|
|
|
70,173
|
|
|
$ |
23.16
|
|
5.
SECURITIES
A summary
of the amortized cost and estimated fair value of securities is as
follows:
|
|
March 31, 2008
|
|
|
December 31, 2007
|
|
(In
thousands)
|
|
|
|
|
Estimated
|
|
|
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
Available
for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Treasury and government agency securities
|
|
$ |
20,928
|
|
|
$ |
21,259
|
|
|
$ |
19,035
|
|
|
$ |
19,136
|
|
State
and municipal obligations
|
|
|
47,902
|
|
|
|
48,942
|
|
|
|
47,547
|
|
|
|
47,803
|
|
Mortgage-backed
securities
|
|
|
147,660
|
|
|
|
150,351
|
|
|
|
120,450
|
|
|
|
120,445
|
|
Total
available for sale
|
|
|
216,490
|
|
|
|
220,552
|
|
|
|
187,032
|
|
|
|
187,384
|
|
Held
to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
and municipal obligations
|
|
|
5,460
|
|
|
|
5,475
|
|
|
|
5,836
|
|
|
|
5,844
|
|
Total
held to maturity
|
|
|
5,460
|
|
|
|
5,475
|
|
|
|
5,836
|
|
|
|
5,844
|
|
Total
debt and equity securities
|
|
$ |
221,950
|
|
|
$ |
226,027
|
|
|
$ |
192,868
|
|
|
$ |
193,228
|
|
Securities
having a fair value of approximately $197.3 million and $176.5 million at March
31, 2008 and December 31, 2007, respectively, were pledged to secure public
deposits and Federal Home Loan Bank and Federal Reserve Bank overnight
borrowings. The Bank did not hold any trading securities during the
three months ended March 31, 2008 or the year ended December 31, 2007.
As of
March 31, 2008, the Bank purchased a mortgage backed security totaling $4.2
million that will settle during the beginning of the second
quarter. This security is included in the consolidated balance sheet
at March 31, 2008 as securities available for sale with a corresponding amount
reflected in other liabilities and accrued expenses.
The Bank
is a member of the Federal Home Loan Bank (“FHLB”) of New
York. Members are required to own a particular amount of stock based
on the level of borrowings and other factors, and may invest in additional
amounts. The Bank is also a member of the Federal Reserve Bank
(“FRB”) system and required to own FRB stock. FHLB and FRB stock is
carried at cost and periodically evaluated for impairment based on ultimate
recovery of par value. Both cash and stock dividends are reported as
income. The Bank owned approximately $0.8 million in FHLB and FRB
stock at March 31, 2008 and December 31, 2007, respectively and reported these
amounts as other assets in the consolidated balance sheet.
In
September 2006, the FASB issued Statement No. 157, Fair Value
Measurements. This Statement defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. This Statement establishes a fair value hierarchy about
the assumptions used to measure fair value and clarifies assumptions about risk
and the effect of a restriction on the sale or use of an asset. The
standard is effective for fiscal years beginning after November 15,
2007. In February 2008, the FASB issued Staff Position (FSP) 157-2,
Effective Date of FASB Statement No. 157. This FSP delays the
effective date of FAS 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value on a
recurring basis (at least annually) to fiscal years beginning after November 15,
2008, and interim periods within those fiscal years. The impact of
adoption was not material.
Statement
157 establishes a fair value hierarchy which requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. The standard describes three levels of inputs that may be
used to measure fair value:
Level 1:
Quoted prices (unadjusted) or identical assets or liabilities in active markets
that the entity has the ability to access as of the measurement
date.
Level 2:
Significant other observable inputs other than Level 1 prices such as quoted
prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable
market data.
Level 3:
Significant unobservable inputs that reflect a reporting entity’s own
assumptions about the assumptions that market participants would use in pricing
and asset or liability.
The fair
value of securities available for sale is determined by obtaining quoted prices
on nationally recognized securities exchanges (Level 1 inputs) or matrix
pricing, which is a mathematical technique widely used to in the industry to
value debt securities without relying exclusively on quoted prices for the
specific securities but rather by relying on the securities’ relationship to
other benchmark quoted securities (Level 2 inputs).
Assets
and liabilities measured at fair value on a recurring basis are summarized
below:
(In
thousands)
|
|
|
|
Fair Value Measurements Using
|
|
|
March 31, 2008
|
|
Quoted
Prices In Active Markets for Identical Assets
(Level 1)
|
|
Significant
Other Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
Available
for sale securities
|
|
$ |
220,552
|
|
|
|
$ |
220,552
|
|
|
6.
LOANS
The
following table sets forth the major classifications of loans:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
real estate mortgage loans
|
|
$ |
177,745
|
|
|
$ |
175,876
|
|
Residential
real estate mortgage loans
|
|
|
124,856
|
|
|
|
125,317
|
|
Commercial,
financial, and agricultural
|
|
|
56,652
|
|
|
|
50,531
|
|
Installment/consumer
loans
|
|
|
12,345
|
|
|
|
8,553
|
|
Real
estate-construction loans
|
|
|
16,174
|
|
|
|
14,867
|
|
Total
loans
|
|
|
387,772
|
|
|
|
375,144
|
|
Net
deferred loan costs and fees
|
|
|
199
|
|
|
|
92
|
|
|
|
|
387,971
|
|
|
|
375,236
|
|
Allowance
for loan losses
|
|
|
(3,122
|
) |
|
|
(2,954
|
) |
Net
loans
|
|
$ |
384,849
|
|
|
$ |
372,282
|
|
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 March 31, 2008 and December 31, 2007 were $1.0 million and $0.2
million, respectively. There were no loans 90 days or more past due
that were still accruing at March 31, 2008 and December 31, 2007.
As of
March 31, 2008 and December 31, 2007, there were no impaired loans as defined by
SFAS No. 114, “Accounting by Creditors for Impairment of a Loan – An Amendment
of FASB Statement No. 5 and 15” (SFAS 114”). For a loan to be
considered impaired, management determines after review whether it is probable
that the Company will not be able to collect all amounts due according to the
contractual terms of the loan agreement. Additionally management
applies its normal loan review procedures in making these
judgments. As of March 31, 2008 and December 31, 2007, there were no
loans considered to be a troubled debt restructuring as defined by SFAS No.
114.
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 March 31, 2008, management determined the allowance for loan
losses to be adequate.
The
following table sets forth changes in the allowance for loan
losses.
(In
thousands)
|
|
For the Three Months Ended
|
|
|
For the Year Ended
|
|
|
|
March 31, 2008
|
|
|
March 31, 2007
|
|
|
December 31, 2007
|
|
Beginning
balance
|
|
$
|
2,954
|
|
|
$ |
2,512
|
|
|
$ |
2,512
|
|
Provisions
for loan loss
|
|
|
200
|
|
|
|
45
|
|
|
|
600
|
|
Net
recoveries (charge-offs)
|
|
|
(32
|
) |
|
|
14
|
|
|
|
(158
|
) |
Ending
balance
|
|
$ |
3,122
|
|
|
$ |
,2571
|
|
|
$ |
2,954
|
|
8.
EMPLOYEE BENEFITS
The Bank
maintains a noncontributory pension plan through the New York State Bankers
Association Retirement System covering all eligible employees.
The
Bridgehampton National Bank Supplemental Executive Retirement Plan (“SERP”)
provides benefits to certain employees, as recommended by the Compensation
Committee of the Board of Directors and approved by the full Board of Directors,
whose benefits under the Pension Plan are limited by the applicable provisions
of the Internal Revenue Code. The benefit under the SERP is equal to
the additional amount the employee would be entitled to under the Pension Plan
and the 401(k) Plan in the absence of such Internal Revenue Code
limitations. The assets of the SERP are held in a rabbi trust to
maintain the tax-deferred status for the individuals in the plan. As
a result, the assets of the trust are reflected on the Consolidated Balance
Sheets of the Company. The effective date of the SERP was January 1,
2001.
There
were no contributions made to the pension plan or SERP for the three months
ended March 31, 2008. 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.
The
following table sets forth the components of net periodic benefit cost and other
amounts recognized in Other Comprehensive Income.
(In
thousands)
|
|
At March 31,
|
|
|
|
Pension Benefits
|
|
|
SERP Benefits
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Service
cost
|
|
$ |
110
|
|
|
$ |
111
|
|
|
$ |
17
|
|
|
$ |
15
|
|
Interest
cost
|
|
|
69
|
|
|
|
69
|
|
|
|
12
|
|
|
|
13
|
|
Expected
return on plan assets
|
|
|
(123
|
) |
|
|
(96
|
) |
|
|
-
|
|
|
|
-
|
|
Amortization
of net loss
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
Amortization
of unrecognized prior service cost
|
|
|
2
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
Amortization
of unrecognized transition (asset) obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
|
|
7
|
|
Net
periodic benefit cost
|
|
$ |
58
|
|
|
$ |
89
|
|
|
$ |
36
|
|
|
$ |
35
|
|
9. SECURITIES
SOLD UNDER AGREEMENTS TO REPURCHASE
Securities
sold under agreements to repurchase are financing agreements that mature within
seven years. The arrangements outstanding as of March 31, 2008 were
entered into during February and March. The securities sold under
agreements to repurchase had an average balance of $7.7 million and an average
interest rate of 2.6% during the three months ended March 31,
2008. The maximum month end balance during the three months ended
March 31, 2008 was $15.0 million. At maturity, the securities
underlying the agreements are returned to the Company. There were
$15.0 million and $25.0 million of securities sold under agreements to
repurchase outstanding as of March 31, 2008 and December 31, 2007,
respectively.
10. FEDERAL
HOME LOAN BANK ADVANCES
There
were no advances from the Federal Home Loan Bank outstanding as of March 31,
2008. As of December 31, 2007, there was one advance from the Federal
Home Loan bank for $10.0 million with a fixed interest rate of 4.3% that matured
in January 2008 and was repaid upon maturity.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Private
Securities Litigation Reform Act Safe Harbor Statement
This
report may contain statements relating to the future results of the Company
(including certain projections and business trends) that are considered
“forward-looking statements” as defined in the Private Securities Litigation
Reform Act of 1995 (the “PSLRA”). Such forward-looking statements, in
addition to historical information, which involve risk and uncertainties, are
based on the beliefs, assumptions and expectations of management of the
Company. Words such as “expects,” “believes,” “should,” “plans,”
“anticipates,” “will,” “potential,” “could,” “intend,” “may,” “outlook,”
“predict,” “project,” “would,” “estimates,” “assumes,” “likely,” and variations
of such similar expressions are intended to identify such forward-looking
statements. Examples of forward-looking statements include, but are
not limited to, possible or assumed estimates with respect to the financial
condition, expected or anticipated revenue, and results of operations and
business of the Company, including earnings growth; revenue growth in retail
banking, lending and other areas; origination volume in the Company’s consumer,
commercial and other lending businesses; current and future capital management
programs; non-interest income levels, including fees from the abstract
subsidiary and banking services as well as product sales; tangible capital
generation; market share; expense levels; and other business operations and
strategies. For this presentation, the Company claims the protection
of the safe harbor for forward-looking statements contained in the
PSLRA.
Factors
that could cause future results to vary from current management expectations
include, but are not limited to: change in economic conditions
including an economic recession that could affect the value of real estate
collateral and the ability for borrowers to repay their
loans; legislative and regulatory changes; monetary and fiscal
policies of the federal government; changes in tax policies, rates and
regulations of federal, state and local tax authorities; changes in interest
rates; deposit flows; the cost of funds; demand for loan products and other
financial services; competition; changes in the quality and composition of the
Bank’s loan and investment portfolios; changes in management’s business
strategies; changes in accounting principles, policies or guidelines; changes in
real estate values and other factors discussed elsewhere in this report, factors
set forth under Item 1A., Risk Factors, in our Annual Report on Form 10-K for
the year ended December 31, 2007 and in other reports filed by the Company with
the Securities and Exchange Commission. The forward-looking
statements are made as of the date of this report, and the Company assumes no
obligation to update the forward-looking statements or to update the reasons why
actual results could differ from those projected in the forward-looking
statements.
Overview
Who
We Are and How We Generate Income
Bridge
Bancorp, Inc. (“the Company”), a New York corporation, is a single bank holding
company formed in 1989. On a parent-only basis, the Company has had
minimal results of operations. The Company is dependent on dividends
from its wholly owned subsidiary, The Bridgehampton National Bank (“the Bank”),
its own earnings, additional capital raised, and borrowings as sources of
funds. The information in this report reflects principally the
financial condition and results of operations of the Bank. The Bank’s
results of operations are primarily dependent on its net interest income, which
is mainly the difference between interest income on loans and investments and
interest expense on deposits and borrowings. The Bank also generates
non interest income, such as fee income on deposit accounts and merchant credit
and debit card processing programs, income from its title abstract subsidiary,
and net gains on sales of securities and loans. The level of its non
interest expenses, such as salaries and benefits, occupancy and equipment costs,
other general and administrative expenses, expenses from its title insurance
subsidiary, and income tax expense, further affects the Bank’s net
income. Certain reclassifications have been made to prior year
amounts and the related discussion and analysis to conform to the current year
presentation.
Quarterly
Highlights
·
|
Net
income of $2.0 million or $.32 per diluted share for the first quarter of
2008 as compared to net income of $1.7 million or $.29 per diluted share
for the first quarter of 2007.
|
·
|
Returns
on average equity and assets of 15.0% and 1.25%, respectively for the
first quarter of 2008.
|
·
|
Net
interest income increased to $6.6 million for the first quarter of 2008 as
compared to $5.8 million in 2007.
|
·
|
A
net interest margin of 4.67% for the first quarter of 2008 as compared to
4.46% for 2007.
|
·
|
Total
loans at March 31, 2008 of $384.8 million, a $51.2 million or 15.3%
increase over March 2007.
|
·
|
Total
assets of $654.6 million at March 31, 2008, an increase of $64.5 million
or 10.9% compared to $590.1 million at March 31,
2007.
|
·
|
Deposits
of $573.8 million at March 31, 2008, an increase of $ 34.0 million or 6.3%
over the March 2007 levels.
|
·
|
Demand
deposits of $205.2 million at March 31, 2008, a 15.2% increase over
March 31, 2007, representing 35.8% of total
deposits.
|
·
|
Continued
strong credit quality with increasing reserve
levels.
|
·
|
The
declaration of a cash dividend of $.23 per share for the first quarter of
2008.
|
·
|
The
April 15, 2008 filing of an application to list the Company’s common stock
on the NASDAQ stock market.
|
Principal
Products and Services and Locations of Operations
The Bank
operates fourteen branches on eastern Long Island. Federally
chartered in 1910, the Bank was founded by local farmers and
merchants. For nearly a century, the Bank has maintained its focus on
building customer relationships in this market area. The mission of
the Company is to grow through the provision of exceptional service to its
customers, its employees, and the community. The Company strives to
achieve excellence in financial performance and build long term shareholder
value. The Bank engages in full service commercial and consumer
banking business, including accepting time, savings and demand deposits from the
consumers, businesses and local municipalities surrounding its branch
offices. These deposits, together with funds generated from
operations and borrowings, are invested primarily in: (1) commercial real estate
loans; (2) home equity loans; (3) construction loans; (4) residential mortgages;
(5) secured and unsecured commercial and consumer loans; (6) FHLB, FNMA, GNMA
and FHLMC mortgage-backed securities; (7) New York State and local municipal
obligations; and (8) U.S. Treasury and government agency
securities. The Bank also offers the CDARS program, providing up to
$50,000,000 of FDIC insurance to its customers. In addition, the Bank
offers merchant credit and debit card processing, automated teller machines,
cash management services, online banking services, safe deposit boxes and
individual retirement accounts. Through its title insurance abstract
subsidiary, the Bank acts as a broker for title insurance
services. The Bank’s customer base is comprised principally of small
businesses, municipal relationships and consumer relationships.
Opportunities
and Challenges
The
economic and competitive landscape has changed dramatically over the past two
years. Recognizing that our market areas are generally affluent,
large money center banks increasingly meet their funding needs by aggressively
pricing deposits in the Bank’s markets. Competition for deposits and
loans is intense as various banks in the marketplace, large and small, promise
excellent service yet often price their products
irrationally. Deposit growth is essential to the Bank’s ability to
increase earnings; therefore branch expansion and building share in our existing
markets remain key strategic goals. Controlling funding costs yet protecting the
deposit base along with focusing on profitable growth, presents a unique set of
challenges in this operating environment.
During
2007, growing profits in the flat or inverted yield curve environment presented
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 of the Bank to borrow on a short term
basis at a lower cost and invest on a long term basis at a higher yield was
diminished. Pressure on net interest income persisted during 2007;
however, improvements in both rate and volume during the second half of 2007
caused an increase in net interest income for the year ended December 31, 2007
as compared to the prior year. The yield curve remained flat or slightly
inverted during much of the year. During the second half of 2007 and
continuing into the first quarter of 2008, the financial markets experienced
significant volatility resulting from the continued fallout of sub-prime lending
and the global liquidity crises. A multitude of government
initiatives along with six rate cuts by the Federal Reserve totaling 300 basis
points have been designed to improve liquidity for the distressed financial
markets. The ultimate objective of these efforts has been to help the
beleaguered consumer, and reduce the potential surge of residential mortgage
loan foreclosures. Despite these actions, many of our competitors, due to
liquidity concerns, have not yet adjusted their deposit pricing. This contrasts
with the impact on assets where yields on loans and securities continue to
decline. The squeeze between declining asset yields and more slowly declining
liability pricing could impact margins.
Growth
and service strategies have potential to offset the tighter net interest margin
with volume as the customer base grows through expanding the Bank’s footprint,
while maintaining and developing existing relationships. During 2007,
the Bank opened three new branches; Southampton Village, Cutchogue and its
14th
branch office which is located in Wading River. We continue to make
our way through the regulatory process and expect that the opening of our new
facility in the Village of East Hampton will be a 2009 event. We believe
positive outcomes in the future will result from the expansion of our geographic
footprint, investments in infrastructure and technology, such as BridgeNEXUS,
our remote deposit capture product, and continued focus on placing our customers
first.
Corporate
objectives for 2008 include: leveraging our expanding branch network
to build customer relationships and grow loans and deposits; focusing on
opportunities and processes that continue to enhance the customer experience at
the Bank; improving operational efficiencies and prudent management of
non-interest expense; and maximizing non-interest income through Bridge Abstract
as well as other lines of business. The ability to attract,
retain, train and cultivate employees at all levels of the Company remains
significant to meeting these objectives.
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 judgments made regarding the allowance for loan
losses can have a material effect on the results of operations of the
Company.
The
allowance for loan losses is established and maintained through a provision for
loan losses based on probable incurred losses inherent in the Bank’s loan
portfolio. Management evaluates the adequacy of the allowance on a
quarterly basis. The allowance is comprised of both individual
valuation allowances and loan pool valuation allowances. If the
allowance for loan losses is not sufficient to cover actual loan losses, the
Company’s earnings could decrease.
The Bank
monitors its entire loan portfolio on a regular basis, with consideration given
to detailed analysis of classified loans, repayment patterns, probable incurred
losses, past loss experience, current economic conditions, and various types of
concentrations of credit. Additions to the allowance are charged to
expense and realized losses, net of recoveries, are charged to the
allowance.
Individual
valuation allowances are established in connection with specific loan reviews
and the asset classification process including the procedures for impairment
testing under Statement of Accounting Standard (“SFAS”) No. 114, “Accounting by Creditors for
Impairment of a Loan, an Amendment of FASB Statements No. 5 and 15,” and
SFAS No. 118, “Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures, an
Amendment of SFAS No. 114.” Such valuation, which includes a
review of loans for which full collectibility in accordance with contractual
terms is not reasonably assured, considers the estimated fair value of the
underlying collateral less the costs to sell, if any, or the present value of
expected future cash flows, or the loan’s observable market
value. Any shortfall that exists from this analysis results in a
specific allowance for the loan. Pursuant to our policy, loan losses
must be charged-off in the period the loans, or portions thereof, are deemed
uncollectible. Assumptions and judgments by management, in
conjunction with outside sources, are used to determine whether full
collectibility of a loan is not reasonably assured. These assumptions
and judgments also are used to determine the estimates of the fair value of the
underlying collateral or the present value of expected future cash flows or the
loan’s observable market value. Individual valuation allowances could
differ materially as a result of changes in these assumptions and
judgments. Individual loan analyses are periodically performed on
specific loans considered impaired. The results of the individual
valuation allowances are aggregated and included in the overall allowance for
loan losses.
Loan pool
valuation allowances represent loss allowances that have been established to
recognize the inherent risks associated with our lending activities, but which,
unlike individual allowances, have not been allocated to particular problem
assets. Pool evaluations are broken down as
follows: first, loans with homogenous characteristics are pooled by
loan type and include home equity loans, residential mortgages, land loans and
consumer loans. Then all remaining loans are segregated into pools
based upon the risk rating of each credit. Key factors in determining
a credit’s risk rating include management’s evaluation of: cash flow,
collateral, guarantor support, financial disclosures, industry trends and
strength of company 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 March 31, 2008, management believes the allowance for loan
losses has been established at levels sufficient to cover the probable incurred
losses in the Bank’s loan portfolio. Future additions or reductions
to the allowance may be necessary based on changes in economic, market or other
conditions. Changes in estimates could result in a material change in
the allowance. In addition, various regulatory agencies, as an
integral part of the examination process, periodically review the Bank’s
allowance for loan losses. Such agencies may require the Bank to
recognize adjustments to the allowance based on their judgments of the
information available to them at the time of their examination.
Net
Income
Net
income for the three months ended March 31, 2008 totaled $2.0 million or $.32
per diluted share as compared to $1.7 million or $0.29 per diluted share for the
same period in 2007. Changes for the three months ended March 31,
2008 compared to March 31, 2007 include: (i) $0.8 million or 14.7% increase in
net interest income; (ii) $0.2 million or 18.0% increase in total non interest
income as a result of higher fee income for customer services and merchant
income and (iii) $0.5 million or 11.4% increase in total non interest expenses,
primarily due to increased salaries and employee benefits related to expanding
the Company’s infrastructure and the opening of new branch
offices. In addition, a provision for loan losses of $200,000 was
recorded this quarter due to the continued growth of our net loan portfolio and
changes in economic conditions. Non interest income for 2008 did not
include any net securities losses as compared to a net loss of $101,000 that was
realized due to the repositioning of the available for sale investment portfolio
during the first quarter of 2007. The effective income tax rate
increased to 32.2% from 29.9% for the same period last year.
Analysis
of Net Interest Income
Net
interest income, the primary contributor to earnings, represents the difference
between income on interest earning assets and expenses on interest bearing
liabilities. Net interest income depends upon the volume of interest
earning assets and interest bearing liabilities and the interest rates earned or
paid on them.
The
following table sets forth certain information relating to the Company’s average
consolidated balance sheets and its consolidated statements of income for the
periods indicated and reflect the average yield on assets and average cost of
liabilities for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown. Average balances
are derived from daily average balances and include non-performing
loans. The yields and costs include fees, which are considered
adjustments to yields. Interest on nonaccrual loans has been included
only to the extent reflected in the consolidated statements of
income. For purposes of this table, the average balances for
investments in debt and equity securities exclude unrealized
appreciation/depreciation due to the application of SFAS No. 115, “Accounting for Certain Investments
in Debt and Equity Securities.”
Three months ended March
31,
|
|
2008
|
|
|
2007
|
|
(In
thousands)
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
Balance
|
|
|
Interest
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans,
net (including loan fee income)
|
|
$ |
378,386
|
|
|
$ |
6,857
|
|
|
|
7.29
|
% |
|
$ |
328,234
|
|
|
$ |
6,204
|
|
|
|
7.67
|
% |
Mortgage-backed
securities
|
|
|
131,484
|
|
|
|
1,600
|
|
|
|
4.81
|
|
|
|
120,904
|
|
|
|
1,394
|
|
|
|
4.61
|
|
Tax
exempt securities (1)
|
|
|
53,331
|
|
|
|
672
|
|
|
|
4.98
|
|
|
|
58,825
|
|
|
|
760
|
|
|
|
5.17
|
|
Taxable
securities
|
|
|
22,289
|
|
|
|
228
|
|
|
|
4.05
|
|
|
|
33,975
|
|
|
|
364
|
|
|
|
4.29
|
|
Federal
funds sold
|
|
|
4,048
|
|
|
|
30
|
|
|
|
2.93
|
|
|
|
3,603
|
|
|
|
47
|
|
|
|
5.22
|
|
Deposits
with banks
|
|
|
178
|
|
|
|
3
|
|
|
|
6.78
|
|
|
|
39
|
|
|
|
2
|
|
|
|
20.80
|
|
Total
interest earning assets
|
|
|
589,716
|
|
|
|
9,390
|
|
|
|
6.38
|
|
|
|
545,580
|
|
|
|
8,771
|
|
|
|
6.50
|
|
Non
interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
|
16,615
|
|
|
|
|
|
|
|
|
|
|
|
15,039
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
28,187
|
|
|
|
|
|
|
|
|
|
|
|
22,245
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
634,518
|
|
|
|
|
|
|
|
|
|
|
$ |
582,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings,
NOW and money market deposits
|
|
$ |
293,915
|
|
|
$ |
1,577
|
|
|
|
2.16
|
% |
|
$ |
294,640
|
|
|
$ |
2,100
|
|
|
|
2.89
|
% |
Certificates
of deposit of $100,000 or more
|
|
|
55,553
|
|
|
|
531
|
|
|
|
3.84
|
|
|
|
31,366
|
|
|
|
335
|
|
|
|
4.33
|
|
Other
time deposits
|
|
|
35,232
|
|
|
|
324
|
|
|
|
3.70
|
|
|
|
29,068
|
|
|
|
271
|
|
|
|
3.78
|
|
Federal
funds purchased and repurchase agreements
|
|
|
14,697
|
|
|
|
110
|
|
|
|
3.01
|
|
|
|
4,596
|
|
|
|
63
|
|
|
|
5.56
|
|
Federal
Home Loan Bank advances
|
|
|
330
|
|
|
|
4
|
|
|
|
4.88
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
interest bearing liabilities
|
|
|
399,727
|
|
|
|
2,546
|
|
|
|
2.56
|
|
|
|
359,670
|
|
|
|
2,769
|
|
|
|
3.12
|
|
Non
interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
|
176,274
|
|
|
|
|
|
|
|
|
|
|
|
173,174
|
|
|
|
|
|
|
|
|
|
Other
liabilities
|
|
|
5,751
|
|
|
|
|
|
|
|
|
|
|
|
3,818
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
581,752
|
|
|
|
|
|
|
|
|
|
|
|
536,662
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
52,766
|
|
|
|
|
|
|
|
|
|
|
|
46,202
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$ |
634,518
|
|
|
|
|
|
|
|
|
|
|
$ |
582,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income/interest rate spread (2)
|
|
|
|
|
|
|
6,844
|
|
|
|
3.82
|
% |
|
|
|
|
|
|
6,002
|
|
|
|
3.38
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest earning assets/net interest margin (3)
|
|
$ |
189,989
|
|
|
|
|
|
|
|
4.67
|
% |
|
$ |
185,910
|
|
|
|
|
|
|
|
4.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio
of interest earning assets to interest bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
147.53
|
% |
|
|
|
|
|
|
|
|
|
|
151.69
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Tax equivalent adjustment
|
|
|
|
|
|
|
(220
|
) |
|
|
|
|
|
|
|
|
|
|
(227
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$ |
6,624
|
|
|
|
|
|
|
|
|
|
|
$ |
5,775
|
|
|
|
|
|
(1)
|
The
above table is presented on a tax equivalent
basis.
|
(2)
|
Net
interest rate spread represents the difference between the yield on
average interest earning assets and the cost of average interest bearing
liabilities.
|
(3)
|
Net
interest margin represents net interest income divided by average interest
earning assets.
|
Rate/Volume
Analysis
Net
interest income can be analyzed in terms of the impact of changes in rates and
volumes. The following table illustrates the extent to which changes in interest
rates and in the volume of average interest earning assets and interest bearing
liabilities have affected the Bank’s interest income and interest expense during
the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) changes attributable to changes in rates
(changes in rates multiplied by prior volume); and (iii) the net
changes. For purposes of this table, changes which are not due solely
to volume or rate changes have been allocated to these categories based on the
respective percentage changes in average volume and rate. Due to the
numerous simultaneous volume and rate changes during the periods analyzed, it is
not possible to precisely allocate changes between volume and
rates. In addition, average earning assets include nonaccrual
loans.
|
|
Three
months ended March 31,
|
|
|
|
2008
Over 2007
|
|
(In
thousands)
|
|
Changes Due To
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
Change
|
|
Interest
income on interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
(including loan fee income)
|
|
$ |
2,382
|
|
|
$ |
(1,729
|
) |
|
$ |
653
|
|
Mortgage-backed
securities
|
|
|
137
|
|
|
|
69
|
|
|
|
206
|
|
Tax
exempt securities (1)
|
|
|
(64
|
) |
|
|
(24
|
)
|
|
|
(88
|
) |
Taxable
securities
|
|
|
(117
|
) |
|
|
(19
|
) |
|
|
(136
|
) |
Federal
funds sold
|
|
|
32
|
|
|
|
(49
|
) |
|
|
(17
|
) |
Deposits
with banks
|
|
|
6
|
|
|
|
(5
|
) |
|
|
1
|
|
Total
interest earning assets
|
|
|
2,376
|
|
|
|
(1,757
|
) |
|
|
619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense on interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings,
NOW and money market deposits
|
|
|
(5
|
) |
|
|
(518
|
) |
|
|
(523
|
) |
Certificates
of deposit of $100,000 or more
|
|
|
438
|
|
|
|
(242
|
) |
|
|
196
|
|
Other
time deposits
|
|
|
91
|
|
|
|
(38
|
) |
|
|
53
|
|
Federal
funds purchased and repurchase agreements
|
|
|
233
|
|
|
|
(186
|
) |
|
|
47
|
|
Federal
Home Loan Bank Advances
|
|
|
4
|
|
|
|
-
|
|
|
|
4
|
|
Total
interest bearing liabilities
|
|
|
761
|
|
|
|
(984
|
) |
|
|
(223
|
) |
Net
interest income
|
|
$ |
1,615
|
|
|
$ |
(773
|
) |
|
$ |
842
|
|
(1) The
above table is presented on a tax equivalent basis.
Net
interest income was $6.6 million for the quarter ended March 31, 2008 compared
to $5.8 million for the same period in 2007, an increase of $0.8 million or
14.7%. Net interest margin improved to 4.67% for the quarter ended
March 31, 2008 as compared to 4.46% for the quarter ended March 31, 2007. These
increases was primarily the result of an increase in interest earnings assets of
$44.1 million and the decrease in the cost of the average total interest bearing
liabilities being greater than the decrease in the yield on average total
interest earning assets. The cost of interest bearing liabilities
decreased approximately 56 basis points during the first quarter of 2008
compared to 2007, which was partly offset by a decrease in yields of
approximately 12 basis points on interest earning assets.
For the
quarter ended March 31, 2008, average loans grew by $50.2 million or 15.3% to
$378.4 million as compared to $328.2 million for the same period in
2007. Real estate mortgage loans and commercial loans primarily
contributed to the growth. The Bank remains committed to growing
loans with prudent underwriting, sensible pricing and limited credit and
extension risk.
For the
quarter ended March 31, 2008, average total investments decreased by $6.6
million or 3.1% to $207.1 million as compared to $213.7 million for the quarter
ended March 31, 2007. To position the balance sheet for the future and better
manage liquidity and interest rate risk, a portion of the available for sale
investment securities portfolio was sold during the first quarter of 2007
resulting in a net loss of $101,000. Average federal funds sold
increased to $4.0 million or 12.4% for the first quarter of 2008 from $3.6
million in 2007. The increase in the average federal funds sold for the first
quarter of 2008 was primarily due to growth in the average
deposits.
Average
total interest bearing liabilities totaled $399.7 million for the quarter ended
March 31, 2008 compared to $359.7 million for the same period in 2007. The Bank
continued to offer deposit promotions during the quarter in connection with new
branch openings and to reduce potential core deposits outflows. During the first
quarter of 2008, the Bank reduced interest rates on deposit products in response
to the reductions in the federal funds and discount rate by the Federal Reserve.
The reduction in deposit rates along with lower borrowing costs resulted in a
decrease in the cost of interest bearing liabilities from 3.12% for the quarter
ended March 31, 2007 to 2.56% for the quarter ended March 31,
2008. Since the Company’s interest bearing liabilities generally
reprice or mature more quickly than its interest earning assets, a decrease in
short term interest rates initially result in an increase in net interest
income. Additionally, the large percentages of deposits in money
market accounts reprice at short term market rates making the balance sheet more
liability sensitive.
For the
quarter ended March 31, 2008, average total deposits increased by $32.7 million
or 6.2% to $561.0 million as compared to average total deposits for the quarter
ended March 31, 2007. Components of this increase include an increase
in average demand deposits for 2008 of $3.1 million or 1.8% to $176.3 million as
compared to average demand deposits for 2007. The average balances in
savings, NOW and money market accounts decreased $0.7 million or 0.2% to $293.9
million for the quarter ended March 31, 2008 compared to the same period last
year. Average balances in certificates of deposit of $100,000 or more
and other time deposits increased $30.4 million or 50.2% to $90.8 million for
2008 as compared to 2007. Average public fund deposits comprised
24.4% of total average deposits during the first quarter of 2008 and 26.8% of
total average deposits for the same period in 2007. Average federal
funds purchased and repurchase agreements and average Federal Home Loan Bank
advances increased $10.4 million to $15.0 million for the quarter ended March
31, 2008 as compared to average balances for the same period in the prior
year.
Total
interest income increased $0.6 million or 7.3% to $9.2 million for the quarter
ended March 31, 2008 from $8.5 million for the same period in
2007. The ratio of interest earning assets to interest bearing
liabilities decreased to 147.5% in 2008 as compared to 151.7% in
2007. Interest income on loans increased $0.7 million or 10.5% to
$6.9 million in 2008 compared to $6.2 million in 2007 primarily due to growth in
the loan portfolio partially offset by a decrease in yield on average loans. The
yield on average loans was 7.3% for 2008 as compared to 7.7% in
2007.
Interest
income on investment in mortgage-backed, taxable and tax exempt securities was
flat at $2.5 million for the three months ended March 31, 2008 and 2007,
respectively. Interest income on securities included net accretion of discounts
of $1,000 in the first quarter of 2008 compared to amortization of premiums on
securities of $30,000 for the same period in 2007. The tax adjusted
average yield on total securities increased to 4.9% in 2008 from 4.8% in
2007.
Interest
expense decreased $0.2 million or 8.1% to $2.5 million for the first quarter of
2008 compared to $2.8 million for the same period in 2007. The decrease in
interest expense in 2008 resulted from reduction in interest rates on deposits
and borrowings offset by the growth in average balances for deposits and
borrowings.
Provision
and Allowance for Loan Losses
The
Bank’s loan portfolio consists primarily of real estate loans secured by
commercial and residential real estate properties located in the Bank’s
principal lending area on eastern Long Island. The interest rates
charged by the Bank on loans are affected primarily by the demand for such
loans, the supply of money available for lending purposes, the rates offered by
its competitors, the Bank’s relationship with the customer and the related
credit risks of the transaction. These factors are affected by
general and economic conditions including, but not limited to, monetary policies
of the federal government, including the Federal Reserve Board, legislative
policies and governmental budgetary matters.
The
credit quality of the loan portfolio remained strong for the quarter ended March
31, 2008. Non performing assets increased at March 31, 2008 to $1.0
million from $0.2 million at December 31, 2007 and $0.4 million at March 31,
2007 representing 0.25% of total loans at March 31, 2008 compared to 0.06% at
December 31, 2007 and 0.13% at March 31, 2007. As of March 31, 2008
and December 31, 2007, the Company had no loans that were considered troubled
debt restructuring, as defined by SFAS No. 114. The Bank had no foreclosed
real estate at March 31, 2008 and December 31, 2007.
Loans of
approximately $13.5 million or 3.5% of total loans at March 31, 2008 were
classified as potential problem loans compared to $12.9 million or 3.4% at
December 31, 2007. These are loans for which management has
information that indicates the borrower may not be able to comply with the
present repayment terms. These loans are subject to increased management
attention and their classification is reviewed on at least a quarterly
basis. Due to the structure and nature of the credits, management
currently believes that the likelihood of sustaining a loss on these
relationships is remote.
Based on
our continuing review of the overall loan portfolio, the current asset quality
of the portfolio, and the growth in our loan portfolio, a provision for loan
losses of $200,000 was recorded during the first three months of 2008 compared
to a provision for loan loss of $45,000 that was recorded during the first three
months of 2007. The Bank recognized net charge-offs in the amount of
$32,000 for the three months ended March 31, 2008 as compared to net recoveries
of $14,000 for the same period in 2007. The allowance for loan losses increased
to $3.1 million at March 31, 2008, as compared to $3.0 million at December 31,
2007 and $2.6 million at March 31, 2007. As a percentage of total
loans, the allowance increased to 0.80% at March 31, 2008 compared to 0.79% at
December 31, 2007 and 0.77% at March 31, 2007. Management continues to
carefully monitor the loan portfolio as well as real estate trends on eastern
Long Island. The Bank's consistent and rigorous underwriting standards
preclude sub prime lending, and management remains catious about the potenial
for an indirect impact on the local economy and real estate values in the
future.
Non
Interest Income
Total non
interest income increased during the three months ended March 31, 2008 by $0.2
million or 18.0% from the same period last year. There were no net
losses on sales of securities during the quarter as compared to $101,000 for the
same quarter in 2007. Excluding net securities losses, total non
interest income increased $123,000 or 9.1% for the three months ended March 31,
2008. Fees for other customer services totaled $0.3 million and
service charges on deposit accounts totaled $0.7 million for the three months
ended March 31, 2008, compared to $0.4 million and $0.6 million, respectively,
from the same three months in 2007. For the three months ended March
31, 2008 and 2007, Bridge Abstract generated title fee income of $0.4 million,
respectively.
Non
Interest Expense
Total non
interest expense increased during the three months ended March 31, 2008 by $0.5
million or 11.4% over the same period last year. The primary
components of this increase were salary and benefit expense increasing $0.4
million or 14.1% for the three months ended March 31, 2008 over the same period
last year. Total other non interest expense for the three months
ended March 31, 2008 totaled $1.3 million, an increase of $0.1 million or 10.4%
over the same period last year. Increases in salaries and
employee benefit costs and other non interest expense were due to base salary
increases as well as filling open and new positions and increased facilities
costs primarily related to the new branches.
Income
Taxes
The
provision for income taxes increased during the three months ended March 31,
2008 by $0.2 million or 25.2% from the same period last year due to the increase
in income before income taxes and a higher effective rate. The
increase in tax rate primarily resulted from a lower percentage of interest
income from tax exempt securities in 2008. The effective tax rate for
the three-month period ended March 31, 2008 increased to 32.2% from 29.9% or the
same period last year.
Financial
Condition
Assets
totaled $654.6 million at March 31, 2008, an increase of $47.2 million or 7.8%
from $607.4 million at December 31, 2007. This change is primarily a
result of increases in total securities of $32.8 million or 17.0 % and total
loans of $12.7 million or 3.4% and cash and cash equivalents of $2.5 million or
17.2%. This growth in assets was funded primarily by growth in total
deposits of $64.9 million partially offset by a decrease in other borrowings of
$25.4 million. Demand deposits increased $29.1 million to $205.2 million
compared to $176.1 million at December 31, 2007. Savings, NOW and money market
deposits increased $25.7 million to $278.7 million at March 31, 2008 from $253.0
million at December 31, 2007. Certificates of deposit of $100,000 or
more and other time deposits also increased $10.1 million or
12.7%. Federal funds purchased and repurchase agreements decreased
$15.4 million to $16.6 million at March 31, 2008 compared to $32.0 million at
December 31, 2007. Federal Home Loan advances decreased $10 million
to $0 at March 31, 2008 from $10 million at December 31, 2007. Other
liabilities increased $4.8 million to $9.6 million at March 31, 2008 from $4.8
million at December 31, 2007.
Total
stockholders’ equity was $54.0 million at March 31, 2008, an increase of $2.8
million or 5.6% from December 31, 2007, primarily due to net income of $2.0
million and an increase in net unrealized gains on securities of $2.2 million,
partially offset by the declaration of dividends totaling $1.4
million.
In March
2008, the Company declared a quarterly dividend of $0.23 per
share. The Company continues its long term trend of uninterrupted
dividends.
Liquidity
The
objective of liquidity management is to ensure the sufficiency of funds
available to respond to the needs of depositors and borrowers, and to take
advantage of unanticipated earnings enhancement opportunities for Company
growth. Liquidity management addresses the ability of the Company to
meet financial obligations that arise in the normal course of
business. Liquidity is primarily needed to meet customer borrowing
commitments, deposit withdrawals either on demand or contractual maturity, to
repay other borrowings as they mature, to fund current and planned expenditures
and to make new loans and investments as opportunities arise.
The
Company’s principal source of liquidity includes cash and cash equivalents of
$5.8 million and dividends from the Bank. Due to regulatory
restrictions, dividends from the Bank to the Company at March 31, 2008 were
limited to $2.0 million, which represents the Bank’s 2008 retained net
income. The dividends received from the Bank are used primarily for
dividends to the shareholders and stock repurchases.
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, growth in core deposits and sources of
wholesale funding such as brokered certificates of deposits. While
scheduled loan amortization, maturing securities and short term investments are
a relatively predictable source of funds, deposit flows and loan and
mortgage-backed securities prepayments are greatly influenced by general
interest rates, economic conditions and competition. The Bank adjusts
its liquidity levels as appropriate to meet funding needs such as seasonal
deposit outflows, loans, and asset and liability management
objectives. Historically, the Bank has relied on its deposit base,
drawn through its full-service branches that serve its market area and local
municipal deposits, as its principal source of funding. The Bank
seeks to retain existing deposits and loans and maintain customer relationships
by offering quality service and competitive interest rates to its customers,
while managing the overall cost of funds needed to finance its
strategies. The Bank’s Asset/Liability and Funds Management Policy
allows for wholesale borrowings of up to 25% of total assets. At
March 31, 2008, the Bank had aggregate lines of credit of $74.5 million with
unaffiliated correspondent banks to provide short term credit for liquidity
requirements. Of these aggregate lines of credit, $54.5 million is
available on an unsecured basis. The Bank also has the ability, as a
member of the Federal Home Loan Bank (“FHLB”) system, to borrow against
unencumbered residential mortgages owned by the Bank. The Bank also
has a master repurchase agreement with the FHLB, which increases its borrowing
capacity. In addition, the Bank has an approved broker relationship
for the purpose of issuing brokered certificates of deposit. As of
March 31, 2008, the Bank did
not issue any brokered certificates of deposits. As of March 31,
2008, the Bank had $1.6 million in overnight borrowings.
Management
continually monitors the liquidity position and believes that sufficient
liquidity exists to meet all of our operating requirements. Based on
the objectives determined by the Asset and Liability Committee, the Bank’s
liquidity levels may be affected by the use of short term and wholesale
borrowings, and the amount of public funds in the deposit mix. The
Asset and Liability Committee is comprised of members of senior management and
the Board. Excess short term liquidity is invested in overnight
federal funds sold. As of March 31, 2008, the Bank had no overnight
federal funds sold.
Capital
Resources
The
Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can result in certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company’s and the Bank’s financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must meet
specific capital guidelines that involve quantitative measures of the Company’s
and Bank’s assets, liabilities, and certain off-balance sheet items calculated
under regulatory accounting practices. The Company’s and the Bank’s
capital amounts and classification also are subject to qualitative judgments by
the regulators about components, risk weightings, and other
factors.
Quantitative
measures established by regulation to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier 1 capital (as defined in the regulations) to
risk weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of March 31, 2008, 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 March 31, 2008 and December
31, 2007, actual capital levels and minimum required levels for the Bank were as
follows:
(Dollars
in thousands)
|
|
Actual
|
|
|
For
Capital Adequacy Purposes
|
|
|
To
Be Well Capitalized Under Prompt Corrective Action
Provision
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital (to risk weighted assets)
|
|
$ |
50,081
|
|
|
|
10.8
|
% |
|
$ |
37,158
|
|
|
|
8.0
|
% |
|
$ |
46,448
|
|
|
|
10.0
|
% |
Tier
1 Capital (to risk weighted assets)
|
|
|
46,896
|
|
|
|
10.1
|
% |
|
|
18,579
|
|
|
|
4.0
|
% |
|
|
27,869
|
|
|
|
6.0
|
% |
Tier
1 Capital (to average assets)
|
|
|
46,896
|
|
|
|
7.4
|
% |
|
|
25,300
|
|
|
|
4.0
|
% |
|
|
31,625
|
|
|
|
5.0
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capital (to risk weighted assets)
|
|
$ |
47,860
|
|
|
|
10.8
|
% |
|
$ |
35,524
|
|
|
|
8.0
|
% |
|
$ |
44,405
|
|
|
|
10.0
|
% |
Tier
1 Capital (to risk weighted assets)
|
|
|
44,906
|
|
|
|
10.1
|
% |
|
|
17,762
|
|
|
|
4.0
|
% |
|
|
26,643
|
|
|
|
6.0
|
% |
Tier
1 Capital (to average assets)
|
|
|
44,906
|
|
|
|
7.4
|
% |
|
|
24,338
|
|
|
|
4.0
|
% |
|
|
30,423
|
|
|
|
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
September 2006, the FASB issued Statement No. 157, Fair Value
Measurements. This Statement defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. This Statement establishes a fair value hierarchy about
the assumptions used to measure fair value and clarifies assumptions about risk
and the effect of a restriction on the sale or use of an asset. The
standard is effective for fiscal years beginning after November 15,
2007. In February 2008, the FASB issued Staff Position (FSP) 157-2,
Effective Date of FASB
Statement No. 157. This FSP delays the effective date of FAS
157 for all nonfinancial assets and nonfinancial liabilities, except those that
are recognized or disclosed at fair value on a recurring basis (at least
annually) to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years. The impact of adoption was not
material.
In
February, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value. The objective of SFAS 159 is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting principles. The new
standard is effective for the Company on January 1, 2008. The Company
did not elect the fair value option for any financial assets for financial
liabilities as of January 1, 2008.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
Asset/Liability
Management
Management
considers interest rate risk to be the most significant market risk for the
Company. Market risk is the risk of loss from adverse changes in
market prices and rates. Interest rate risk is the exposure to
adverse changes in the net income of the Company as a result of changes in
interest rates.
The
Company’s primary earnings source is net interest income, which is affected by
changes in the level of interest rates, the relationship between rates, the
impact of interest rate fluctuations on asset prepayments, the level and
composition of deposits and liabilities, and the credit quality of earning
assets. The Company’s objectives in its asset and liability
management are to maintain a strong, stable net interest margin, to utilize its
capital effectively without taking undue risks, to maintain adequate liquidity,
and to reduce vulnerability of its operations to changes in interest
rates.
The
Company’s Asset and Liability Committee evaluates periodically, but at least
four times a year, the impact of changes in market interest rates on assets and
liabilities, net interest margin, capital and liquidity. Risk
assessments are governed by policies and limits established by senior
management, which are reviewed and approved by the full Board of Directors at
least annually. The economic environment continually presents
uncertainties as to future interest rate trends. The Asset and
Liability Committee regularly utilizes a model that projects net interest income
based on increasing or decreasing interest rates, in order to be better able to
respond to changes in interest rates.
At March
31, 2008, $214.5 million or 94.9% of the Company’s securities had fixed interest
rates and substantially all investment securities are issued by the federal
government, its agencies or state and local municipalities with underlying
insurance. Changes in interest rates affect the value of the
Company’s interest earning assets and in particular its securities
portfolio. Generally, the value of securities fluctuates inversely
with changes in interest rates. Decreases in the fair value of
securities available for sale, therefore, could have an adverse effect on
stockholder’s equity. Increases in interest rates could result in
decreases in the market value of interest earning assets, which could adversely
affect the Company’s results of operations if sold. The Company is
also subject to reinvestment risk associated with changes in interest
rates. Increases in market interest rates also could affect the type
(fixed-rate or adjustable-rate) and amount of loans originated by the Company
and the average life of loans and securities, which can impact the yields earned
on the Company’s loans and securities. Changes in interest rates may
affect the average life of loans and mortgage related securities. In
periods of decreasing interest rates, the average life of loans and securities
held by the Company may be shortened to the extent increased prepayment activity
occurs during such periods which, in turn, may result in the investment of funds
from such prepayments in lower yielding assets. Under these
circumstances the Company is subject to reinvestment risk to the extent that it
is unable to reinvest the cash received from such prepayments at rates that are
comparable to the rates on existing loans and
securities. Additionally, increases in interest rates may result in
decreasing loan prepayments with respect to fixed rate loans, and therefore an
increase in the average life of such loans, may result in a decrease in loan
demand, and make it more difficult for borrowers to repay adjustable rate
loans.
The
Company utilizes the results of a detailed and dynamic simulation model to
quantify the estimated exposure to net interest income to sustained interest
rate changes. Management routinely monitors simulated net interest
income sensitivity over a rolling two-year horizon. The simulation
model captures the seasonality of the Company’s deposit flows and the impact of
changing interest rates on the interest income received and the interest expense
paid on all assets and liabilities reflected on the Company’s Balance
Sheet. This sensitivity analysis is compared to the asset and
liability policy limits that specify a maximum tolerance level for net interest
income exposure over a one-year horizon given both a 200 basis point upward and
downward shift in interest rates. A parallel and pro rata shift in
rates over a twelve-month period is assumed.
The
following reflects the Company’s net interest income sensitivity analysis at
March 31, 2008:
Change
in Interest Rates in Basis
Points
|
|
|
March 31, 2008
Potential Change
in
Net Interest
Income
|
|
December 31, 2007
Potential Change in
Net Interest Income
|
(Dollars
in thousands)
|
|
|
|
|
|
|
|
$ Change
|
% Change |
$ Change
|
% Change |
200 |
|
$ |
(1,733) |
(6.01)% |
$(1,833) |
(7.05)% |
Static
|
|
|
- |
- |
- |
- |
(200 |
) |
$ |
843 |
2.86% |
1,120 |
4.31% |
The
preceding sensitivity analysis does not represent a Company forecast and should
not be relied upon as being indicative of expected operating
results. These hypothetical estimates are based upon numerous
assumptions including, but not limited to, the nature and timing of interest
rate levels and yield curve shapes, prepayments on loans and securities, deposit
decay rates, pricing decisions on loans and deposits, and reinvestment and
replacement of asset and liability cash flows. While assumptions are
developed based upon perceived current economic and local market conditions, the
Company cannot make any assurances as to the predictive nature of these
assumptions including how customer preferences or competitor influences may
change.
Also, as
market conditions vary from those assumed in the sensitivity analysis, actual
results will also differ due to prepayment and refinancing levels likely
deviating from those assumed, the varying impact of interest rate change caps or
floors on adjustable rate assets, the potential effect of changing debt service
levels on customers with adjustable rate loans, depositor early withdrawals,
prepayment penalties and product preference changes and other internal and
external variables. Furthermore, the sensitivity analysis does not
reflect actions that management might take in responding to, or anticipating
changes in interest rates and market conditions.
Item 4. Controls and Procedures
An
evaluation was performed under the supervision and with the participation of the
Company’s management, including the Principal Executive Officer and Principal
Financial Officer, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures (as defined in Rule 13a-15(e)
promulgated under the Securities and Exchange Act of 1934, as amended) as of
March 31, 2008. Based on that evaluation, the Company’s Principal
Executive Officer and Principal Financial Officer concluded that the Company’s
disclosure controls and procedures were effective as of the end of the period
covered by this quarterly report. There has been no change in the
Company’s internal control over financial reporting during the quarter that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
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,
2007.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
Item 3. Defaults upon Senior Securities
Not
applicable.
Item 4. Submission of Matters to a Vote of Security
Holders
Not
applicable.
Not
applicable.
Item 6. Exhibits and Reports on Form 8-K
|
31.1
|
Certification
of Principal Executive Officer pursuant to Rule
13a-14(a)
|
|
31.2
|
Certification
of Principal Financial Officer pursuant to Rule
13a-14(a)
|
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Rule
13a-14(b) and 18 U.S.C. Section
1350
|
In
accordance with the requirement of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
BRIDGE BANCORP,
INC.
|
|
Registrant
|
|
|
|
|
May
8, 2008
|
/s/
Kevin M. O’Connor
|
|
Kevin M. O’Connor
|
|
President
and Chief Executive Officer
|
|
|
May
8, 2008
|
/s/ Howard H.
Nolan
|
|
Howard
H. Nolan
|
|
Senior
Executive Vice President and Chief Financial
Officer
|