10-Q 1 a11-14181_110q.htm 10-Q

Table of Contents

 

 

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, 2011

 


 

Commission file number 001-34096

 


 

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]

 

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

 

Large accelerated filer [  ]

 

Accelerated filer [X]

 

 

 

Non-accelerated filer [  ] (Do not check if a smaller reporting company)

 

Smaller reporting company [  ]

 

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

 

There were 6,791,277 shares of common stock outstanding as of August 8, 2011.

 

 



Table of Contents

 

 

BRIDGE BANCORP, INC.

 

PART I -

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

1

 

 

 

 

Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010

1

 

 

 

 

Consolidated Statements of Income for the Three and Six Months Ended June 30, 2011 and 2010

2

 

 

 

 

Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2011 and 2010

3

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010

4

 

 

 

 

Condensed Notes to Consolidated Financial Statements

5

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

43

 

 

 

Item 4.

Controls and Procedures

44

 

 

 

PART II -

OTHER INFORMATION

45

 

 

 

Item 1.

Legal Proceedings

45

 

 

 

Item 1A.

Risk Factors

45

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

45

 

 

 

Item 3.

Defaults Upon Senior Securities

45

 

 

 

Item 4.

[Removed and Reserved]

45

 

 

 

Item 5.

Other Information

45

 

 

 

Item 6.

Exhibits

45

 

 

 

Signatures

 

46

 

 

 

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

 

 

 



Table of Contents

 

 

Item 1. Financial Statements

BRIDGE BANCORP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (unaudited)

(In thousands, except share and per share amounts)

 

 

 

June 30,

 

December 31,

 

 

 

2011

 

2010

 

ASSETS

 

 

 

 

 

Cash and due from banks

 

$

17,426

 

$

21,598

 

Interest earning deposits with banks

 

12,491

 

1,320

 

Total cash and cash equivalents

 

29,917

 

22,918

 

 

 

 

 

 

 

Securities available for sale, at fair value

 

385,910

 

323,539

 

Securities held to maturity (fair value of $154,572 and $148,144, respectively)

 

152,807

 

147,965

 

Total securities

 

538,717

 

471,504

 

 

 

 

 

 

 

Securities, restricted

 

1,485

 

1,284

 

 

 

 

 

 

 

Loans

 

589,788

 

504,060

 

Allowance for loan losses

 

(9,494

)

(8,497

)

Loans, net

 

580,294

 

495,563

 

 

 

 

 

 

 

Premises and equipment, net

 

23,674

 

23,683

 

Accrued interest receivable

 

4,570

 

4,153

 

Goodwill

 

1,951

 

 

Core deposit intangible

 

350

 

 

Other assets

 

12,191

 

9,351

 

Total Assets

 

$

1,193,149

 

$

1,028,456

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Demand deposits

 

$

308,056

 

$

239,314

 

Savings, NOW and money market deposits

 

608,047

 

544,470

 

Certificates of deposit of $100,000 or more

 

110,337

 

90,574

 

Other time deposits

 

45,904

 

42,635

 

Total deposits

 

1,072,344

 

916,993

 

 

 

 

 

 

 

Federal funds purchased and Federal Home Loan Bank overnight borrowings

 

 

5,000

 

Repurchase agreements

 

16,197

 

16,370

 

Junior subordinated debentures

 

16,002

 

16,002

 

Accrued interest payable

 

422

 

433

 

Other liabilities and accrued expenses

 

10,138

 

7,938

 

Total Liabilities

 

1,115,103

 

962,736

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, par value $.01 per share (2,000,000 shares authorized; none issued)

 

 

 

Common stock, par value $.01 per share:

 

 

 

 

 

Authorized: 20,000,000 shares; 6,813,252 and 6,456,742 shares issued, respectively; 6,732,260 and 6,364,656 shares outstanding, respectively

 

68

 

64

 

Surplus

 

28,647

 

20,946

 

Retained earnings

 

49,622

 

46,463

 

Less:  Treasury Stock at cost, 80,992 and 92,086 shares, respectively

 

(3,127

)

(3,520

)

 

 

75,210

 

63,953

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

Net unrealized gain on securities, net of deferred income taxes of ($3,012) and ($2,336), respectively

 

4,576

 

3,549

 

Pension liability, net of deferred income taxes of $1,174 and $1,202, respectively

 

(1,740

)

(1,782

)

Total Stockholders’ Equity

 

78,046

 

65,720

 

Total Liabilities and Stockholders’ Equity

 

$

1,193,149

 

$

1,028,456

 

 

See accompanying condensed notes to the Unaudited Consolidated Financial Statements.

 

 

1

 



Table of Contents

 

 

BRIDGE BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of  Income (unaudited)

(In thousands, except per share amounts)

 

 

 

For the

 

For the

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans (including fee income)

 

$

8,564

 

$

7,306

 

$

16,519

 

$

14,588

 

Mortgage-backed securities and collateralized mortgage obligations

 

2,385

 

2,378

 

4,701

 

4,907

 

State and municipal obligations

 

706

 

692

 

1,427

 

1,262

 

U.S. GSE securities

 

433

 

558

 

814

 

945

 

Corporate Bonds

 

186

 

 

373

 

 

Federal funds sold

 

 

 

 

5

 

Deposits with banks

 

41

 

11

 

59

 

19

 

Other interest and dividend income

 

18

 

12

 

36

 

29

 

Total interest income

 

12,333

 

10,957

 

23,929

 

21,755

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

Savings, NOW and money market deposits

 

1,025

 

906

 

1,991

 

1,780

 

Certificates of deposit of $100,000 or more

 

245

 

325

 

488

 

664

 

Other time deposits

 

126

 

290

 

253

 

595

 

Federal funds purchased and repurchase agreements

 

135

 

141

 

269

 

249

 

Junior Subordinated Debentures

 

341

 

341

 

683

 

682

 

Total interest expense

 

1,872

 

2,003

 

3,684

 

3,970

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

10,461

 

8,954

 

20,245

 

17,785

 

Provision for loan losses

 

900

 

700

 

1,600

 

2,000

 

Net interest income after provision for loan losses

 

9,561

 

8,254

 

18,645

 

15,785

 

 

 

 

 

 

 

 

 

 

 

Non interest income:

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

833

 

782

 

1,566

 

1,404

 

Fees for other customer services

 

575

 

503

 

1,055

 

879

 

Title fee income

 

263

 

318

 

467

 

573

 

Net securities gains

 

135

 

412

 

135

 

1,303

 

Other operating income

 

19

 

14

 

56

 

72

 

Total non interest income

 

1,825

 

2,029

 

3,279

 

4,231

 

 

 

 

 

 

 

 

 

 

 

Non interest expense:

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

4,399

 

3,978

 

8,574

 

7,815

 

Net occupancy expense

 

743

 

737

 

1,505

 

1,430

 

Furniture and fixture expense

 

308

 

298

 

614

 

581

 

FDIC assessments

 

193

 

279

 

501

 

574

 

Acquisition costs

 

386

 

 

619

 

 

Amortization of core deposit intangible

 

8

 

 

8

 

 

Other operating expenses

 

1,747

 

1,707

 

3,371

 

3,200

 

Total non interest expense

 

7,784

 

6,999

 

15,192

 

13,600

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

3,602

 

3,284

 

6,732

 

6,416

 

Income tax expense

 

1,126

 

1,035

 

2,096

 

2,037

 

Net income

 

$

2,476

 

$

2,249

 

$

4,636

 

$

4,379

 

Basic earnings per share

 

$

0.38

 

$

0.36

 

$

0.71

 

$

0.70

 

Diluted earnings per share

 

$

0.38

 

$

0.36

 

$

0.71

 

$

0.70

 

Comprehensive Income

 

$

4,061

 

$

3,071

 

$

5,705

 

$

4,946

 

 

See accompanying condensed notes to the Unaudited Consolidated Financial Statements.

 

 

2

 



Table of Contents

 

 

BRIDGE BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity (unaudited)

(In thousands, except per share amounts)

 

 

 

Common
Stock

 

Surplus

 

Comprehensive
Income

 

Retained
Earnings

 

Treasury
Stock

 

Accumulated
Other
Comprehensive
Income

 

Total

 

Balance at January 1, 2011

 

$

64

 

$

20,946

 

 

 

$

46,463

 

$

(3,520

)

$

1,767

 

$

65,720

 

Net income

 

 

 

 

 

$

4,636

 

4,636

 

 

 

 

 

4,636

 

Proceeds from issuance of common stock

 

1

 

1,792

 

 

 

 

 

5

 

 

 

1,798

 

Shares issued in the acquisition of Hampton State Bank (273,479 shares)

 

3

 

5,847

 

 

 

 

 

 

 

 

 

5,850

 

Stock awards granted

 

 

 

(486

)

 

 

 

 

486

 

 

 

 

Stock awards forfeited

 

 

 

37

 

 

 

 

 

(37

)

 

 

 

Vesting of stock awards

 

 

 

 

 

 

 

 

 

(61

)

 

 

(61

)

Tax effect of stock plans

 

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

Share based compensation expense

 

 

 

512

 

 

 

 

 

 

 

 

 

512

 

Cash dividend declared, $0.23 per share

 

 

 

 

 

 

 

(1,477

)

 

 

 

 

(1,477

)

Other comprehensive income, net of deferred taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized net gains in securities available for sale, net of deferred tax effects

 

 

 

 

 

1,027

 

 

 

 

 

1,027

 

1,027

 

Adjustment to pension liability, net of deferred taxes

 

 

 

 

 

42

 

 

 

 

 

42

 

42

 

Comprehensive Income

 

 

 

 

 

$

5,705

 

 

 

 

 

 

 

 

 

Balance at June 30, 2011

 

$

68

 

$

28,647

 

 

 

$

49,622

 

$

(3,127

)

$

2,836

 

$

78,046

 

 

 

 

Common
Stock

 

Surplus

 

Comprehensive
Income

 

Retained
Earnings

 

Treasury
Stock

 

Accumulated
Other
Comprehensive
Income

 

Total

 

Balance at January 1, 2010

 

$ 64

 

$ 19,950

 

 

 

$43,110

 

$(4,791

)

$ 3,522

 

$ 61,855

 

Net income

 

 

 

 

 

4,379

 

4,379

 

 

 

 

 

4,379

 

Proceeds from issuance of common stock

 

 

 

313

 

 

 

 

 

2

 

 

 

315

 

Stock awards granted

 

 

 

(541

)

 

 

 

 

541

 

 

 

 

Vesting of stock awards

 

 

 

 

 

 

 

 

 

(5

)

 

 

(5

)

Exercise of stock options

 

 

 

(11

)

 

 

 

 

28

 

 

 

17

 

Tax effect of stock plans

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Share based compensation expense

 

 

 

430

 

 

 

 

 

 

 

 

 

430

 

Cash dividend declared, $0.46 per share

 

 

 

 

 

 

 

(2,895

)

 

 

 

 

(2,895

)

Other comprehensive income, net of deferred taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized net gains in securities available for sale, net of deferred tax effects

 

 

 

 

 

525

 

 

 

 

 

525

 

525

 

Adjustment to pension liability, net of deferred taxes

 

 

 

 

 

42

 

 

 

 

 

42

 

42

 

Comprehensive Income

 

 

 

 

 

4,946

 

 

 

 

 

 

 

 

 

Balance at June 30, 2010

 

$64

 

$20,146

 

 

 

$44,594

 

$(4,225

)

$4,089

 

$64,668

 

 

See accompanying condensed notes to the Unaudited Consolidated Financial Statements.

 

 

 

3

 



Table of Contents

 

 

BRIDGE BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

 

Six months ended June 30,

 

2011

 

2010

 

Cash flows from operating activities:

 

 

 

 

 

Net Income

 

$

4,636

 

$

4,379

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Provision for loan losses

 

1,600

 

2,000

 

Depreciation and amortization

 

908

 

850

 

Net amortization on securities

 

1,055

 

558

 

Amortization of core deposit intangible

 

8

 

 

Share based compensation expense

 

512

 

430

 

Net securities gains

 

(135

)

(1,303

)

Increase in accrued interest receivable

 

(417

)

(392

)

(Increase) decrease in other assets

 

(59

)

2,250

 

Increase in accrued expenses and other liabilities

 

1,918

 

351

 

Net cash provided by operating activities

 

10,026

 

9,123

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of securities available for sale

 

(108,124

)

(109,015

)

Purchases of securities, restricted

 

(140

)

(14

)

Purchases of securities held to maturity

 

(38,689

)

(88,802

)

Proceeds from sales of securities available for sale

 

14,084

 

31,446

 

Redemption of securities, restricted

 

225

 

 

Maturities, calls and principal payments of securities available for sale

 

56,680

 

82,395

 

Maturities, calls and principal payments of securities held to maturity

 

33,493

 

28,951

 

Net increase in loans

 

(47,280

)

(21,240

)

Purchase of premises and equipment

 

(599

)

(1,871

)

Net cash acquired in business combination

 

2,309

 

 

Net cash used in investing activities

 

(88,041

)

(78,150

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

98,411

 

65,928

 

Net decrease in federal funds purchased and FHLB overnight borrowings

 

(7,000

)

 

Net decrease in FHLB term advances

 

(5,016

)

 

Net (decrease) increase in repurchase agreements

 

(173

)

1,841

 

Net proceeds from exercise of stock options

 

 

17

 

Net proceeds from issuance of common stock

 

1,798

 

315

 

Repurchase of surrendered stock from exercise of stock options and vesting of restricted stock awards

 

(61

)

(5

)

Excess tax (expense) benefit from share based compensation

 

(1

)

5

 

Cash dividends paid

 

(2,944

)

(2,887

)

Net cash provided by financing activities

 

85,014

 

65,214

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

6,999

 

(3,813

)

Cash and cash equivalents at beginning of period

 

22,918

 

34,147

 

Cash and cash equivalents at end of period

 

$

29,917

 

$

30,334

 

 

 

 

 

 

 

Supplemental Information-Cash Flows:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest

 

$

3,695

 

$

3,929

 

Income tax

 

$

820

 

$

2,890

 

 

 

 

 

 

 

Noncash investing and financing activities:

 

 

 

 

 

Securities which settled in the subsequent period

 

$

 

$

4,227

 

Dividends declared and unpaid at end of period

 

$

 

$

1,449

 

 

 

 

 

 

 

Acquisition of noncash assets and liabilities:

 

 

 

 

 

Fair value of assets acquired

 

$

66,649

 

$

 

Fair value of liabilities assumed

 

$

65,059

 

$

 

 

See accompanying condensed notes to the Unaudited Consolidated Financial Statements.

 

 

4

 



Table of Contents

 

 

BRIDGE BANCORP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. BASIS OF PRESENTATION

 

Bridge Bancorp, Inc. (the “Company”) is incorporated under the laws of the State of New York as a bank holding company.  The Company’s business currently consists of the operations of its wholly-owned subsidiary, The Bridgehampton National Bank (the “Bank”).  The Bank’s operations include its real estate investment trust subsidiary, Bridgehampton Community, Inc. (“BCI”) and a financial title insurance subsidiary, Bridge Abstract LLC (“Bridge Abstract”).  In addition to the Bank, the Company has another subsidiary Bridge Statutory Capital Trust II which was formed in 2009. In accordance with current accounting guidance, the trust is not consolidated in the Company’s financial statements.

 

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 (“GAAP”) 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, 2011 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 GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain reclassifications have been made to prior year amounts, and the related discussion and analysis, to conform to the current year presentation.  These reclassifications did not have an impact on net income or stockholders’ equity. 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, 2010.

 

2. EARNINGS PER SHARE

 

FASB ASC 260-10-45 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (“EPS”).  The restricted stock awards and restricted stock units granted by the Company contain nonforfeitable rights to dividends and therefore are considered participating securities.  The two-class method for calculating basic EPS excludes dividends paid to participating securities and any undistributed earnings attributable to participating securities.

 

The computation of EPS for the three and six months ended June 30, 2011 and 2010 is as follows:

 

 

 

Three months ended,

 

Six months ended,

 

 

 

June 30,

 

June 30,

 

(In thousands, except per share data)

 

2011

 

2010

 

2011

 

2010

 

Net Income

 

$

2,476

 

$

2,249

 

$

4,636

 

$

4,379

 

Less: Dividends paid on and earnings allocated to participating securities

 

(73

)

(60

)

(137

)

(113

)

Income attributable to common stock

 

$

2,403

 

$

2,189

 

$

4,499

 

$

4,266

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, including participating securities

 

6,563

 

6,297

 

6,488

 

6,289

 

Less: weighted average participating securities

 

(192

)

(171

)

(192

)

(167

)

Weighted average common shares outstanding

 

6,371

 

6,126

 

6,296

 

6,122

 

Basic earnings per common share

 

$

0.38

 

$

0.36

 

$

0.71

 

$

0.70

 

 

 

 

 

 

 

 

 

 

 

Income attributable to common stock

 

$

2,403

 

$

2,189

 

$

4,499

 

$

4,266

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

6,371

 

6,126

 

6,296

 

6,122

 

Weighted average common equivalent shares outstanding

 

1

 

1

 

1

 

1

 

Weighted average common and equivalent shares outstanding

 

6,372

 

6,127

 

6,297

 

6,123

 

Diluted earnings per common share

 

$

0.38

 

$

0.36

 

$

0.71

 

$

0.70

 

 

 

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Table of Contents

 

 

There were 52,123 and 54,275 options outstanding at June 30, 2011 and June 30, 2010, respectively, that were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of common stock and were, therefore, antidilutive. The $16.0 million in convertible trust preferred securities outstanding at June 30, 2011, were not included in the computation of diluted earnings per share because the assumed conversion of the trust preferred securities was antidilutive.

 

3. STOCK BASED COMPENSATION PLANS

 

The Compensation Committee of the Board of Directors determines stock options and restricted stock awarded under the Bridge Bancorp, Inc. Equity Incentive Plan (“Plan”) and the Company accounts for this Plan under the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) No. 718 and 505.

 

No new grants of stock options were awarded during the six months ended June 30, 2011, and June 30, 2010.  There was no compensation expense attributable to stock options for the six months ended June 30, 2011 because all stock options were vested. Compensation expense attributable to stock options was $10,000 and $20,000 for the three and six months ended June 30, 2010, 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.  No stock options were exercised during the second quarter of 2011 and 2010. The intrinsic value of options outstanding and exercisable at June 30, 2011 and June 30, 2010 was $12,000 and $20,000, respectively.

 

A summary of the status of the Company’s stock options as of and for the six months ended June 30, 2011 is as follows:

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

 

Number

 

Average

 

Remaining

 

Aggregate

 

 

 

of

 

Exercise

 

Contractual

 

Intrinsic

 

 

 

Options

 

Price

 

Life

 

Value

 

Outstanding, December 31, 2010

 

56,375

 

$

25.06

 

 

 

 

 

Granted

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

Forfeited

 

(2,152

)

$

25.26

 

 

 

 

 

Expired

 

 

 

 

 

 

 

Outstanding, June 30, 2011

 

54,223

 

$

25.05

 

4.83 years

 

$

12,208

 

Vested and Exercisable, June 30, 2011

 

54,223

 

$

25.05

 

4.83 years

 

$

12,208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

Exercise

 

 

 

 

 

 

Range of Exercise Prices

 

Options

 

Price

 

 

 

 

 

 

 

 

2,100

 

$

15.47

 

 

 

 

 

 

 

 

5,359

 

$

24.00

 

 

 

 

 

 

 

 

41,436

 

$

25.25

 

 

 

 

 

 

 

 

3,000

 

$

26.55

 

 

 

 

 

 

 

 

2,328

 

$

30.60

 

 

 

 

 

 

 

 

54,223

 

 

 

 

 

 

 

 

 

 

During the six months ended June 30, 2011, restricted stock awards of 13,688 shares were granted. These awards vest over approximately five years with a third vesting after years three, four and five. During the six months ended June 30, 2010 restricted stock awards of 15,500 shares were granted. Of the 15,500 shares granted, 11,070 shares vest over five years with a third vesting after years three, four and five. The remaining 4,430 shares vest ratably over approximately five years. Compensation expense attributable to restricted stock awards was $220,000 and $447,000 for the three and six months ended June 30, 2011, respectively, and $184,000 and $361,000 for the three and six months ended June 30, 2010, respectively.

 

 

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Table of Contents

 

 

A summary of the status of the Company’s unvested restricted stock as of and for the six months ended June 30, 2011 is as follows:

 

 

 

 

 

Weighted

 

 

 

 

 

Average Grant-Date

 

 

 

Shares

 

Fair Value

 

Unvested, December 31, 2010

 

181,588

 

$

21.96

 

Granted

 

13,688

 

$

22.77

 

Vested

 

(14,984

)

$

22.07

 

Forfeited

 

(1,304

)

$

21.89

 

Unvested, June 30, 2011

 

178,988

 

$

22.02

 

 

In April 2009, the Company adopted a Directors Deferred Compensation Plan. Under the Plan, independent directors may elect to defer all or a portion of their annual retainer fee in the form of restricted stock units. In addition, Directors receive a non-election retainer in the form of restricted stock units.  These restricted stock units vest ratably over one year and have dividend rights but no voting rights. In connection with this Plan, the Company recorded expenses of approximately $33,000 and $65,000 for the three and six months ended June 30, 2011, respectively and $28,000 and $49,000 for the three and six months ended June 30, 2010, respectively.

 

4. SECURITIES

 

The following table summarizes the amortized cost and fair value of the available for sale and held to maturity investment securities portfolio at June 30, 2011 and December 31, 2010 and the corresponding amounts of unrealized gains and losses therein:

 

 

 

June 30, 2011

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(In thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

Available for sale:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

95,050

 

$

471

 

$

(229

)

$

95,292

 

State and municipal obligations

 

40,000

 

1,234

 

(74

)

41,160

 

U.S. GSE residential mortgage-backed securities

 

77,472

 

3,731

 

(59

)

81,144

 

U.S. GSE residential collateralized mortgage obligations

 

165,800

 

2,647

 

(133

)

168,314

 

Total available for sale

 

378,322

 

8,083

 

(495

)

385,910

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

14,989

 

51

 

(4

)

15,036

 

State and municipal obligations

 

79,318

 

803

 

(195

)

79,926

 

U.S. GSE residential collateralized mortgage obligations

 

40,500

 

1,215

 

 

41,715

 

Corporate Bonds

 

18,000

 

 

(105

)

17,895

 

Total held to maturity

 

152,807

 

2,069

 

(304

)

154,572

 

Total securities

 

$

531,129

 

$

10,152

 

$

(799

)

$

540,482

 

 

 

 

December 31, 2010

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(In thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

Available for sale:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

41,463

 

$

213

 

$

(343

)

$

41,333

 

State and municipal obligations

 

47,175

 

1,173

 

(283

)

48,065

 

U.S. GSE residential mortgage-backed securities

 

76,814

 

3,481

 

(124

)

80,171

 

U.S. GSE residential collateralized mortgage obligations

 

152,202

 

2,618

 

(850

)

153,970

 

Total available for sale

 

317,654

 

7,485

 

(1,600

)

323,539

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

24,973

 

118

 

(199

)

24,892

 

State and municipal obligations

 

64,728

 

439

 

(922

)

64,245

 

U.S. GSE residential collateralized mortgage obligations

 

40,264

 

954

 

(53

)

41,165

 

Corporate Bonds

 

18,000

 

 

(158

)

17,842

 

Total held to maturity

 

147,965

 

1,511

 

(1,332

)

148,144

 

Total securities

 

$

465,619

 

$

8,996

 

$

(2,932

)

$

471,683

 

 

 

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Table of Contents

 

 

The following table summarizes the amortized cost, fair value and maturities of the available for sale and held to maturity investment securities portfolio at June 30, 2011. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

June 30, 2011

 

 

 

Amortized

 

Fair

 

(In thousands)

 

Cost

 

Value

 

Maturity

 

 

 

 

 

Available for sale:

 

 

 

 

 

Within one year

 

$

8,263

 

$

8,350

 

One to five years

 

53,422

 

54,336

 

Five to ten years

 

104,663

 

106,173

 

Beyond ten years

 

211,974

 

217,051

 

Total

 

$

378,322

 

$

385,910

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

Within one year

 

$

33,746

 

$

33,794

 

One to five years

 

39,195

 

39,766

 

Five to ten years

 

19,771

 

19,712

 

Beyond ten years

 

60,095

 

61,300

 

Total

 

$

152,807

 

$

154,572

 

 

Securities with unrealized losses at June 30, 2011 and December 31, 2010, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

 

 

 

Less than 12 months

 

Greater than 12 months

 

June 30, 2011

 

 

 

Unrealized

 

 

 

Unrealized

 

(In thousands)

 

Fair Value

 

losses

 

Fair Value

 

losses

 

Available for sale:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

40,252

 

$

229

 

$

 

$

 

State and municipal obligations

 

8,615

 

74

 

 

 

U.S. GSE residential mortgage-backed securities

 

7,182

 

59

 

 

 

U.S. GSE residential collateralized mortgage obligations

 

39,891

 

133

 

 

 

Total available for sale

 

$

95,940

 

$

495

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

4,995

 

$

4

 

$

 

$

 

State and municipal obligations

 

20,601

 

195

 

 

 

Corporate Bonds

 

17,895

 

105

 

 

 

Total held to maturity

 

$

43,491

 

$

304

 

$

 

$

 

 

 

 

Less than 12 months

 

Greater than 12 months

 

December 31, 2010

 

 

 

Unrealized

 

 

 

Unrealized

 

(In thousands)

 

Fair Value

 

losses

 

Fair Value

 

losses

 

Available for sale:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

25,145

 

$

343

 

$

 

$

 

State and municipal obligations

 

11,927

 

283

 

 

 

U.S. GSE residential mortgage-backed securities

 

7,591

 

124

 

 

 

U.S. GSE residential collateralized mortgage obligations

 

55,906

 

850

 

 

 

Total available for sale

 

$

100,569

 

$

1,600

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

9,800

 

$

199

 

$

 

$

 

State and municipal obligations

 

27,416

 

922

 

 

 

U.S. GSE residential collateralized mortgage obligations

 

4,952

 

53

 

 

 

Corporate Bonds

 

17,842

 

158

 

 

 

Total held to maturity

 

$

60,010

 

$

1,332

 

$

 

$

 

 

 

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Table of Contents

 

 

Other-Than-Temporary-Impairment

 

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities classified as available for sale or held-to-maturity are generally evaluated for OTTI under FASB ASC 320, Accounting for Certain Investments in Debt and Equity Securities. In determining OTTI under the FASB ASC 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

 

At June 30, 2011, the majority of unrealized losses on available for sale securities are related to the Company’s residential collateralized mortgage obligations and U.S. GSE securities and the majority of unrealized losses on held to maturity securities are related to State and municipal obligations and corporate bonds.  The decline in fair value is attributable to changes in interest rates and not credit quality, and the Company does not have the intent to sell these securities and it is more likely than not that it will not be required to sell the securities before their anticipated recovery. Therefore, the Company does not consider these securities to be other-than-temporarily impaired at June 30, 2011.

 

Proceeds from sales of securities available for sale were $14.1 million and $9.4 million for the three months ended June 30, 2011 and 2010, respectively. Proceeds from sales of securities available for sale were $14.1 million and $31.4 million for the six months ended June 30, 2011 and 2010, respectively. Gross gains of $0.1 million were realized on these sales during the three and six months ended June 30, 2011.  Gross gains of $0.4 million and $1.3 million were realized on these sales during the three and six months ended June 30, 2010, respectively. Proceeds from calls of securities available for sale were $17.2 million and $40.6 million for the three months ended June 30, 2011 and 2010, respectively.  Proceeds from calls of securities available for sale were $27.2 million and $45.6 million for the six months ended June 30, 2011 and 2010, respectively.

 

Securities having a fair value of approximately $252.8 million and $277.9 million at June 30, 2011 and December 31, 2010, 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 six months ended June 30, 2011 or the year ended December 31, 2010.

 

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 a member of the Atlantic Central Banker’s Bank (“ACBB”) and is required to own ACBB stock. The Bank is also a member of the Federal Reserve Bank (“FRB”) system and required to own FRB stock.  FHLB, ACBB 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 $1.5 million in FHLB, ACBB and FRB stock at June 30, 2011 and approximately $1.3 million at December 31, 2010.  These amounts were reported as restricted securities in the consolidated balance sheets.

 

5. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS

 

FASB ASC No. 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820-10 also 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 values:

 

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

 

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

 

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Table of Contents

 

 

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

The fair value of securities available for sale is determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

 

Assets and liabilities measured on a recurring basis:

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

June 30, 2011 Using:

 

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

Quoted Prices In

 

Other

 

Significant

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Carrying

 

Identical Assets

 

Inputs

 

Inputs

 

(In thousands)

 

Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Financial Assets:

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

95,292

 

 

 

$

95,292

 

 

 

State and municipal obligations

 

41,160

 

 

 

41,160

 

 

 

U.S. GSE residential mortgage-backed securities

 

81,144

 

 

 

81,144

 

 

 

U.S. GSE residential collateralized mortgage obligations

 

168,314

 

 

 

168,314

 

 

 

Total available for sale

 

$

385,910

 

 

 

$

385,910

 

 

 

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

December 31, 2010 Using:

 

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

Quoted Prices In

 

Other

 

Significant

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Carrying

 

Identical Assets

 

Inputs

 

Inputs

 

(In thousands)

 

Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Financial Assets:

 

 

 

 

 

 

 

 

 

Available for sale securities:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

41,333

 

 

 

$

41,333

 

 

 

State and municipal obligations

 

48,065

 

 

 

48,065

 

 

 

U.S. GSE residential mortgage-backed securities

 

80,171

 

 

 

80,171

 

 

 

U.S. GSE residential collateralized mortgage obligations

 

153,970

 

 

 

153,970

 

 

 

Total available for sale

 

$

323,539

 

 

 

$

323,539

 

 

 

 

 

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Table of Contents

 

 

Assets measured at fair value on a non-recurring basis are summarized below:

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

June 30, 2011 Using:

 

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

Quoted Prices In

 

Other

 

Significant

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Carrying

 

Identical Assets

 

Inputs

 

Inputs

 

(In thousands)

 

Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Impaired loans

 

$

590

 

 

 

 

 

$

590

 

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

December 31, 2010 Using:

 

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

Quoted Prices In

 

Other

 

Significant

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

Carrying

 

Identical Assets

 

Inputs

 

Inputs

 

(In thousands)

 

Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Impaired loans

 

$

693

 

 

 

 

 

$

693

 

 

For impaired and TDR loans, the Company evaluates the fair value of the loan in accordance with current accounting guidance.  For loans that are collateral dependent, the fair value of the collateral is used to determine the fair value of the loan. The fair value of the collateral is determined based upon recent appraised values. The fair value of the loan is compared to the carrying value to determine if any write-down or specific reserve is required. These methods of fair value measurement for impaired and TDR loans are considered level 3 within the fair value hierarchy described in current accounting guidance. Impaired loans with allocated allowance for loan losses at June 30, 2011 and December 31, 2010, had a carrying amount of $590,000 and $693,000, respectively, which is made up of the outstanding balance of $838,000 and $700,000, net of a valuation allowance of $248,000 and $7,000, respectively. This resulted in an additional provision for loan losses of $248,000 and $7,000, respectively that is included in the amount reported on the income statement as of June 30, 2011 and December 31, 2010.

 

The Company used the following method and assumptions in estimating the fair value of its financial instruments:

 

Cash and Due from Banks and Federal Funds Sold: Carrying amounts approximate fair value, since these instruments are either payable on demand or have short-term maturities.

 

Securities Available for Sale and Held to Maturity: The estimated fair values are based on independent dealer quotations on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities.

 

Restricted Stock: It is not practicable to determine the fair value of FHLB, ACBB and FRB stock due to restrictions placed on its transferability.

 

Loans: The estimated fair values of real estate mortgage loans and other loans receivable are based on discounted cash flow calculations that use available market benchmarks when establishing discount factors for the types of loans. All nonaccrual loans are carried at their current fair value. Exceptions may be made for adjustable rate loans (with resets of one year or less), which would be discounted straight to their rate index plus or minus an appropriate spread.

 

Deposits: The estimated fair value of certificates of deposits are based on discounted cash flow calculations that use a replacement cost of funds approach to establishing discount rates for certificates of deposits maturities. Stated value is fair value for all other deposits.

 

Borrowed Funds: The estimated fair value of borrowed funds are based on discounted cash flow calculations that use a replacement cost of funds approach to establishing discount rates for funding maturities.

 

Junior Subordinated Debentures: The estimated fair value is based on estimates using market data for similarly risk weighted items taking into consideration the convertible features of the debentures into common stock of the Company.

 

 

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Accrued Interest Receivable and Payable: For these short-term instruments, the carrying amount is a reasonable estimate of the fair value.

 

Off-Balance-Sheet Liabilities: The fair value of off-balance-sheet commitments to extend credit is estimated using fees currently charged to enter into similar agreements. The fair value is immaterial as of June 30, 2011 and December 31, 2010.

 

Fair value estimates are made at specific points in time and are based on existing on-and off-balance sheet financial instruments. Such estimates are generally subjective in nature and dependent upon a number of significant assumptions associated with each financial instrument or group of financial instruments, including estimates of discount rates, risks associated with specific financial instruments, estimates of future cash flows, and relevant available market information. Changes in assumptions could significantly affect the estimates. In addition, fair value estimates do not reflect the value of anticipated future business, premiums or discounts that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument, or the tax consequences of realizing gains or losses on the sale of financial instruments.

 

The estimated fair values and recorded carrying values of the Bank’s financial instruments are as follows:

 

 

 

June 30, 2011

 

December 31, 2010

 

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

(In thousands)

 

Amount

 

Value

 

Amount

 

Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

17,426

 

$

17,426

 

$

21,598

 

$

21,598

 

Interest bearing deposits with banks

 

12,491

 

12,491

 

1,320

 

1,320

 

Securities available for sale

 

385,910

 

385,910

 

323,539

 

323,539

 

Securities restricted

 

1,485

 

n/a

 

1,284

 

n/a

 

Securities held to maturity

 

152,807

 

154,572

 

147,965

 

148,144

 

Loans, net

 

580,294

 

604,513

 

495,563

 

513,344

 

Accrued interest receivable

 

4,570

 

4,570

 

4,153

 

4,153

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

Demand and other deposits

 

1,072,344

 

1,073,485

 

916,993

 

917,786

 

Federal funds purchased and Federal Home Loan Bank overnight borrowings

 

 

 

5,000

 

5,000

 

Repurchase agreements

 

16,197

 

17,331

 

16,370

 

17,383

 

Junior Subordinated Debentures

 

16,002

 

14,930

 

16,002

 

14,783

 

Accrued interest payable

 

422

 

422

 

433

 

433

 

 

 

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6. LOANS

 

The following table sets forth the major classifications of loans:

 

(In thousands)

 

June 30, 2011

 

December 31, 2010

 

Commercial real estate mortgage loans

 

$

262,281

 

$

236,048

 

Multi-family mortgage loans

 

21,299

 

9,217

 

Residential real estate mortgage loans

 

156,584

 

140,986

 

Commercial, financial, and agricultural loans

 

118,871

 

97,663

 

Installment/consumer loans

 

10,772

 

9,659