10-Q 1 a12-8798_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 March 31, 2012

 


 

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 8,597,050 shares of common stock outstanding as of May 4, 2012.

 

 



Table of Contents

 

 

BRIDGE BANCORP, INC.

 

PART I -

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011

3

 

 

 

 

Consolidated Statements of Income for the Three Months Ended March 31, 2012 and 2011

4

 

 

 

 

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2012 and 2011

5

 

 

 

 

Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2012 and 2011

6

 

 

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011

7

 

 

 

 

Condensed Notes to Consolidated Financial Statements

8

 

 

 

Item 2.

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

33

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

 

 

 

Item 4.

Controls and Procedures

49

 

 

 

PART II -

OTHER INFORMATION

50

 

 

 

Item 1.

Legal Proceedings

50

 

 

 

Item 1A.

Risk Factors

50

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

50

 

 

 

Item 3.

Defaults Upon Senior Securities

50

 

 

 

Item 4.

Mine Safety Disclosures

50

 

 

 

Item 5.

Other Information

50

 

 

 

Item 6.

Exhibits

50

 

 

 

Signatures

 

51

 

 



Table of Contents

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BRIDGE BANCORP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (unaudited)

(In thousands, except share and per share amounts)

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

ASSETS

 

 

 

 

 

Cash and due from banks

 

$

18,427

 

$

25,921

 

Interest earning deposits with banks

 

5,630

 

53,625

 

Total cash and cash equivalents

 

24,057

 

79,546

 

 

 

 

 

 

 

Securities available for sale, at fair value

 

507,011

 

441,439

 

Securities held to maturity (fair value of $180,246 and $170,952, respectively)

 

178,301

 

169,153

 

Total securities

 

685,312

 

610,592

 

 

 

 

 

 

 

Securities, restricted

 

2,020

 

1,660

 

 

 

 

 

 

 

Loans held for sale

 

 

2,300

 

 

 

 

 

 

 

Loans held for investments

 

643,184

 

612,143

 

Allowance for loan losses

 

(11,316

)

(10,837

)

Loans, net

 

631,868

 

601,306

 

 

 

 

 

 

 

Premises and equipment, net

 

24,428

 

24,171

 

Accrued interest receivable

 

5,770

 

4,940

 

Goodwill

 

2,034

 

2,034

 

Core deposit intangible

 

298

 

316

 

Other assets

 

10,551

 

10,593

 

Total Assets

 

$

1,386,338

 

$

1,337,458

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Demand deposits

 

$

318,520

 

$

321,496

 

Savings, NOW and money market deposits

 

706,228

 

683,863

 

Certificates of deposit of $100,000 or more

 

135,497

 

140,578

 

Other time deposits

 

42,237

 

42,248

 

Total deposits

 

1,202,482

 

1,188,185

 

 

 

 

 

 

 

Federal funds purchased and Federal Home Loan Bank overnight borrowings

 

36,000

 

 

Repurchase agreements

 

11,538

 

16,897

 

Junior subordinated debentures

 

16,002

 

16,002

 

Accrued interest payable

 

255

 

319

 

Other liabilities and accrued expenses

 

10,084

 

9,068

 

Total Liabilities

 

1,276,361

 

1,230,471

 

 

 

 

 

 

 

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; 8,485,242 and 8,374,917 shares issued, respectively; 8,473,196 and 8,345,399 shares outstanding, respectively

 

85

 

84

 

Surplus

 

55,915

 

54,034

 

Retained earnings

 

53,244

 

52,228

 

Less:  Treasury Stock at cost, 12,046 and 29,518 shares, respectively

 

(1,313

)

(1,787

)

 

 

107,931

 

104,559

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

Net unrealized gain on securities, net of deferred income taxes of ($3,494) and ($3,774), respectively

 

5,308

 

5,734

 

Pension liability, net of deferred income taxes of $2,176 and $2,205, respectively

 

(3,262

)

(3,306

)

Total Stockholders’ Equity

 

109,977

 

106,987

 

Total Liabilities and Stockholders’ Equity

 

$

1,386,338

 

$

1,337,458

 

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Interest income:

 

 

 

 

 

Loans (including fee income)

 

$

  9,522

 

$

 7,955

 

Mortgage-backed securities and collateralized mortgage obligations

 

2,019

 

2,316

 

State and municipal obligations

 

783

 

721

 

U.S. GSE securities

 

772

 

381

 

Corporate Bonds

 

160

 

187

 

Deposits with banks

 

24

 

18

 

Other interest and dividend income

 

18

 

18

 

Total interest income

 

13,298

 

11,596

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

Savings, NOW and money market deposits

 

946

 

966

 

Certificates of deposit of $100,000 or more

 

386

 

243

 

Other time deposits

 

114

 

127

 

Federal funds purchased and repurchase agreements

 

111

 

134

 

Junior subordinated debentures

 

341

 

342

 

Total interest expense

 

1,898

 

1,812

 

 

 

 

 

 

 

Net interest income

 

11,400

 

9,784

 

Provision for loan losses

 

825

 

700

 

Net interest income after provision for loan losses

 

10,575

 

9,084

 

 

 

 

 

 

 

Non interest income:

 

 

 

 

 

Service charges on deposit accounts

 

809

 

733

 

Fees for other customer services

 

605

 

480

 

Title fee income

 

223

 

204

 

Net securities gains

 

272

 

 

Other operating income

 

44

 

37

 

Total non interest income

 

1,953

 

1,454

 

 

 

 

 

 

 

Non interest expense:

 

 

 

 

 

Salaries and employee benefits

 

5,111

 

4,175

 

Net occupancy expense

 

790

 

762

 

Furniture and fixture expense

 

298

 

306

 

FDIC assessments

 

172

 

308

 

Acquisition costs

 

 

233

 

Amortization of core deposit intangible

 

18

 

 

Cost of extinguishment of debt

 

158

 

 

Other operating expenses

 

1,674

 

1,624

 

Total non interest expense

 

8,221

 

7,408

 

 

 

 

 

 

 

Income before income taxes

 

4,307

 

3,130

 

Income tax expense

 

1,368

 

970

 

Net income

 

$

  2,939

 

$

 2,160

 

Basic earnings per share

 

$

  0.35

 

$

 0.34

 

Diluted earnings per share

 

$

  0.35

 

$

 0.34

 

 

See accompanying condensed notes to the Unaudited Consolidated Financial Statements.

 

4



Table of Contents

 

 

BRIDGE BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (unaudited)

(In thousands)

 

 

 

For the

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Net Income

 

$

 2,939

 

$

 2,160

 

Other comprehensive income:

 

 

 

 

 

Change in unrealized net gains on securities available for sale, net of reclassification and deferred income taxes

 

(426

)

(537

)

Adjustment to pension liability, net of deferred income taxes

 

44

 

21

 

Total other comprehensive income

 

(382

)

(516

)

Comprehensive income

 

$

 2,557

 

$

 1,644

 

 

See accompanying condensed notes to the Unaudited Consolidated Financial Statements.

 

5



Table of Contents

 

 

BRIDGE BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity (unaudited)

(In thousands, except per share amounts)

 

 

 

Common
Stock

 

Surplus

 

Retained
Earnings

 

Treasury
Stock

 

Accumulated
Other
Comprehensive
Income

 

Total

 

Balance at January 1, 2012

 

$

84

 

$

 54,034

 

$

 52,228

 

$

 (1,787

)

$

2,428

 

$

 106,987

 

Net income

 

 

 

 

 

2,939

 

 

 

 

 

2,939

 

Shares issued under the dividend reinvestment plan (“DRP”)

 

1

 

2,083

 

 

 

4

 

 

 

2,088

 

Stock awards granted

 

 

 

(562

)

 

 

562

 

 

 

 

Stock awards forfeited

 

 

 

4

 

 

 

(4

)

 

 

 

Vesting of stock awards

 

 

 

 

 

 

 

(88

)

 

 

(88

)

Tax effect of stock plans

 

 

 

(10

)

 

 

 

 

 

 

(10

)

Share based compensation expense

 

 

 

366

 

 

 

 

 

 

 

366

 

Cash dividend declared, $0.23 per share

 

 

 

 

 

(1,923

)

 

 

 

 

(1,923

)

Other comprehensive income, net of deferred income taxes

 

 

 

 

 

 

 

 

 

(382

)

(382

)

Balance at March 31, 2012

 

$

85

 

$

 55,915

 

$

 53,244

 

$

 (1,313

)

$

2,046

 

$

 109,977

 

 

 

 

Common
Stock

 

Surplus

 

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

 

 

 

 

 

2,160

 

 

 

 

 

2,160

 

Shares issued under the dividend reinvestment plan (“DRP”)

 

1

 

842

 

 

 

2

 

 

 

845

 

Stock awards granted

 

 

 

(336

)

 

 

336

 

 

 

 

Vesting of stock awards

 

 

 

 

 

 

 

(61

)

 

 

(61

)

Tax effect of stock plans

 

 

 

(1

)

 

 

 

 

 

 

(1

)

Share based compensation expense

 

 

 

259

 

 

 

 

 

 

 

259

 

Cash dividend declared, $0.23 per share

 

 

 

 

 

(1,477

)

 

 

 

 

(1,477

)

Other comprehensive income, net of deferred income taxes

 

 

 

 

 

 

 

 

 

(516

)

(516

)

Balance at March 31, 2011

 

$

65

 

$

 21,710

 

$

 47,146

 

$

 (3,243

)

$

1,251

 

$

 66,929

 

 

See accompanying condensed notes to the Unaudited Consolidated Financial Statements.

 

6



Table of Contents

 

 

BRIDGE BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

 

 

 

For the

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2012

 

2011

 

Cash flows from operating activities:

 

 

 

 

 

Net Income

 

$

 2,939

 

$

 2,160

 

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

 

 

 

 

 

Provision for loan losses

 

825

 

700

 

Depreciation and amortization

 

435

 

451

 

Net amortization on securities

 

958

 

564

 

Amortization of core deposit intangible

 

18

 

 

Share based compensation expense

 

366

 

259

 

Net securities gains

 

(272

)

 

Increase in accrued interest receivable

 

(830

)

(256

)

Decrease (increase) in other assets

 

42

 

(764

)

Increase in accrued expenses and other liabilities

 

382

 

941

 

Net cash provided by operating activities

 

4,863

 

4,055

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of securities available for sale

 

(133,659

)

(27,664

)

Purchases of securities, restricted

 

(360

)

 

Purchases of securities held to maturity

 

(17,168

)

(6,178

)

Proceeds from sales of securities available for sale

 

3,344

 

 

Maturities, calls and principal payments of securities available for sale

 

63,660

 

23,993

 

Maturities, calls and principal payments of securities held to maturity

 

8,605

 

13,337

 

Net increase in loans

 

(29,087

)

(18,796

)

Purchase of premises and equipment

 

(692

)

(225

)

Net cash used in investing activities

 

(105,357

)

(15,533

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

14,297

 

48,953

 

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

 

36,000

 

(5,000

)

Net decrease in repurchase agreements

 

(5,359

)

(38

)

Net proceeds from issuance of common stock

 

2,088

 

845

 

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

 

(88

)

(61

)

Excess tax (expense) benefit from share based compensation

 

(10

)

(1

)

Cash dividends paid

 

(1,923

)

(1,467

)

Net cash provided by financing activities

 

45,005

 

43,231

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

(55,489

)

31,753

 

Cash and cash equivalents at beginning of period

 

79,546

 

22,918

 

Cash and cash equivalents at end of period

 

$

 24,057

 

$

 54,671

 

 

 

 

 

 

 

Supplemental Information-Cash Flows:

 

 

 

 

 

Cash paid for:

 

 

 

 

 

Interest

 

$

 1,962

 

$

 1,878

 

Income tax

 

$

 90

 

$

 —

 

 

 

 

 

 

 

Noncash investing and financing activities:

 

 

 

 

 

Securities which settled in the subsequent period

 

$

 894

 

$

 750

 

Dividends declared and unpaid at end of period

 

$

 —

 

$

 1,477

 

 

See accompanying condensed notes to the Unaudited Consolidated Financial Statements.

 

7



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 three months ended March 31, 2012 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, 2011.

 

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 months ended March 31, 2012 and 2011 is as follows:

 

 

 

Three months ended,

 

 

 

March 31,

 

(In thousands, except per share data)

 

2012

 

2011

 

Net Income

 

$

2,939

 

$

2,160

 

Less: Dividends paid on and earnings allocated to participating securities

 

(77

)

(65

)

Income attributable to common stock

 

$

2,862

 

$

2,095

 

 

 

 

 

 

 

Weighted average common shares outstanding, including participating securities

 

8,447

 

6,413

 

Less: weighted average participating securities

 

(224

)

(191

)

Weighted average common shares outstanding

 

8,223

 

6,222

 

Basic earnings per common share

 

$

0.35

 

$

0.34

 

 

 

 

 

 

 

Income attributable to common stock

 

$

2,862

 

$

2,095

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

8,223

 

6,222

 

Weighted average common equivalent shares outstanding

 

1

 

1

 

Weighted average common and equivalent shares outstanding

 

8,224

 

6,223

 

Diluted earnings per common share

 

$

0.35

 

$

0.34

 

 

8



Table of Contents

 

 

There were 52,123 and 54,275 options outstanding at March 31, 2012 and March 31, 2011, 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 March 31, 2012, 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 three months ended March 31, 2012 and March 31, 2011.  There was no compensation expense attributable to stock options for the three months ended March 31, 2012 and March 31, 2011, because all stock options were vested.

 

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 first quarter of 2012 and 2011. The intrinsic value of options outstanding and exercisable at March 31, 2012 and March 31, 2011 was $12,000 and $14,000, respectively.

 

A summary of the status of the Company’s stock options as of and for the three months ended March 31, 2012 is as follows:

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

 

Number

 

Average

 

Remaining

 

Aggregate

 

 

 

of

 

Exercise

 

Contractual

 

Intrinsic

 

(Dollars in thousands, except per share amounts)

 

Options

 

Price

 

Life

 

Value

 

Outstanding, December 31, 2011

 

54,223

 

$

25.05

 

 

 

 

 

Granted

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

Outstanding, March 31, 2012

 

54,223

 

$

25.05

 

4.07 years    

 

$

12

 

Vested and Exercisable, March 31, 2012

 

54,223

 

$

25.05

 

4.07 years    

 

$

12

 

 

 

 

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 three months ended March 31, 2012 and 2011, respectively, restricted stock awards of 21,993 and 13,188 shares were granted. These awards vest over approximately five years with a third vesting after years three, four and five. Compensation expense attributable to restricted stock awards was $327,000 and $227,000 for the three months ended March 31, 2012 and 2011, respectively.

 

A summary of the status of the Company’s unvested restricted stock as of and for the three months ended March 31, 2012 is as follows:

 

 

 

 

 

Weighted

 

 

 

 

 

Average Grant-Date

 

 

 

Shares

 

Fair Value

 

Unvested, December 31, 2011

 

211,371

 

$

21.56

 

Granted

 

21,993

 

$

19.82

 

Vested

 

(30,100

)

$

21.44

 

 

 

 

 

 

 

 

Forfeited

 

(150

)

$

20.32

 

Unvested, March 31, 2012

 

203,114

 

$

21.39

 

 

 

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Table of Contents

 

 

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 $39,000 and $32,000 for the three months ended March 31, 2012 and 2011, 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 March 31, 2012 and December 31, 2011 and the corresponding amounts of unrealized gains and losses therein:

 

 

 

March 31, 2012

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(In thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

Available for sale:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

148,460

 

$

812

 

$

(444

)

$

148,828

 

State and municipal obligations

 

62,583

 

1,478

 

(140

)

63,921

 

U.S. GSE residential mortgage-backed securities

 

59,581

 

3,270

 

 

62,851

 

U.S. GSE residential collateralized mortgage obligations

 

217,201

 

3,930

 

(129

)

221,002

 

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

 

5,159

 

80

 

 

5,239

 

Non Agency commercial mortgage-backed securities

 

5,225

 

 

(55

)

5,170

 

Total available for sale

 

498,209

 

9,570

 

(768

)

507,011

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

4,991

 

 

(46

)

4,945

 

State and municipal obligations

 

102,795

 

1,869

 

(29

)

104,635

 

U.S. GSE residential mortgage-backed securities

 

5,975

 

81

 

 

6,056

 

U.S. GSE residential collateralized mortgage obligations

 

41,766

 

977

 

(44

)

42,699

 

Corporate Bonds

 

22,774

 

118

 

(981

)

21,911

 

Total held to maturity

 

178,301

 

3,045

 

(1,100

)

180,246

 

Total securities

 

$

676,510

 

$

12,615

 

$

(1,868

)

$

687,257

 

 

 

 

December 31, 2011

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(In thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

Available for sale:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

130,708

 

$

968

 

$

(2

)

$

131,674

 

State and municipal obligations

 

52,861

 

1,366

 

(8

)

54,219

 

U.S. GSE residential mortgage-backed securities

 

67,317

 

3,667

 

 

70,984

 

U.S. GSE residential collateralized mortgage obligations

 

175,878

 

3,493

 

(46

)

179,325

 

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

 

5,167

 

70

 

 

5,237

 

Total available for sale

 

431,931

 

9,564

 

(56

)

441,439

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

104,314

 

2,048

 

(5

)

106,357

 

U.S. GSE residential collateralized mortgage obligations

 

42,081

 

1,104

 

(21

)

43,164

 

Corporate Bonds

 

22,758

 

3

 

(1,330

)

21,431

 

Total held to maturity

 

169,153

 

3,155

 

(1,356

)

170,952

 

Total securities

 

$

601,084

 

$

12,719

 

$

(1,412

)

$

612,391

 

 

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

 

 

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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 March 31, 2012. 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.

 

 

 

March 31, 2012

 

 

 

Amortized

 

Fair

 

(In thousands)

 

Cost

 

Value

 

Maturity

 

 

 

 

 

Available for sale:

 

 

 

 

 

Within one year

 

$

14,303

 

$

14,484

 

One to five years

 

78,383

 

79,473

 

Five to ten years

 

139,663

 

141,011

 

Beyond ten years

 

265,860

 

272,043

 

Total

 

$

498,209

 

$

507,011

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

Within one year

 

$

60,776

 

$

60,777

 

One to five years

 

34,481

 

34,648

 

Five to ten years

 

21,756

 

21,519

 

Beyond ten years

 

61,288

 

63,302

 

Total

 

$

178,301

 

$

180,246

 

 

Securities with unrealized losses at March 31, 2012 and December 31, 2011, 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

 

March 31, 2012

 

 

 

Unrealized

 

 

 

Unrealized

 

(In thousands)

 

Fair Value

 

losses

 

Fair Value

 

losses

 

Available for sale:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

77,807

 

$

444

 

$

 

$

 

State and municipal obligations

 

9,304

 

140

 

 

 

U.S. GSE residential collateralized mortgage obligations

 

26,348

 

129

 

 

 

Non Agency commercial mortgage-backed securities

 

5,170

 

55

 

 

 

 

 

Total available for sale

 

$

118,629

 

$

768

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

4,945

 

46

 

 

 

State and municipal obligations

 

9,519

 

29

 

 

 

U.S. GSE residential collateralized mortgage obligations

 

4,965

 

44

 

 

 

Corporate Bonds

 

4,748

 

253

 

12,272

 

728

 

Total held to maturity

 

$

24,177

 

$

372

 

$

12,272

 

$

728

 

 

 

 

Less than 12 months

 

Greater than 12 months

 

December 31, 2011

 

 

 

Unrealized

 

 

 

Unrealized

 

(In thousands)

 

Fair Value

 

losses

 

Fair Value

 

losses

 

Available for sale:

 

 

 

 

 

 

 

 

 

U.S. GSE securities

 

$

7,196

 

$

2

 

$

 

$

 

State and municipal obligations

 

4,283

 

8

 

 

 

U.S. GSE residential collateralized mortgage obligations

 

7,672

 

46

 

 

 

Total available for sale

 

$

19,151

 

$

56

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

State and municipal obligations

 

7,011

 

5

 

 

 

U.S. GSE residential collateralized mortgage obligations

 

4,810

 

21

 

 

 

Corporate Bonds

 

4,664

 

336

 

12,006

 

994

 

Total held to maturity

 

$

16,485

 

$

362

 

$

12,006

 

$

994

 

 

 

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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 March 31, 2012, the majority of unrealized losses on available for sale securities are related to the Company’s U.S. GSE securities and the majority of unrealized losses on held to maturity securities are related to corporate bonds.  The decrease in fair value of the U.S. GSE securities 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 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 March 31, 2012.

 

Proceeds from sales of securities available for sale were $3.3 million for the three months ended March 31, 2012 and there were no proceed from sales of securities available for sale for the three months ended March 31, 2011. Gross gains of $0.3 million were realized on these sales during the three months ended March 31, 2012.  Proceeds from calls of securities available for sale were $42.3 million and $5.0 million for the three months ended March 31, 2012 and 2011, respectively.

 

Securities having a fair value of approximately $300.0 million and $287.8 million at March 31, 2012 and December 31, 2011, respectively, were pledged to secure public deposits and Federal Home Loan Bank and Federal Reserve Bank overnight borrowings.  The Bank did not hold any trading securities during the three months ended March 31, 2012 or the year ended December 31, 2011.

 

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 $2.0 million in FHLB, ACBB and FRB stock at March 31, 2012 and approximately $1.7 million at December 31, 2011.  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.

 

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.

 

 

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Table of Contents

 

 

Investment Securities: The estimated fair values are based on independent dealer quotations on nationally recognized securities exchanges, if available (Level 1). For securities where quoted prices are not available, fair value is based on 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).

 

Impaired Loans:  At the time a loan is considered impaired, it is valued at the lower of cost or fair value.  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. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Adjustments may relate to locate, square footage, condition, amenities, market rate of leases as well as timing of comparable sales. Such adjustments are generally capped at 15% of appraised value and typically result in a Level 3 classification of the inputs for determining fair value. The fair value of the loan is compared to the carrying value to determine if any write-down or specific reserve is required. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

 

Appraisals for collateral-dependent impaired loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company.  Once received, the Credit Administration department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.  On a quarterly basis, the Company compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value.  The most recent analysis performed indicated that a discount of 1-4% should be applied to residential properties with appraisals performed within 12 months and an appreciation of 16-21% should be applied to commercial properties with appraisals performed within 12 months.

 

Loans Held For Sale:  Loans held for sale are carried at the lower of cost or fair values.  The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 3).

 

Assets and liabilities measured on a recurring basis:

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

March 31, 2012 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

 

$

148,828

 

 

 

$

148,828

 

$

 

State and municipal obligations

 

63,921

 

 

 

63,921

 

 

U.S. GSE residential mortgage-backed securities

 

62,851

 

 

 

62,851

 

 

U.S. GSE residential collateralized mortgage obligations

 

221,002

 

 

 

221,002

 

 

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

 

5,239

 

 

 

5,239

 

 

Non Agency commercial mortgage-backed securities

 

5,170

 

 

 

5,170

 

 

Total available for sale

 

$

507,011

 

 

 

$

507,011

 

$

 

 

 

13



Table of Contents

 

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

December 31, 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

 

$

131,674

 

 

 

$

131,674

 

 

 

State and municipal obligations

 

54,219

 

 

 

54,219

 

 

 

U.S. GSE residential mortgage-backed securities

 

70,984

 

 

 

70,984

 

 

 

U.S. GSE residential collateralized mortgage obligations

 

179,325

 

 

 

179,325

 

 

 

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

 

5,237

 

 

 

5,237

 

 

 

Total available for sale

 

$

441,439

 

 

 

$

441,439

 

 

 

 

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

 

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

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

March 31, 2012 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

 

$

831

 

 

 

 

 

$

831

 

 

 

 

 

 

Fair Value Measurements at

December 31, 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

 

$

1,868

 

 

 

 

 

$

1,868

 

Loans held for sale

 

2,300

 

 

 

 

 

2,300

 

 

Impaired loans with allocated allowance for loan losses at March 31, 2012, had a carrying amount of $0.8 million, which is made up of the outstanding balance of $1.2 million, net of a valuation allowance of $0.4 million. This resulted in an additional provision for loan losses of $0.4 million that is included in the amount reported on the income statement. Impaired loans with allocated allowance for loan losses at December 31, 2011, had a carrying amount of $1.9 million, which is made up of the outstanding balance of $2.1 million, net of a valuation allowance of $0.2 million. This resulted in an additional provision for loan losses of $0.2 million that is included in the amount reported on the income statement.  Charge-offs of $0.9 million were incurred on loans transferred to loans held for sale at December 31, 2011.

 

Loans held for sale at December 31, 2011 had a carrying amount and outstanding balance of $2.3 million. There was no valuation allowance at December 31, 2011. These loans were subsequently sold in January 2012 with no gain or loss incurred.

 

 

14



Table of Contents

 

 

The Company used the following method and assumptions, not previously presented, 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. Cash on hand and non-interest due from bank accounts are Level 1 and interest bearing Cash Due from Banks and and Federal Funds Sold are Level 2.

 

Restricted Securities: 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 resulting in a Level 3 classification. 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. All nonaccrual loans are carried at their current fair value. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price and therefore, while permissible for presentation purposed under ASC 825-10, do not conform with ASC 820-10.

 

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 resulting in a Level 2 classification. Stated value is fair value for all other deposits resulting in a Level 1 classification.

 

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 resulting in a Level 2 classification.

 

Junior Subordinated Debentures: The estimated fair value is based on estimates using market data for similarly risk weighted items and takes into consideration the convertible features of the debentures into common stock of the Company which is an unobservable input resulting in a Level 3 classification.

 

Accrued Interest Receivable and Payable: For these short-term instruments, the carrying amount is a reasonable estimate of the fair value resulting in a Level 1 or 2 classification.

 

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 March 31, 2012 and December 31, 2011.

 

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.

 

 

15



Table of Contents

 

 

The estimated fair values and recorded carrying amounts of the Bank’s financial instruments at March 31, 2012 and December 31, 2011 are as follows:

 

 

 

 

 

Fair Value Measurements at

 

 

 

 

 

 

 

March 31, 2012 Using:

 

 

 

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

 

 

Quoted Prices In

 

Other

 

Significant

 

 

 

 

 

 

 

Active Markets for

 

Observable

 

Unobservable

 

 

 

 

 

Carrying

 

Identical Assets

 

Inputs

 

Inputs

 

 

 

(In thousands)

 

Amount

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

18,427

 

$

18,427

 

$

 

$

 

$

18,427

 

Interest bearing deposits with banks

 

5,630

 

 

5,630

 

 

5,630

 

Securities available for sale

 

507,011

 

 

507,011

 

 

507,011

 

Securities restricted

 

2,020

 

n/a

 

n/a

 

n/a

 

n/a

 

Securities held to maturity

 

178,301

 

 

180,246

 

 

180,246

 

Loans, net

 

631,868

 

 

 

660,869

 

660,869

 

Accrued interest receivable

 

5,770

 

 

3,403

 

2,367

 

5,770

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

177,734

 

 

 

179,481

 

 

179,481

 

Demand and other deposits

 

1,024,748

 

1,024,748

 

 

 

1,024,748

 

Federal funds purchased and Federal Home Loan Bank overnight borrowings

 

36,000

 

 

36,000

 

 

36,000

 

Repurchase agreements

 

11,538

 

 

12,366

 

 

12,366

 

Junior Subordinated Debentures

 

16,002

 

 

 

16,498

 

16,498

 

Accrued interest payable

 

255

 

12

 

243

 

 

255

 

 

 

 

At December 31, 2011

 

 

 

Carrying

 

Fair

 

(In thousands)

 

Amount

 

Value

 

Financial assets:

 

 

 

 

 

Cash and due from banks

 

$

25,921

 

$

25,921

 

Interest bearing deposits with banks

 

53,625

 

53,625

 

Securities available for sale

 

441,439

 

441,439

 

Securities restricted

 

1,660

 

n/a

 

Securities held to maturity

 

169,153

 

170,952

 

Loans, net

 

603,606

 

632,616

 

Accrued interest receivable

 

4,940

 

4,940

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

Demand and other deposits

 

1,188,185

 

1,190,080

 

Repurchase agreements

 

16,897

 

17,990

 

Junior Subordinated Debentures

 

16,002

 

16,915

 

Accrued interest payable

 

319

 

319

 

 

 

16



Table of Contents

 

 

6. LOANS

 

The following table sets forth the major classifications of loans:

 

(In thousands)

 

March 31, 2012

 

December 31, 2011

 

Commercial real estate mortgage loans

 

$

284,643

 

$

283,917

 

Multi-family mortgage loans

 

42,183

 

21,402

 

Residential real estate mortgage loans

 

142,315

 

141,027

 

Commercial, financial, and agricultural loans

 

122,280

 

116,319

 

Real estate-construction and land loans

 

42,540

 

40,543

 

Installment/consumer loans

 

8,933

 

8,565

 

Total loans

 

642,894

 

611,773

 

Net deferred loan costs and fees

 

290

 

370

 

 

 

643,184

 

612,143

 

Allowance for loan losses

 

(11,316

)

(10,837

)

Net loans

 

$

631,868

 

$

601,306

 

 

Lending Risk

 

The principal business of the Bank is lending, primarily in commercial real estate mortgage loans, multi-family mortgage loans, residential real estate mortgage loans, construction loans, home equity loans, commercial and industrial loans, land loans and consumer loans. The Bank considers its primary lending area to be eastern Long Island in Suffolk County, New York, and a substantial portion of the Bank’s loans are secured by real estate in this area. Accordingly, the ultimate collectability of such a loan portfolio is susceptible to changes in market and economic conditions in this region.

 

Credit Quality Indicators

 

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt including repayment patterns, probable incurred losses, past loss experience, current economic conditions, and various types of concentrations of credit. Assigned risk rating grades are continuously updated as new information is obtained. Loans risk rated special mention, substandard and doubtful are reviewed on a quarterly basis. The Company uses the following definitions for risk rating grades:

 

Pass: Loans classified as pass include current loans performing in accordance with contractual terms, pools of homogenous residential real estate and installment/consumer loans that are not individually risk rated and loans which exhibit certain risk factors that require greater than usual monitoring by management.

 

Special mention: Loans classified as special mention, while generally not delinquent, have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank’s credit position at some future date.

 

Substandard: Loans classified as substandard have a well defined weakness or weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

 

Doubtful: Loans classified as doubtful have all the weaknesses inherent in a substandard loan, and may also be at delinquency status and have defined weaknesses based on currently existing facts, conditions and values making collection or liquidation in full highly questionable and improbable.

 

 

17



Table of Contents

 

 

The following table represents loans by class categorized by internally assigned risk grades as of March 31, 2012 and December 31, 2011:

 

 

 

Grades:

 

March 31, 2012

 

Pass

 

Special Mention

 

Substandard

 

Doubtful

 

Total

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

Originated loans

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

Owner occupied

 

$

109,338

 

$

12,074

 

$

10,579

 

$

 

$

131,991

 

Non-owner occupied

 

124,899

 

8,905

 

2,963

 

 

136,767

 

Multi-Family

 

42,183

 

 

 

 

42,183

 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

First lien

 

68,594

 

 

1,350

 

1,132

 

71,076

 

Home equity

 

59,858

 

581

 

1,658

 

 

62,097

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

Secured

 

50,044

 

2,085

 

5,371

 

 

57,500

 

Unsecured

 

57,958

 

1,730

 

1,215

 

29

 

60,932

 

Real estate construction and land loans

 

37,467

 

 

4,029

 

250

 

41,746

 

Installment/consumer loans

 

8,028

 

264

 

16

 

 

8,308

 

Total loans

 

$

558,369

 

$

25,639

 

$

27,181

 

$

1,411

 

$

612,600

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired loans

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate:

 

 

 

 

 

 

 

 

 

 

 

Owner occupied

 

$

12,364

 

$

219

 

$

427

 

$

 

$

13,010

 

Non-owner occupied

 

2,385

 

490

 

 

 

2,875

 

Multi-Family

 

 

 

 

 

 

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

First lien

 

 

 

 

 

 

Home equity

 

9,142

 

 

 

 

9,142

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

Secured

 

991