10-Q 1 a11-25909_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 September 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 6,892,105 shares of common stock outstanding as of October 31, 2011.

 

 



Table of Contents

 

 

BRIDGE BANCORP, INC.

 

PART I -

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements

 

3

 

 

 

 

 

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

 

3

 

 

 

 

 

Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2011 and 2010

 

4

 

 

 

 

 

Consolidated Statement of Stockholders’ Equity for the Nine Months Ended September 30, 2011 and 2010

 

5

 

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010

 

6

 

 

 

 

 

Condensed Notes to Consolidated Financial Statements

 

7

 

 

 

 

Item 2.

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

 

30

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

47

 

 

 

 

Item 4.

Controls and Procedures

 

48

 

 

 

 

PART II -

OTHER INFORMATION

 

49

 

 

 

 

Item 1.

Legal Proceedings

 

49

 

 

 

 

Item 1A.

Risk Factors

 

49

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

49

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

49

 

 

 

 

Item 4.

[Removed and Reserved]

 

49

 

 

 

 

Item 5.

Other Information

 

49

 

 

 

 

Item 6.

Exhibits

 

49

 

 

 

 

Signatures

 

 

50

 

 



Table of Contents

 

 

Item 1. Financial Statements

BRIDGE BANCORP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (unaudited)

(In thousands, except share and per share amounts)

 

 

 

September 30,

 

December 31,

 

 

 

2011

 

2010

 

ASSETS

 

 

 

 

 

Cash and due from banks

 

$

16,483

 

$

21,598

 

Interest earning deposits with banks

 

76,052

 

1,320

 

Total cash and cash equivalents

 

92,535

 

22,918

 

 

 

 

 

 

 

Securities available for sale, at fair value

 

388,471

 

323,539

 

Securities held to maturity (fair value of $171,946 and $148,144, respectively)

 

170,062

 

147,965

 

Total securities

 

558,533

 

471,504

 

 

 

 

 

 

 

Securities, restricted

 

1,485

 

1,284

 

 

 

 

 

 

 

Loans

 

598,741

 

504,060

 

Allowance for loan losses

 

(10,162

)

(8,497

)

Loans, net

 

588,579

 

495,563

 

 

 

 

 

 

 

Premises and equipment, net

 

24,238

 

23,683

 

Accrued interest receivable

 

4,374

 

4,153

 

Goodwill

 

1,951

 

 

Core deposit intangible

 

334

 

 

Other assets

 

11,049

 

9,351

 

Total Assets

 

$

1,283,078

 

$

1,028,456

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Demand deposits

 

$

321,762

 

$

239,314

 

Savings, NOW and money market deposits

 

632,285

 

544,470

 

Certificates of deposit of $100,000 or more

 

156,874

 

90,574

 

Other time deposits

 

44,614

 

42,635

 

Total deposits

 

1,155,535

 

916,993

 

 

 

 

 

 

 

Federal funds purchased and Federal Home Loan Bank overnight borrowings

 

 

5,000

 

Repurchase agreements

 

16,595

 

16,370

 

Junior subordinated debentures

 

16,002

 

16,002

 

Accrued interest payable

 

414

 

433

 

Other liabilities and accrued expenses

 

12,177

 

7,938

 

Total Liabilities

 

1,200,723

 

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; 6,872,369 and 6,456,742 shares issued, respectively; 6,791,277 and 6,364,656 shares outstanding, respectively

 

69

 

64

 

Surplus

 

30,083

 

20,946

 

Retained earnings

 

50,843

 

46,463

 

Less: Treasury Stock at cost, 81,092 and 92,086 shares, respectively

 

(3,127

)

(3,520

)

 

 

77,868

 

63,953

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

Net unrealized gain on securities, net of deferred income taxes of ($4,085) and ($2,336), respectively

 

6,207

 

3,549

 

Pension liability, net of deferred income taxes of $1,161 and $1,202, respectively

 

(1,720

)

(1,782

)

Total Stockholders’ Equity

 

82,355

 

65,720

 

Total Liabilities and Stockholders’ Equity

 

$

1,283,078

 

$

1,028,456

 

 

See accompanying condensed notes to the Unaudited Consolidated Financial Statements.

 

 

3

 



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

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans (including fee income)

 

$

9,555

 

$

7,660

 

$

26,074

 

$

22,248

 

Mortgage-backed securities and collateralized mortgage obligations

 

2,281

 

2,350

 

6,982

 

7,257

 

State and municipal obligations

 

697

 

709

 

2,124

 

1,971

 

U.S. GSE securities

 

712

 

574

 

1,526

 

1,519

 

Corporate Bonds

 

177

 

46

 

550

 

46

 

Federal funds sold

 

 

 

 

5

 

Deposits with banks

 

32

 

24

 

91

 

43

 

Other interest and dividend income

 

17

 

14

 

53

 

43

 

Total interest income

 

13,471

 

11,377

 

37,400

 

33,132

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

Savings, NOW and money market deposits

 

986

 

919

 

2,977

 

2,699

 

Certificates of deposit of $100,000 or more

 

354

 

279

 

841

 

943

 

Other time deposits

 

132

 

262

 

385

 

857

 

Federal funds purchased and repurchase agreements

 

136

 

136

 

405

 

385

 

Junior Subordinated Debentures

 

341

 

341

 

1,025

 

1,023

 

Total interest expense

 

1,949

 

1,937

 

5,633

 

5,907

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

11,522

 

9,440

 

31,767

 

27,225

 

Provision for loan losses

 

1,450

 

600

 

3,050

 

2,600

 

Net interest income after provision for loan losses

 

10,072

 

8,840

 

28,717

 

24,625

 

 

 

 

 

 

 

 

 

 

 

Non interest income:

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

776

 

721

 

2,342

 

2,125

 

Fees for other customer services

 

761

 

693

 

1,816

 

1,572

 

Title fee income

 

200

 

244

 

667

 

817

 

Net securities gains

 

 

 

135

 

1,303

 

Other operating income

 

29

 

15

 

85

 

87

 

Total non interest income

 

1,766

 

1,673

 

5,045

 

5,904

 

 

 

 

 

 

 

 

 

 

 

Non interest expense:

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

4,815

 

4,111

 

13,389

 

11,926

 

Net occupancy expense

 

798

 

666

 

2,303

 

2,096

 

Furniture and fixture expense

 

304

 

243

 

918

 

824

 

FDIC assessments

 

134

 

343

 

635

 

917

 

Acquisition costs

 

109

 

 

728

 

 

Amortization of core deposit intangible

 

16

 

 

24

 

 

Other operating expenses

 

1,648

 

1,694

 

5,019

 

4,894

 

Total non interest expense

 

7,824

 

7,057

 

23,016

 

20,657

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

4,014

 

3,456

 

10,746

 

9,872

 

Income tax expense

 

1,241

 

1,074

 

3,337

 

3,111

 

Net income

 

$

2,773

 

$

2,382

 

$

7,409

 

$

6,761

 

Basic earnings per share

 

$

0.41

 

$

0.38

 

$

1.12

 

$

1.07

 

Diluted earnings per share

 

$

0.41

 

$

0.38

 

$

1.12

 

$

1.07

 

Comprehensive Income

 

$

4,721

 

$

2,498

 

$

10,129

 

$

7,444

 

 

See accompanying condensed notes to the Unaudited Consolidated Financial Statements.

 

 

4

 



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

 

 

 

 

 

$

7,409

 

7,409

 

 

 

 

 

7,409

 

Proceeds from issuance of common stock

 

2

 

2,964

 

 

 

 

 

7

 

 

 

2,973

 

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

 

3

 

5,847

 

 

 

 

 

 

 

 

 

5,850

 

Stock awards granted

 

 

 

(486

)

 

 

 

 

486

 

 

 

 

Stock awards forfeited

 

 

 

39

 

 

 

 

 

(39

)

 

 

 

Vesting of stock awards

 

 

 

 

 

 

 

 

 

(61

)

 

 

(61

)

Tax effect of stock plans

 

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

Share based compensation expense

 

 

 

774

 

 

 

 

 

 

 

 

 

774

 

Cash dividend declared, $0.46 per share

 

 

 

 

 

 

 

(3,029

)

 

 

 

 

(3,029

)

Other comprehensive income, net of deferred taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

2,658

 

 

 

 

 

2,658

 

2,658

 

Adjustment to pension liability, net of deferred taxes

 

 

 

 

 

62

 

 

 

 

 

62

 

62

 

Comprehensive Income

 

 

 

 

 

$

10,129

 

 

 

 

 

 

 

 

 

Balance at September 30, 2011

 

$

69

 

$

30,083

 

 

 

$

50,843

 

$

(3,127

)

$

4,487

 

$

82,355

 

 

 

 

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

 

 

 

 

 

6,761

 

6,761

 

 

 

 

 

6,761

 

Proceeds from issuance of common stock

 

 

 

569

 

 

 

 

 

4

 

 

 

573

 

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

 

 

 

655

 

 

 

 

 

 

 

 

 

655

 

Cash dividend declared, $0.69 per share

 

 

 

 

 

 

 

(4,346

)

 

 

 

 

(4,346

)

Other comprehensive income, net of deferred taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

620

 

 

 

 

 

620

 

620

 

Adjustment to pension liability, net of deferred taxes

 

 

 

 

 

63

 

 

 

 

 

63

 

63

 

Comprehensive Income

 

 

 

 

 

7,444

 

 

 

 

 

 

 

 

 

Balance at September 30, 2010

 

$

64

 

$

20,627

 

 

 

$

45,525

 

$

(4,223

)

$

4,205

 

$

66,198

 

 

See accompanying condensed notes to the Unaudited Consolidated Financial Statements.

 

 

5

 



Table of Contents

 

 

BRIDGE BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

 

Nine months ended September 30,

 

2011

 

2010

 

Cash flows from operating activities:

 

 

 

 

 

Net Income

 

$

7,409

 

$

6,761

 

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

 

 

 

 

 

Provision for loan losses

 

3,050

 

2,600

 

Depreciation and amortization

 

1,370

 

1,160

 

Net amortization on securities

 

1,574

 

939

 

Amortization of core deposit intangible

 

24

 

 

Share based compensation expense

 

774

 

655

 

Net securities gains

 

(135

)

(1,303

)

Increase in accrued interest receivable

 

(221

)

(632

)

Decrease (increase) in other assets

 

1,083

 

(2,752

)

Increase (decrease) in accrued expenses and other liabilities

 

1,467

 

(225

)

Net cash provided by operating activities

 

16,395

 

7,203

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of securities available for sale

 

(200,906

)

(200,252

)

Purchases of securities, restricted

 

(140

)

(14

)

Purchases of securities held to maturity

 

(69,315

)

(127,140

)

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

 

150,726

 

130,165

 

Maturities, calls and principal payments of securities held to maturity

 

46,653

 

56,139

 

Net increase in loans

 

(57,015

)

(32,835

)

Purchase of premises and equipment

 

(1,625

)

(3,522

)

Net cash acquired in business combination

 

2,309

 

 

Net cash used in investing activities

 

(115,004

)

(146,013

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

181,602

 

132,711

 

Net (decrease) in federal funds purchased and FHLB overnight borrowings

 

(7,000

)

 

Net (decrease) in FHLB term advances

 

(5,016

)

 

Net increase in repurchase agreements

 

225

 

2,094

 

Net proceeds from exercise of stock options

 

 

17

 

Net proceeds from issuance of common stock

 

2,973

 

573

 

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

 

(4,496

)

(4,336

)

Net cash provided by financing activities

 

168,226

 

131,059

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

69,617

 

(7,751

)

Cash and cash equivalents at beginning of period

 

22,918

 

34,147

 

Cash and cash equivalents at end of period

 

$

92,535

 

$

26,396

 

 

 

 

 

 

 

Supplemental Information-Cash Flows:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest

 

$

5,652

 

$

5,850

 

Income tax

 

$

2,644

 

$

3,982

 

 

 

 

 

 

 

Noncash investing and financing activities:

 

 

 

 

 

Securities which settled in the subsequent period

 

$

1,429

 

$

 

Dividends declared and unpaid at end of period

 

$

 

$

1,451

 

 

 

 

 

 

 

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.

 

 

6

 



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 a bank holding company incorporated under the laws of the State of New York.  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 nine months ended September 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 nine months ended September 30, 2011 and 2010 is as follows:

 

 

 

Three months ended,

 

Nine months ended,

 

 

 

September 30,

 

September 30,

 

(In thousands, except per share data)

 

2011

 

2010

 

2011

 

2010

 

Net Income

 

$

2,773

 

$

2,382

 

$

7,409

 

$

6,761

 

Less: Dividends paid on and earnings allocated to participating securities

 

(79

)

(65

)

(217

)

(179

)

Income attributable to common stock

 

$

2,694

 

$

2,317

 

$

7,192

 

$

6,582

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding, including participating securities

 

6,789

 

6,309

 

6,590

 

6,296

 

Less: Weighted average participating securities

 

(194

)

(173

)

(192

)

(169

)

Weighted average common shares outstanding

 

6,595

 

6,136

 

6,398

 

6,127

 

Basic earnings per common share

 

$

0.41

 

$

0.38

 

$

1.12

 

$

1.07

 

 

 

 

 

 

 

 

 

 

 

Income attributable to common stock

 

$

2,694

 

$

2,317

 

$

7,192

 

$

6,582

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

6,595

 

6,136

 

6,398

 

6,127

 

Weighted average common equivalent shares outstanding

 

1

 

1

 

1

 

1

 

Weighted average common and equivalent shares outstanding

 

6,596

 

6,137

 

6,399

 

6,128

 

Diluted earnings per common share

 

$

0.41

 

$

0.38

 

$

1.12

 

$

1.07

 

 

 

 

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Table of Contents

 

 

There were 52,123 and 54,275 options outstanding at September 30, 2011 and September 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 September 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 nine months ended September 30, 2011, and September 30, 2010.  There was no compensation expense attributable to stock options for the nine months ended September 30, 2011 because all stock options were vested. Compensation expense attributable to stock options was $10,000 and $30,000 for the three and nine months ended September 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 third quarter of 2011 and 2010. The intrinsic value of options outstanding and exercisable at September 30, 2011 and September 30, 2010 was $6,000 and $26,000, respectively.

 

A summary of the status of the Company’s stock options as of and for the nine months ended September 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, September 30, 2011

 

54,223

 

$

25.05

 

4.57 years

 

$

5,950

 

Vested and Exercisable, September 30, 2011

 

54,223

 

$

25.05

 

4.57 years

 

$

5,950

 

 

 

 

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 nine months ended September 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 nine months ended September 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 $228,000 and $675,000 for the three and nine months ended September 30, 2011, respectively, and $183,000 and $544,000 for the three and nine months ended September 30, 2010, respectively.

 

 

8

 



Table of Contents

 

 

A summary of the status of the Company’s unvested restricted stock as of and for the nine months ended September 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

 

(1,404

)

$

22.14

 

Unvested, September 30, 2011

 

178,888

 

$

22.01

 

 

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 $34,000 and $99,000 for the three and nine months ended September 30, 2011, respectively and $32,000 and $81,000 for the three and nine months ended September 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 September 30, 2011 and December 31, 2010 and the corresponding amounts of unrealized gains and losses therein:

 

 

 

September 30, 2011

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(In thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

Available for sale:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

93,319

 

$

881

 

$

(37

)

$

94,163

 

State and municipal obligations

 

41,815

 

1,383

 

(2

)

43,196

 

U.S. GSE residential mortgage-backed securities

 

72,666

 

3,917

 

 

76,583

 

U.S. GSE residential collateralized mortgage obligations

 

165,204

 

4,162

 

(62

)

169,304

 

U.S. GSE commercial collateralized mortgage obligations (1)

 

5,175

 

50

 

 

5,225

 

Total available for sale

 

378,179

 

10,393

 

(101

)

388,471

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

5,000

 

10

 

 

5,010

 

State and municipal obligations

 

100,039

 

1,489

 

(4

)

101,524

 

U.S. GSE residential collateralized mortgage obligations

 

42,281

 

1,239

 

(19

)

43,501

 

Corporate Bonds

 

22,742

 

 

(831

)

21,911

 

Total held to maturity

 

170,062

 

2,738

 

(854

)

171,946

 

Total securities

 

$

548,241

 

$

13,131

 

$

(955

)

$

560,417

 

 

     (1)

U.S. GSE commercial collateralized mortgage obligations represent securities with multi-family mortgage loans as the collateral.

 

 

 

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

 

 

 

9

 



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 September 30. 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.

 

 

 

September 30, 2011

 

 

 

Amortized

 

Fair

 

(In thousands)

 

Cost

 

Value

 

Maturity

 

 

 

 

 

Available for sale:

 

 

 

 

 

Within one year

 

$

6,429

 

$

6,487

 

One to five years

 

45,406

 

46,705

 

Five to ten years

 

116,868

 

118,815

 

Beyond ten years

 

209,476

 

216,464

 

Total

 

$

378,179

 

$

388,471

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

Within one year

 

$

55,059

 

$

55,127

 

One to five years

 

38,380

 

38,481

 

Five to ten years

 

14,771

 

14,600

 

Beyond ten years

 

61,852

 

63,738

 

Total

 

$

170,062

 

$

171,946

 

 

Securities with unrealized losses at September 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

 

September 30, 2011

 

 

 

Unrealized

 

 

 

Unrealized

 

(In thousands)

 

Fair Value

 

losses

 

Fair Value

 

losses

 

Available for sale:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

22,541

 

$

37

 

$

 

$

 

State and municipal obligations

 

1,922

 

2

 

 

 

U.S. GSE residential mortgage-backed securities

 

273

 

 

 

 

U.S. GSE residential collateralized mortgage obligations

 

8,831

 

62

 

 

 

Total available for sale

 

$

33,567

 

$

101

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

9,247

 

$

4

 

$

 

$

 

State and municipal obligations

 

4,964

 

19

 

 

 

Corporate Bonds

 

12,446

 

296

 

9,465

 

535

 

Total held to maturity

 

$

26,657

 

$

319

 

$

9,465

 

$

535

 

 

 

 

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

 

$

 

$

 

 

 

10

 



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 September 30, 2011, the majority of unrealized losses on available for sale securities are related to the Company’s residential collateralized mortgage obligations and the majority of unrealized losses on held to maturity securities are related to corporate bonds.    The decrease in fair value of the residential collateralized mortgage obligations and the corporate bond portfolio is attributable to changes in interest rates and not credit quality.  Each issuer of corporate bonds has maintained their well capitalized status and is continues to be reviewed periodically.  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 September 30, 2011.

 

The Bank did not have proceeds from sales of securities available for sale for the three months ended September 30, 2011 and 2010, respectively. Proceeds from sales of securities available for sale were $14.1 million and $31.4 million for the nine months ended September 30, 2011 and 2010, respectively. There were no gross gains during the three months ended September 30, 2011 and 2010, respectively.  Gross gains of $0.1 million and $1.3 million were realized on these sales during the nine months ended September 30, 2011 and 2010, respectively. Proceeds from calls of securities available for sale were $86.9 million and $39.0 million for the three months ended September 30, 2011 and 2010, respectively.  Proceeds from calls of securities available for sale were $114.1 million and $84.6 million for the nine months ended September 30, 2011 and 2010, respectively.

 

Securities having a fair value of approximately $272.4 million and $277.9 million at September 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 nine months ended September 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 September 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.

 

 

11

 



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

 

 

 

 

 

September 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

 

$

94,163

 

 

 

$

94,163

 

 

 

State and municipal obligations

 

43,196

 

 

 

43,196

 

 

 

U.S. GSE residential mortgage-backed securities

 

76,583

 

 

 

76,583

 

 

 

U.S. GSE residential collateralized mortgage obligations

 

169,304

 

 

 

169,304

 

 

 

U.S. GSE commercial collateralized mortgage obligations (1)

 

5,225

 

 

 

5,225

 

 

 

Total available for sale

 

$

388,471

 

 

 

$

388,471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

(1)             U.S. GSE commercial collateralized mortgage obligations represent securities with multi-family mortgage loans as the collateral.

 

 

12

 



Table of Contents

 

 

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

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

September 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

 

$

732

 

 

 

 

 

$

732

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 September 30, 2011 and December 31, 2010, had a carrying amount of $732,000 and $693,000, respectively, which is made up of the outstanding balance of $923,000 and $700,000, net of a valuation allowance of $191,000 and $7,000, respectively. This resulted in an additional provision for loan losses of $191,000 and $7,000, respectively, that is included in the amount reported on the income statement for the periods ending September 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.

 

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

 

 

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Table of Contents

 

 

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 September 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:

 

 

 

September 30, 2011

 

December 31, 2010

 

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

(In thousands)

 

Amount

 

Value

 

Amount

 

Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

16,483

 

$

16,483

 

$

21,598

 

$

21,598

 

Interest bearing deposits with banks

 

76,052

 

76,052

 

1,320

 

1,320

 

Securities available for sale

 

388,471

 

388,471

 

323,539

 

323,539

 

Securities restricted

 

1,485

 

n/a

 

1,284

 

n/a

 

Securities held to maturity

 

170,062

 

171,946

 

147,965

 

148,144

 

Loans, net

 

588,579

 

619,770

 

495,563

 

513,344

 

Accrued interest receivable

 

4,374

 

4,374

 

4,153

 

4,153

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

Demand and other deposits

 

1,155,535

 

1,157,585

 

916,993

 

917,786

 

Federal funds purchased and Federal Home Loan Bank overnight borrowings

 

 

 

5,000

 

5,000

 

Repurchase agreements

 

16,595

 

17,807

 

16,370

 

17,383

 

Junior Subordinated Debentures

 

16,002

 

16,798

 

16,002

 

14,783

 

Accrued interest payable